Fiscal cliff agreement includes permanent estate tax package

Jan 4, 2013

Last minute legislation passed to avert the heavily discussed fiscal cliff fallout gave some temporary relief in some areas, but has also left lots of discussion still on the table. Provisions allowing for write-offs of equipment purchases and a permanent exemption added to the estate tax were applauded by agriculture groups, but the big questions relating to a farm bill went unanswered.

“The big victory was making the death tax package permanent,” said Colin Woodall, vice president of government affairs, with National Cattlemen’s Beef Association (NCBA).

NCBA and other agricultural trade groups were not able to convince Congress to fully repeal the Death Tax. However, they were successful in lobbying to keep the current estate tax exemptions of $5 million for an individual or $10 million per couple. These amounts are tied to inflation and will therefore increase over time. The tax rate on estates above the specified exemption levels will rise from 35 percent to 40 percent. Stepped-up basis provisions were retained in the new estate tax law, which is permanent.

Without any action on the estate tax, the tax-free amount would have automatically reverted to $1 million per person, and the rate for most estates would have gone up to 55 percent.

“I am pleased the House passed H.R. 8, The American Taxpayer Relief Act, on [January 1], which provides permanent tax relief for families, farmers, and small businesses and prevents an enormous tax increase on all Americans. Specifically, this bill locks in place current tax rates for middle class families, provides a permanent patch for the alternative minimum tax, and holds down the death tax for farmers and ranchers. It postpones the sequestration, which would have caused harmful cuts to our national defense during a time when we are still fighting a war in Afghanistan. Further, this bill provides a one year extension of the 2008 farm bill, which gives agricultural producers certainty and allows the Agriculture Committees in Congress to continue working on a five-year comprehensive farm bill.

“This legislation is only one step in the process of solving Washington’s spending problem. Now it’s time for the president to work with Congress to address our $16 trillion debt and find responsible, commonsense ways to cut spending and grow our economy. I will continue to work with my colleagues in the House of Representatives in this effort and protect hard-working American taxpayers,” Chairman Frank Lucas said in a statement.

While the estate tax was the big plus for ranchers and farmers, the farm bill extension left some fearing a repeat of the fiscal cliff doom and gloom for 2014.

“Now we have to start the entire process over,” Woodall points out.

National Farmers Union President Roger Johnson issued the following statement after the U.S. House of Representatives passed the Tax Relief Extension Act, commonly referred to as the “fiscal cliff” bill, which included the farm bill extension:

“Once again, Congress has left rural America out in the cold. An extension represents a short sighted, temporary fix that ultimately provides inadequate solutions that will leave our farmers and ranchers crippled by uncertainty.

“The legislation that passed fails to provide disaster aid for farmers or necessary support for our dairy industry, yet continues unjustifiable direct payments.

The bill also does not provide mandatory funding for the energy title, specialty crops and organic provisions, and new important programs for beginning farmers and ranchers.

“Farmers, ranchers, rural communities and all Americans deserve better and would have been better served with a new five-year farm bill. It is truly a shame that the bipartisan work of both the Senate and House Agriculture Committees has been summarily and entirely discarded. Not only was that work far better than what has passed, it also provided meaningful deficit reduction.

Agriculture Secretary Tom Vilsack last week issued the following statement on the package:

“I am pleased that Congress passed needed middle class tax relief and continued unemployment insurance protection for 2 million unemployed Americans. However, while I am relieved that the agreement reached prevents a spike in the price of dairy and other commodities, I am disappointed Congress has been unable to pass a multi-year reauthorization of the Food, Farm and Jobs bill to give rural America the long-term certainty they need and deserve. I will continue to work with Congress to encourage passage of a reauthorized bill that includes a strong and defensible safety net for producers, expanded rural economic opportunity in the new bio-based economy, significant support for conserving our natural resources, increased commitment to important research, and support for safe and nutritious food for all Americans. I look forward to continuing the effort to get this critical work done.”

The big media discussion leading up to the new year seemed to focus on milk prices, which was projected by some to double, or even triple, if the administration failed to avert the fiscal cliff.

The International Dairy Foods Association congratulated Congress and President Obama for reaching an agreement. “We appreciate that the bill includes provisions that will avoid the resurrection of dairy policies from more than 50 years ago. This agreement allows Congress time to fully and openly consider future reforms to our nation’s dairy policies,” said Connie Tipton, president and CEO.

The Agricultural Act of 1949, which was driving the milk hike fear, was suspended until Dec. 31, 2013.

The Dairy Export Incentive Program and forward contracting are extended through September, but the Dairy Product Price Support Program is extended through December.

The bill also extends the Milk Income Loss Contract Program with payments at the higher 45 percent level until Aug. 31 and at the lower 34 percent level until Sept. 30, essentially repeating the 2012 rates.

The much debated farm bill has split the states, but most of the discussion following last week’s fiscal cliff agreement seems to be united and centers around the frustration from starting back at square one.

“America’s farmers have clearly made known the importance and need of a new farm bill in 2012. Once again, Congress’ failure to act pushes agriculture aside, hampering farmers’ ability to make sound business decisions for the next five years. The National Corn Growers Association (NC- GA) is tired of the endless excuses and lack of accountability. The system is clearly broken,” said NCGA President Pam Johnson.

“We hope the 113th Congress proves to be more fruitful and that the leaders in Congress can place petty partisanship aside to create a bill that benefits all of America,” she added.

Congress did, however, include disaster assistance authorization for fiscal years 2012 and 2013. This includes livestock indemnity payments, a livestock forage disaster program, and emergency assistance for livestock producers. These programs will require funding through the congressional appropriations process before payments would be available to ranchers, feeders and farmers.

Highlights of the bill include:

•Raised the marginal tax rate to 39.6 percent on income over $450,000 (joint) and $400,000 (single).

•Raised the tax rate on dividends and long term capital gains to 20 percent on taxpayers with income over $450,000 (joint) and $400,000 (single). The top rate would remain 15 percent for taxpayers with lower incomes.

•Estate and gift tax: $5 million exemption (inflation-adjusted) and 40 percent rate.

•Permanent and retroactive patch for the alternative minimum tax.

•Return of the exemption and itemized deduction phase-outs on taxpayers with income over $300,000 (joint) and $250,000 (single).

•One-year extension of 50 percent bonus depreciation. — Traci Eatherton, WLJ Editor