As a part of USDA's proposals for the 2007 Farm Bill, the Administration calls for a lower Adjusted Gross Income cap on which operations are eligible to receive farm subsidies, from $2.5 million to $200,000. USDA issued a release Wednesday to explain the impact of a lower AGI cap - and to define exactly what "adjusted gross income" is.

According to USDA, Adjusted Gross Income differs from gross income in that farm expenses and depreciation are subtracted from the total. Other expenses that can be deducted include the cost of self-employed health insurance, half of the self-employment tax, and contributions to retirement accounts.

The Administration proposes lowering the AGI limit to $200,000. This means that a producer averages an AGI higher than $200,000 for three years, that producer would not be eligible for commodity payments the following year. The limit would not affect conservation payments.

The proposal also recommends repealing a provision of current law that waives the AGI limit if 75 percent or more of the AGI is derived from farming, ranching or forestry activities.

According to the IRS, 2.3% of American tax filers have an AGI of at least $200,000, including 38,000 who received 4.9% of all farm program payments - about $400 million.