Date: Feb 01, 2013
February 2013 Fiscal Cliff Averted

By now you have seen dozens of political cartoons and heard even more pundits decry Congress for its dysfunctional method of doing business, which was on display once again on the first day of this new year as it avoided going over the so-called ‘fiscal cliff.”

With no time to spare, on January 1, Congress passed, and the president signed, a bill that effectively kept the Bush tax breaks in play for any individual making less than $400,000 and a married couple making $450,000 or less of taxable income.  Wage earners above those levels saw their incremental tax rate rise a few percentage points.  Congress was not able to tackle other issues in this debate, such as the debt ceiling and significant cuts in spending and entitlement programs, so it kicked those issues down the road.

Dennis Nuxoll, vice president of federal government affair for Western Growers, said just like the debate itself, analyzing what Congress did and the impacts it has is multi-dimensional.

Estate Tax

“To talk about the positives first, probably the biggest benefit for our members is a permanent solution to the Estate Tax,” he said.

While everyone wants low rates and huge estate exemptions, what estate planners want most is certainty.  For the longest time, the Estate Tax has been a political football bouncing around erratically and used as a bargaining chip in debate after debate.  The fiscal cliff bill, which is officially known as the American Taxpayer Relief Act, sets the Estate Tax exemption at $5 million for an individual and $10 million for a married couple.  The tax rate for the value of the estate above the exemption level has been set at 40 percent.  If Congress did not act, the exemption would have decreased to $1 million for an individual.

“This is a positive for our members and farmers in California and Arizona,” said Nuxoll.

He said land values in California might make many farm-based estates exceed the exemption but the final figure is the best that could have been hoped for.  “And it is a permanent solution, which is a big deal,” he emphasized.

As mentioned, a good estate planner and tax attorney can do wonders if they just know the rules they are playing under.  Indeed, WG Financial Services can provide information and assistance on this topic; please contact Matt Lewis at the WG office.

Farm Bill

Another important element attached to the fiscal cliff bill was the extension of the Farm Bill of 2008 until September of 2013.  This is not particularly good news for the specialty crop industry.  “The specialty crop industry did fairly well in the negotiations that took place in the Senate and the House Ag Committee last year,” said Nuxoll.

When the Senate took up and passed its version of a farm bill last summer, most specialty crop programs survived the inevitable budget cuts.  The same was true with the version debated and passed by the House Ag Committee.  Unfortunately, neither the Senate version nor the House Ag version was brought to the House floor for a full vote.  While the specialty crop industry was lobbying for passage of a new bill in the final hours of 2012, their arguments fell on deaf ears.  Instead, the last Farm Bill was simply extended with some negative addendums.

“Most programs were extended intact but there were a couple of exceptions,” said Nuxoll.

He said sections dealing with specialty crop research and with plant diseases were extended with the caveat that they must be funded again through discretionary funds.  In other words, the money is not automatically there to continue those programs.  “That typically isn’t very good news,” he said.

With Congress facing increasing deficits, it is very difficult to muster sufficient votes through the discretionary funding mechanism.  “It’s not impossible but it is going to take a big time lobbying effort to get it done,” Nuxoll said.

In addition, he said it is not known whether the Senate and the House Ag Committees will merely try to pass bills similar to the ones they passed in 2012 or if they will start all over from square one.

He said it is a certainty that there will be greater pressure to cut spending in 2013.  The Farm Bill debate will face that same pressure and cuts may be deeper than they were in 2012.  Of course, that doesn’t mean that specialty crop programs will be cut further but they will almost certainly be on the chopping block with everything else.  Nuxoll said it will require our industry to redouble our efforts to ensure that we are able to maintain the advances we achieved.

The Level of Cooperation

But maybe even more important than what was actually done to avoid the fiscal cliff was the way it was done.  It is wise to remember that Congress passed the self-imposed deadline with draconian cuts knowing just how dysfunctional it is.  Leaders on both sides of the aisle and in the White House believed that they loaded up the debate with so much unpalatable medicine that Congress would do everything it could to address its serious revenue and spending problem before the cliff loomed.  But that was not the case.

“From a big picture perspective, we just don’t know what this means,” said Nuxoll.

He said Speaker of the House John Boehner ultimately allowed a minority of Republicans and a majority of Democrats to pass the fiscal cliff bill, which raised income taxes on a small minority of Americans but did not do much else.  “He showed he could do that, if necessary, and that might be required on other issues,” said Nuxoll.  “The question, is will he use it.”

Of most importance to production agriculture is immigration reform.  Nuxoll said the Senate has shown that it can work together and create bipartisan support for some issues.  He suspects immigration reform will be one of those issues.  He is hopeful that the Senate will tackle the issue and agree to a compromise.  Indeed, a bipartisan core of senators are already engaged on the issue.  But if the Senate moves, all eyes will turn to the House and inevitably Boehner.

But beyond immigration, Nuxoll said the entire workings of elective government are in the balance.  It is no secret that Republicans have attempted to derail, delay or otherwise slow President Obama’s agenda the last several years.  With the presidential election now over, and many critical problems remaining, will they double down and will gridlock be the norm for the next four years?  “I hope that all sides can come to the table, everyone can negotiate with each other in good faith, and then compromise with each other in order to strike deals,” said Nuxoll “That is the only way during the long history of America that BIG things get done — they get done through compromise.  But I suppose only time will tell.”


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