Commentary: Farmers will pay if Congress rides off the ‘fiscal cliff’

Issue Date: November 28, 2012
By Bob Stallman
Congress must act before the end of the year to prevent across-the-board government cuts—including to programs affecting farmers and ranchers—and to avoid increases in estate tax and capital gains tax rates.

Bob Stallman

It's official: The holidays are upon us. We narrowly escaped the rapid fire of election ads and weren't even finished with the Thanksgiving meal before being fa-la-la-la-la'd with luxury cars wrapped in bows and soft drink-swigging polar bears. As the commercials indicate, December is a time for celebration and giving (and receiving).

In the political arena, on the other hand, December is typically a down time. This especially holds true when new congressional members have just been elected and the previous Congress is in lame-duck mode.

But, if Congress doesn't act soon on several significant outstanding items, all of our gooses will be cooked.

Before we even think about throwing on the yule log, we need to get our legislative house in order. If Congress doesn't make some important decisions before Jan. 1, the U.S. economy will drop off what is being termed the "fiscal cliff." A plan needs to be hatched to cut $1.2 trillion over the next 10 years from the deficit, something of which Congress has known about for awhile.

If Congress doesn't act by the end of the year, automatic, across-the-board government cuts will kick in, affecting more than 1,000 federal programs, many of which will impact agriculture. For example, all commodity and many conservation programs would be cut by 7.6 percent next year. And agricultural research, Extension activities, food safety and rural economic development programs are just a few others that would be cut by 8.2 percent in 2013. Crop insurance would survive the first year, but would likely face cuts in year two.

While all Americans will feel the impact, the cuts will slice right through rural America, which is so dependent on Extension services and rural development.

The fiscal cliff will also impact tax policies. An important one for farmers is the estate tax, which would revert from a $5 million exemption at a 35 percent tax rate to a $1 million exemption with a top tax rate of 55 percent. This could impact one out of every 10 farms and make it almost impossible for young farmers to carry on their family operations.

The capital gains tax rate would also increase come Jan. 1, from 15 percent to 20 percent. This, too, would greatly impact farmers. Because capital gains taxes are imposed when buildings and farmland are typically sold or transferred to new or expanding farmers, it will become more difficult for farmers to shed their assets or upgrade their businesses.

Congress has a lot on its holiday plate during the next several weeks. By the way, did I mention that we still don't have a farm bill? But, that's a topic for another day, maybe over eggnog.

Until then, have a happy and safe holiday season.

(Bob Stallman, a cattle and rice producer from Texas, is president of the American Farm Bureau Federation.)

Permission for use is granted, however, credit must be made to the California Farm Bureau Federation when reprinting this item.