Will an Adjusted Gross Income "Means Test" Work?

The release of a new database from the Environmental Working Group is causing a firestorm of media attention around unlimited farm program payouts made to some of the nation's richest individuals. Should these people be pulling down unlimited government payouts that they can then use to to drive up land costs and drive their small and mid-sized neighbors out of business? No, of course not.

What to do about the problem is not an open and closed case however. In today's media cycle, Ken Cook, President of Environmental Working Group is pushing an income-based "means test" for determining who is eligible for farm program payments:

 

The database was compiled by the Washington-based Environmental Working Group to encourage Congress to pass income-based "means tests" for farm-aid recipients, said Ken Cook, the group's president.

 

The number most bantered about right now is a $200,000 adjusted gross income. Center for Rural Affairs Executive Director, Chuck Hassebrook, recently wrote about such a proposal in the Center Newsletter:

 

It won’t work. Large farms would easily create sufficient deductions to reduce their taxable income to less than $200,000 and keep the subsidies flowing. They would reinvest a portion of income in expansion, generating large depreciation, interest, and prepaid expense deductions to accomplish that.

The proposal may therefore have the opposite of its intended effect. It would create even greater farm program incentives for farm consolidation by dictating that mega farms either keep growing or lose all farm payments. Most will expand, if the alternative is leaving hundreds of thousands of dollars of farm payments on the table.

The proposal would also have unintended impacts on farmland rents. High income crop share landlords would be denied farm payments under the plan. Thus, they would convert to cash rents and indirectly capture the farm payment through higher rent. Cash rents are generally less advantageous for family farms, especially beginning farmers with limited capital.

A far better approach is to place an effective limit on farm payments.

There is also a longer, more detailed, analysis of the possible flaws of relaying on an adjusted gross income cap to achieve targeting of farm program payments written by Kent Thiesse.

Closing the loopholes, and placing a hard cap on total payments is a more effective way of both limiting total payments and making sure those payments go to family farmers and ranchers. I'll endorse the use of an adjusted gross income cap in addition to closing the loopholes and placing a hard cap on total payments, but alone, such a "means test" is unlikely to achieve a desirable outcome.

Update: You can also read the Center for Rural Affairs Official Statement on the new Environmental Working Group database. 

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