Catching up with the Senate

We’re back from a much-needed vacation, and have finally caught up with all of our other work that piled up while we were gone (“email bankruptcy” is certainly an attractive option for dealing with this sort of situation). Today we’ll have a couple of posts with an overview of the Senate process, and we’re anxiously awaiting further news on Senate farm bill progress, which could occur this week.

What has happened in the past two weeks? Um, not much. The Senate Ag Committee has tried and tried to get to the farm bill, but has been held back by the all-consuming issue of money, and evident disputes between Chairman Harkin (D-IA), Senator Conrad (D-ND), and Senator Baucus (D-MT). When you throw in a little Senator Chambliss (R-GA), you have a recipe for paralysis.

All of the media coverage has been focused on two issues: money and timing. On the first, the overall news is that Senator Baucus has agreed to find new money for the farm bill from the finance committee, but wants a disaster program in return, and at least some say in how the rest of the money is spent. But according to the pay-as-you-go rules Congress is operating under, if you want to increase spending in one place, you have to decrease in another, or find new sources of revenue. The Finance Committee will have to find the money somewhere, and that has become quite the source of speculation. If you’ll recall, the House farm bill was nearly torpedoed by Republican opposition to the funding mechanisms used by the Democrats.

From the Finance Committee, here’s just a few of the revenue-increasing ideas that have been thrown around:

  • Increase the amount of money flowing to USDA from a particular tariff: Sounds good, but that money is currently flowing to the general Treasury, so you still have to find a way to increase revenues to replace those taken away from the Treasury.
  • Force temporary workers and their employers to pay Social Security and Medicare taxes: Currently they’re exempt, and you can imagine what anti-tax Senators would think of this. Plus, a major employer of temporary workers is the agriculture industry, so you’re guaranteed at lease some opposition from the Ag Committee (especially from those Senators representing labor-intensive specialty crop regions).
  • Change the taxation of land involved in “1031” exchanges: If done right, a great idea. Currently you can avoid capital gains taxes on land sales if you use your profits to buy more land within a certain time period; this has had the effect of artificially inflating land prices in many areas. Again, some could look at this as a tax increase.

Supposedly the Finance Committee is looking to come up with approximately $8-10 billion for the farm bill. That’s a lot of money, and it will be hard to do so without provoking some fierce opposition, especially from some Republicans looking to deny Democrats any significant accomplishments (such as passing a farm bill). But Harkin has to have the money to satisfy the many groups demanding new spending (conservation, rural development, nutrition, etc). That makes it very difficult for Ag Chairman Harkin to ignore the wishes of Finance Chairman Senator Baucus, who just happens to sit on the Ag Committee as well.

What about finding funds under Ag Committee jurisdiction? Chairman Harkin is on top of that as well, and it’s not surprising where he headed. Two places: crop insurance and direct payments. Crop insurance subsidies are based on commodity prices, so right now the money spent on crop insurance by the feds is going through the roof. The general thought seems to be that those increased subsidies are not justified because private crop insurers aren’t exactly putting in more work for those increased subsidies. Harkin wants to get about $3 billion or so from them. If I recall correctly, the House took $2 billion or so from crop insurance. Crop insurance companies have some powerful backers in Congress, and it will be interesting to see how that fight plays out. For sure some money will be taken, it’s just a question of how much.

And the issue of taking money from direct payments has cropped up again. The legacy of the 1996 farm bill, directs are paid regardless of price or production. The farmer who owns land that has historically produced qualifying crops gets them no matter what. And it is tough to justify giving a corn farmers $25-30 per acre when they’re getting some of the highest prices for their crop in decades. A recent Washington Post article reinforced the point, and you know that got some real attention in DC.

Chairman Harkin and Senator Conrad have never particularly liked direct payments, and both now have proposals to cut them by varying amounts. Harkin seems to be going for a straight percentage cut, while Conrad is more interested in tying direct payments to low prices. Which means direct payments would essentially become another “countercyclical” payment (paid when prices are low). That, by the way, would be a substantial shift and make direct payments “trade-distorting” under WTO rules. It would also nearly guarantee a veto from a pro-trade White House that is struggling to complete the Doha round of WTO talks.

Additionally, any change in direct payments is being opposed by the Farm Bureau, most Southern Senators (whose crops get higher direct payments), and House Ag Committee Chairman Collin Peterson, which is particularly interesting given that he has repeatedly disparaged direct payments and WTO in the past.

But Harkin and Conrad seem to feel they can reasonably take $1-2 billion out of the direct payment program for other priorities.

Overall, it appears the magic number is approximately $15 billion. If Harkin can get that number out of the Finance Committee and through savings in other parts of the farm bill, he will be able to satisfy everyone (as far as funding goes, anyway). Once he is assured of that, he will proceed to pass a farm bill out of the Senate Ag Committee and head to the floor. But that gets into timing, which we’ll address in our next post.

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