Senate Finance Chairman Max Baucus and ranking member Charles Grassley have launched a public campaign to save at least some elements of the tax package of the Senate-passed version of the farm bill in the legislation’s conference report. In a news release late Friday, Baucus said the tax provisions, which total $2.4 billion, “can be used to fully offset a package of vital tax relief for American agriculture.” He added that these measures would promote tax fairness and ensure farmers’ retirement stability. There is no tax package in the House-passed bill, and House members, including Ways and Means Chairman Charles Rangel, oppose including any such provisions that go beyond using taxes to pay for increases in farm bill programs like food stamps. Late last week, with the approval of House Speaker Pelosi, House conferees offered the Senate a package that would include $1 billion in tax breaks. More broadly, conferees remain at odds because House negotiators do not want to go higher than $10 billion over the farm bill’s $597 billion baseline over 10 years, while the Senate is pushing for $12.4 billion more.
The Senate package would raise about half of the $2.4 billion by decreasing the ethanol blender tax credit from 51 to 47 cents in January each year after ethanol production reaches 7.5 billion gallons. It would also raise $456 million by limiting the amount of agricultural losses that a taxpayer could write off to reduce nonagricultural business income to $200,000 if the taxpayer receives commodity payments. In a memo today, Grassley said the loss limitation was designed to close a loophole the GAO reported in 2004. “There is no limit on how large a loss a farming operation can take, so it’s simple accounting to artificially create losses in one entity (the farm entity that receives the Department of Agriculture payments) and then to offset the gains that they shift to other related entities,” Grassley said. “By doing this, it’s possible for these people to game the adjusted gross income limits and also take huge tax savings with their losses. The Schedule F provision in the Senate agriculture tax package shuts that down,” he added, referring to the income tax schedule that lists such losses.
The tax package would also raise $124 million by increasing the payment thresholds under which farmers can pay Social Security taxes in quarters of the year when they do not have earnings. Baucus noted that the package would remove a loophole under which recipients of Commodity Credit Corporation certificates have avoided taxes by requiring that the CCC provide the farmer and the IRS with information returns showing the amount of market gain the farmer realizes when repaying a CCC market assistance loan. The amount of money to be raised from more accurate reporting was not specified, but Baucus noted that Senate conferees are committed to raising another $600 million through agriculture-related tax reforms.
This article appears in the April 26, 2008, edition of National Journal Daily PM Update.