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Johanns proposes $200,000 income limit, ending three-entity rule

Agriculture Secretary Mike Johanns wasn’t exactly stepping into the lions’ den, but it was close.

A few hours after he announced USDA was proposing to end farm payments for anyone with an adjusted gross income of more than $200,000 and eliminate the three-entity rule, Johanns traveled to a meeting with farmers in Tunica, Miss.

Tunica County is the home of Dick Flowers, the cotton, rice and soybean farmer who became famous on “60 Minutes” for receiving millions of dollars in government subsidies in the late 1990s.

While only a handful of farmers in the north Delta of Mississippi receive payments of that magnitude, many cotton, rice and soybean farmers would feel the impact of the current payment limits if it wasn’t for the three-entity rule, which allows farmers to participate in more than one farming entity for payment purposes.

How many might be affected by a $200,000 adjusted gross income cap is subject to speculation, but most farmers oppose “means” testing because they might reach that level some day. (Johanns later told reporters USDA estimates 80,000 farmers would exceed the $200,000 AGI level.)

“Currently, only 2.3 percent of Americans who file tax returns earn an adjusted gross income of more than $200,000,” said Johanns. “That means that 97 percent of all taxpayers earn less than that amount. We think this would become a simple, straightforward way to deal with payment limits.”

In presentations in Washington and in Tunica, Johanns said USDA wanted to lower the adjusted gross income limit for commodity program payments from the current $2 million to $200,000, eliminate the three-entity rule and put a cap of $360,000 on the amount of payments that could be received by an individual farmer or farmer and his spouse. The new rules would produce savings of $1.5 billion, Johanns said.

The Bush administration also wants to provide a stronger safety net for farmers by “closing gaps that currently leave producers without a safety net in low yield situations,” Johanns said.

“In the listening sessions we conducted in 48 of the 50 states, we heard many farmers say the current programs don’t help them in times of low production,” he said in Tunica. “‘It’s difficult to LDP a crop that you don’t have,’ a farmer from the Midwest told us at one of the sessions.”

The administration’s proposals, 68 in all, according to Johanns, would also revise the marketing loan rates for the major program crops to help U.S. farmers “compete not with the farmer down the road, but with their real competition today: the farmer on the other side of the world.”

Under the proposal, Congress would set loan rates based on the average market prices of the last five years, excluding the high year and the low. Loan rates would be capped at the levels set by the U.S. House of Representatives when it passed its version of the 2002 farm bill.

A National Cotton Council staff member said the administration blueprint would put the loan rate for upland cotton at 43 cents per pound or 9 cents per pound below the current loan rate for base grade and staple.

Johanns said the administration proposal would transfer the savings from the reduced loan rates to direct payments for farmers. The loan rate reduction would increase the amount of direct payments by $5.5 billion over the current amount.

“Because cotton prices have been lower than those for other commodities, cotton producers would receive a bigger increase — 65 percent,” said Johanns. “The direct payments for rice and other commodities would increase more in the third year of the new farm bill.”

Direct payments, which have been in the law since the 1996 farm bill, “are more predictable and are not tied to price or production,” he noted. “Thus they would not be subject to challenge under WTO rules.”

As another step in improving the safety net, the administration wants to change counter-cyclical payments from price-priced to revenue-based, borrowing some of the provisions from the National Corn Growers Association revenue assurance program.

“A revenue-based counter-cyclical program would provide greater support in significant loss situations and would be a true safety net,” said Johanns.

“A farmer from Nebraska told us (in the listening sessions) that the focus should be on revenue which takes into account both prices and yields,” he said. “He said the current farm bill tends to over-compensate when it should not and under-compensate when more assistance is needed.”

Other proposals (funding reflects 10-year totals) would:

• Increase conservation funding by $7.8 billion, simplify and consolidate conservation programs, create a new Environmental Quality Incentives Program and a Regional Water Enhancement Program.

• Provide $1.6 billion in new funding for renewable energy research, development and production, targeted for cellulosic ethanol, which will support $2.1 billion in guaranteed loans for cellulosic projects and includes $500 million for a bio-energy and bio-based product research initiative.

• Target nearly $5 billion in funding to support specialty crop producers by increasing nutrition in food assistance programs, including school meals, through the purchase of fruits and vegetables, funding specialty crop research, fighting trade barriers and expanding export markets.

• Provide $250 million to increase direct payments for beginning farmers and ranchers, reserve a percentage of conservation funds and provide more loan flexibility for down payment, land purchasing and farm operating loans.

• Support socially disadvantaged farmers and ranchers by reserving a percentage of conservation assistance funds and providing more access to loans for down payments, land purchasing and farm operating.

• Strengthen disaster relief by establishing a revenue-based counter-cyclical program, providing gap coverage in crop insurance, linking crop insurance participation to farm program participation, and creating a new emergency landscape restoration program.

• Simplify and consolidate rural development programs while providing $1.6 billion in loans to rehabilitate all current Rural Critical Access Hospitals and $500 million in grants and loans for rural communities to decrease the backlog of rural infrastructure projects.

• Dedicate nearly $400 million to trade efforts to expand exports, fight trade barriers, and increase involvement in world trade standard-setting bodies.

• Simplify, modernize, and rename the Food Stamp Program to improve access for the working poor, better meet the needs of recipients and States, and strengthen program integrity.

Johanns says the administration’s 2007 farm bill proposals would spend $10 billion less than the 2002 farm bill spent over the past five years (excluding ad-hoc disaster assistance) in keeping with the president’s plan to eliminate the deficit in five years. “These proposals would provide approximately $5 billion more than the projected spending if the 2002 farm bill were extended,” he said. “That’s another reason we believe a simple extension of the current law is not in farmers’ best interests.”

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