Ag Policy Update–29 May 03       

(For interview 30 May 03)

 

 

1.    The President signed the tax cut bill. Give us an overview.  

–This is the third largest tax cut in US history.

–$318 b. in tax cuts

–$20 b. to help cash-strapped states

–$12 b. for child tax credits;

–The bill lowers income tax rates to 35%, 33%, 28% and 25%.

–Increases marriage deduction;

–Provides some small business tax cuts;

–Decrease tax on capital gains and dividends to 15% thru 2008.

 

 

2.    What does this seem to do for agriculture?  

–Because most farmers don’t pay much income tax, the cut isn’t going to them much good.

–Also, this will force more cost cutting in the future.

–At the least, that means it will be more difficult to secure funds for emergency aid, as well as other social programs.

–At worst, it could mean scaling back benefits now authorized in the 2002 farm act.

 

 

3.    So, who benefits most from this bill?    

–The bill is titled the “Jobs and Growth Tax Relief Reconciliation Act”.

–So the hope of the Administration is this will spur the economy.

–If you’re a tax reform hawk such as Sen. Don Nickles (R-OK), Senate Budget Chair, you’ll like this bill.

–Most benefits go to the wealthy.

–For example, more than half the dividend tax cuts go to the top 1%.

–If you subscribe to the trickle down theory of economics, this bill makes a lot of sense because it gives money to the business sector to re-invest and hopefully get the economy going again.

–It should be noted that, even if this bill helps the economy add 1 million jobs in the next year, it will still be below the average job growth, and fail to compensate for the 2 million jobs lost in the past 2 years.

 

 

 

4.    There are those, however, who don’t see much good in the bill.  Give us their perspective.  

–That’s right.

–This was not a bipartisan effort.

–There are no Demo signatures on the bill.

–Sen. Conrad (D-MT) and ranking minority member of the Senate Budget Committee sees this as “the policy of debt, deficits, and decline”.

–If you buy his assumption that this will not stimulate the economy, government analysis does indeed show:

–the debt and Federal deficit growing

–pressuring the economy to new lows

–Social Security and Medicare in crisis

 

 

5.    Speaking of the economy, give us an update.  

–Greenspan and others in the Fed seem to be signalling that deflation is now their primary concern.

–If they remain concerned, the Fed will likely again drop interest rates below the 41-yr low of 1.25% at their next meeting the last week of June.

–Thumbnail sketch of the economy:

(1)   unemployment is at 6%

(2)   the trade deficit is worsening on an annual basis

(3)   personal consumption is down

(4)   business investment is down

(5)   the US economy is growing, but still way below normal

(6)   the stock market is up this week, but still relatively weak

(7)   The Federal budget deficit is now over $200 b., over 3 times what it was a year ago.

(8)   Congress agreed to the President’s request to increase the Federal debt limit cap.

 

 

6.    Signup in Federal farm programs is in the news this week.  

–That’s right.

–Signup for the 2002 and 2003 direct and counter-cyclical commodity support programs ends 2 Jun.

–Most producers and landowners have already acted on this.

–USDA has extended signup 2 weeks to 13 Jun for CRP.

–Potential applicants are reminded that there may be real benefits to the 10-year contract, especially with the new flexibility of limited haying and grazing.

–Interested producers/landowners should visit their local FSA about the program.

 

 

7.    Canada’s mad cow case has temporarily shut the door to US imports of Canadian cattle.  Any other fallout at this time?  

–Many will seize this opportunity to again push for implementation of COOL.

–COOL opponents, such as the House Ag Committee leadership say we already have sufficient rules to keep our beef supply safe.  

 

 

8.    Let’s talk about the debate over COOL–Country of origin labeling.  A newly released study has stirred comments on both sides of the issue.  

–That’s right.  Let’s briefly review what we’re talking about.

–The 2002 Farm Act included a provision for mandatory COOL by September 30, 2004:

–for beef, pork, lamb, fish, perishable agricultural commodities and peanuts;

–after a 2-year voluntary program;

–suggests a certification program;

–requires suppliers to provide information to retailers;

–retailers will inform customers regarding country of origin;

–fines are provided for retailers who willfully violate the law.  

–Many in industry, including many producers and agribusiness, and many analysts have been saying this will be a very costly endeavor, and very difficult to achieve by deadline.

–Others, including some producers, consumer groups and some analysts, say that USDA implementation rules are to blame, and compliance does not have to be so complex or expensive.

 

 

9.    So, what’s the new study say?  

–The recent study by faculty at several universities concludes that:

–the implementation, if properly done, would cost 90-95% less than the industry has estimated;

–A centerpiece of the study is a preference for a self-certification system, rather than detailed tracking system that would require a new layer of record keeping;

–consumers would be willing to pay for the perceived value added information.  

–Of course, critics say the study made naive assumptions and failed to recognize the complex markets and legal ramifications.  

–What has been missing, I think, is a re-framing of the real issues.

–In other words, the problem has been framed in a way that guarantees polarization, dissatisfaction, inefficiency and failure to solve the real problems.

 

 

10.  So what do you see as a better way to approach this?  

–Well, we’d probably need reps from the key groups at the table.

–But let’s assume these points based on a review of public comments:

(1)   the sector of the industry that promoted COOL is really concerned about structural threats to their survival, and possibly competition from foreign markets.

(2)   consumers are concerned about the safety of their food.

(3)   the sector of the industry that is against COOL is really concerned about any changes that may increase the cost of doing business, especially if consumers may not pay for it.

 

11.  How does this help reach a workable solution?  

–Looked at in this way, we can see COOL as one of several alternative solutions to these redefined problems.

–In fact, how COOL is implemented has several alternative interpretations.  

–Unfortunately, when COOL was developed 2 years ago, some of the groups were unwilling to sit down and discuss the issues, and some groups had only one solution.

–Now, it appears USDA has taken the most severe interpretation of the law in crafting implementation.

–Whether this is a strategy designed to assure crisis and political change is uncertain, but it does seem to have that effect.  

–It is possible for Congress to bring together the affected parties and have a more reasoned discussion about how to best meet their respective concerns.

–But that does not seem likely at this time.   

 

 

12.   Congress:

a.     Recent activity:

–Congress continues work on the FY04 budget

–Congress passed and President signed tax cut bill

–Senate Ag Committee confirms T. Dorr as undersecretary for rural development, and 3 new members of Farmer Mac Board (21 May)

–House Ag Committee reviewed status of WTO negotiations (21 May)

–House Ag subcommittee reviewed status of dairy industry (20 May)

–House Ag subcommittee reviewed financial status of crop insurance industry (22 May)  

b.     Current/upcoming:

–House Ag subcommittee reviews conservation technical assistance and implementation of conservation title of 2002 farm act (4 Jun)

–House Ag subcommittee reviews commodity futures industry (5 Jun)

–House Ag subcommittee field hearing at Statesboro, GA (14 Jun), and Logansport, IN (16 Jun) to review crop insurance and commodity programs

–House Ag Committee public hearing to review trade negotiations (18 Jun)

–House Ag subcommittee reviews Commodity Futures Modernization Act (19 Jun)  

c.     2003 schedule:

–As of 2 Jun, 73 weekday workdays to target adjournment of 3 Oct 03. 

d.     Key issues not completed

–work on the fy04 budget

–Healthcare reform

–Prescription drug benefits

–Merger activities, especially in agriculture

–Comprehensive energy legislation (& status of renewable fuel standards)

–Restoration of full CSP funding

       

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