Payment Limitation Proposals Examined

New Center for Rural Affairs’ analysis demonstrates that the income limits in the House and Senate farm bills will have little affect, other than to provide political cover for politicians who refuse to support true payment limitation reform.

The House farm bill would deny payments to persons with a three-year average income of over $1 million, $500,000 for those getting less than 2/3 of their income from agriculture. The Senate legislation denies payments to those earning over $750,000, while getting less than 2/3 of it from agriculture. The Bush administration would deny payments to all persons with three-year average income exceeding $200,000.

Thirty-six percent of those who lose payments under the Senate bill, 37 percent under the House, and 41 percent under the Bush proposal are share rent landlords who can keep the payments flowing by switching to cash rents. Cash rents shift risk and capital requirements to farmers. Payments would be made to farm tenants but, in most instances, captured by the landlord through high dollar cash rents.

Our analysis also found that the federal government made over $230 million in payments to people exceeding the income limits in the House farm bill and over $137 million to those exceeding the Senate bill limits.

However, projections for federal savings from those bills by the nonpartisan Congressional Budget Office suggest that most of those recipients will continue to get paid. The modest savings it projects suggest that 83 percent of the funds paid to recipients exceeding the House limits would continue to be paid, and 95 percent of the funds paid to recipients exceeding the Senate limits would continue to be paid.

High-income payment recipients will use three means to avoid the limits.
  1. High-income farmers will reinvest income in expanding their operations, thereby generating deductions to keep their taxable incomes below the limits.
  2. They will divide income between spouses and, where applicable, the farm corporation to stay below the limits.
  3. Landlords will shift from share rents to cash rents.

The analysis is based on 2005 Internal Revenue Service data.

Contact: Chuck Hassebrook, chuckh@cfra.org or 402.687.2103 x 1018 for more information.

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