Washington Report for 2-24-12

By Steve Kopperud

Obama White House Pushing Tax Changes; Tax Reform an Uphill Battle this Year

In his FY2013 budget request, bolstered by a special “report” from the Treasury Department, President Obama over the last 10 days has pushed several changes in the federal tax code for both domestic and multinational business and individuals. On Capitol Hill and based on the reported reaction from the business community, most of the White House recommendations will be viewed as too little too late, and will be relegated to policy positions or “policy guidance.”  Congressional tax writers, agreed on the need for reform, but struggle over if and to what degree any federal tax code rewrite can be achieved in an election year. In Treasury’s special report released this week, the Administration targets eliminating “dozens of tax loopholes and subsidies, (while) broadening the tax base and cutting the corporate tax rate.” The goal here is to rejigger the corporate tax code to drop the current rate from about 35 percent to 28 percent, and through streamlining and new incentives, drop the effective rate for manufacturing to 25 percent. Also targeted in the budget/report are multinational corporations, with the White House recommending a new 20 percent minimum tax on foreign earnings. Included in the combined recommendations is a permanent extension and expansion of the research/development tax credit for business, along with doubling the domestic manufacturing deduction for manufacturers, while eliminating it for oil companies. Oil and gas company tax “preferences” overall  would largely be eliminated under the Obama plan, including repeal of tax preferences on fossil fuels, expensing of some drilling costs and repeal of the percentage depletion for oil and gas wells. Garnering attention, however, is a new 20 percent tax credit against the cost of building new domestic facilities for companies which scale back overseas operations in favor of U.S. production, coupled with a new credit for companies which site new facilities in communities suffering high unemployment.  Companies which boost their payrolls by at least $500,000 a year would be in line for a 10 percent tax credit, and “expensing” credits would be extended for a year to encourage companies to invest in infrastructure by allowing the deduction of the full cost of the new equipment immediately. Inventory valuations would change as Obama pushes to eliminate last-in-first-out accounting, requiring companies to deduct the full value of their oldest inventories. Small business capital gains would be eliminated, and small companies would see a doubling of the deduction for start up costs, as well as expanded credits for contributing to employee health plans. As to personal tax rates, the FY2013 budget would extend the Bush tax cuts for income earners making up to $200,000 individual/$250,000 joint per year, letting the two highest tax rates increase to 36 percent and 39.6 percent, or to pre-2001 levels. The estate tax would be set at 45 percent with a $3.5-million exemption; without congressional action by 2013, the rate will increase to 55 percent and the exemption will drop to $1 million. Dividends in 2013 would be taxed at 39.6 percent maximum, up from 15 percent, and long-term capital gains would be hit at 20 percent rate compared to the current 15 percent. High-income earners would see total deductions/tax breaks limited to 28 percent of their calculated value.

USDA Chief Economist Gives Forecast at Outlook Conference

Referring to 2011 as a “very good year for agriculture,” U.S. Department of Agriculture (USDA) Chief Economist Joe Glauber this week outlined what he sees coming in 2012. His forecast included the following:

• Exports for this year are forecast at $131 billion, down $1 billion from last year, but the second highest on record. Glauber said this reduction reflects record global crop production with weaker prices and export volumes;
• China became the U.S.’s largest export customer in 2011, buying just under $20 billion in various commodities. Exports in 2012 will drop 15 percent, reflecting that nation’s concentration on bulk commodities like soybeans and cotton; China is expected to purchase 10 percent of the U.S. soybean crop this year;
• U.S. corn stocks are expected to increase in 2012 assuming a return to trend yields, with livestock producers seeing increasing margins toward the end of the year; world corn stocks for 2011-2012 have tightened and are estimated at 52.3 days’ use, the lowest since 1973-74;
• Corn-for-ethanol use is seen flat through the year, forecast down by 21 million bushels for 2011-2012; ethanol production at the end of 2011 is running close to capacity, and U.S. ethanol exports hit record levels in 2011 at 909 million gallons. That figure is expected to drop signaling a 50-million-bushel decrease in corn for ethanol demand this year;
• Conservation Reserve Program (CRP) enrollments are expected to be down in 2012-2013, with total CRP projected at 30 million acres, 6.8 million less than the peak in 2007-2008; and
• Corn plantings are expected to hit 94 million acres, with wheat going in on 58 million acres, and soybeans being planted on 75 million acres.

House Small Biz Committee Looks at Ag, Regulatory Burden

In a roundtable discussion of the regulatory burdens on agriculture held late last week by the House Small Business Committee, a new and unexpected political ally in the upcoming Farm Bill battle may be emerging. Committee chair Sam Graves (R-MO) said he called for the discussion to “advocate for agriculture and small producers,” emphasizing the need for regulatory reform. One participant pointed out more than 50 percent of his group’s members are small businesses by federal definition, and another executive said the Farm Bill is critical to these small business people and their ability to create and maintain jobs. Members of the committee said they’d heard more about protecting crop insurance, maintaining research and development and conservation than any other farm policy topics. Invited participants included the American Farm Bureau Federation (AFBF), National Corn Growers Association (NCGA), United Fresh Produce Association (Unifresh), National Association of Wheat Growers (NAWG), International Dairy Foods Association (IDFA), American Soybean Association (ASA); National Pork Producers Council (NPPC), Dairy Farmers of America (DFA) and the National Cattlemen’s Beef Association (NCBA).

EPA Revised Final Rule “Streamlines” Feed Mill Emission Standards

A December, 2011, Environmental Protection Agency (EPA) final rule on feed mill air emission standards, effective February 23, revises a 2010 rulemaking setting general clean-up and efficiency standards for cyclones on pellet mills. The revisions to “Hazardous Air Pollutants for Prepared Feed Manufacturing” are a victory for the American Feed Industry Association (AFIA), National Grain & Feed Association (NGFA) and U.S. Poultry & Egg Association, which demonstrated to EPA that its 2010 requirement that mills formally certify a cyclone can reduce particulate emissions by 95 percent, along with three alternatives identified by the agency to achieve that target, were not only difficult to achieve, but in some cases, impossible and would force replacement of a large number of existing cyclone units. Under the 2011 revisions, mills must still supply a formal certificate on new cyclones, but the agency acknowledges it never intended to force the replacement of existing equipment. The changes apply most directly to the requirements for existing cyclones, allowing them to operate under good air pollution control practices. The new rule also simplifies inspection procedures, recordkeeping, and clarifies provisions on bulk loads and door operation.

EPA Dials Back Dioxin Risk Assessment; Recognizes Successes, Little Risk

The highly controversial, 30-year effort by the EPA to assess the risks to human health from dioxins – including PCB and PBBs – was finalized in part late last week when the agency released its final non-cancer risk assessment and applied a reference dose or safe level of exposure to only a single form of dioxin. In earlier iterations going back to 1986, the EPA said 95 percent of dioxin exposure in humans is through foods of animal origin as dioxin, an airborne contaminant, is ingested during grazing and feeding and pools in animal fat. Further, in the mid-2000s, the EPA talked about “mitigation” steps that may be needed to decrease dioxin exposure, including limiting certain feed ingredients. The release late last Friday was a simple posting to the agency website, and the EPA press release stated there is no significant risk to human health from dioxin exposure since over 90 percent of controllable dioxin emissions have been halted due to regulation and industry action, and the last uncontrolled source of dioxin is backyard burning. Both the U.S. Department of Agriculture (USDA) and the Food and Drug Administration (FDA) have no plans for any regulatory actions based on the EPA release, but will continue to monitor for the presence of dioxin as part of their respective, routine testing and sampling programs. The EPA decision was greeted as a major victory by the Food Industry Dioxin Working Group, an ad hoc ag/food industry coalition coordinated by the American Feed Industry Association (AFIA), but the coalition continues to monitor EPA actions on dioxin.       

Vilsack Wants “Comprehensive” Immigration Reform as Administration Shuts Down Enforcement Program

“The sad reality is that crops will be raised in this country this year that may not be harvested because there simply is not the workforce to get the job done,” Secretary of Agriculture Tom Vilsack told the U.DS. Department of Agriculture (USDA) Outlook Conference this week, calling on Congress to enact comprehensive immigration reform legislation soon. Meanwhile, the Obama Administration said this week it will end a program that deputizes local police to be immigration officers. The deputizing program, run by Immigration & Customs Enforcement (ICE), deputizes local law enforcement to act as immigration officers in jails or in the field, checking citizenship status on suspects, ordering detention, etc. Only eight local police departments signed up under the ICE program during the Obama Administration – none since August, 2010 – and the overall number is down from 60 local agencies during the Bush Administration. The FY2013 budget request for the Department of Homeland Security (DHS) indicates the department will be signing no new contracts and cancelling the “least productive” of the existing contracts. DHS says other programs are more efficient and effective. As for Vilsack, citing agriculture’s reliance on immigrant labor, he said Congress needs to fix “this broken system and fix it now,” even though the chances of Congress tackling as controversial an issue as immigration during an election year are remote. The major roadblock is how to treat the millions of illegal immigrants already in the U.S. without being accused of granting “amnesty” for illegal acts. Also sharply criticized by farm organizations, particularly dairy and the fruit/vegetable growers, is the H-2 seasonal worker temporary visa program, which they call cumbersome and expensive. There is legislation pending on Capitol Hill to revise this program, but so far, there’s been no agreement on how to move reform forward.

Federal Government to Increase “Farm-based” Product Purchases

President Obama and Secretary of Agriculture Tom Vilsack this week announced the federal government will step up its purchases of products made from agricultural inputs, part of a White House program to stimulate rural economies and create jobs. The effort is designed to increase demand for bio-based “sustainable” products – made from “biological products, renewable agriculture materials or forestry materials” – that are used in manufacturing, including plastics, furniture, cleaning supplies, inks, hydraulic fluids and personal care items. 

House Walks Away from Five-Year Highway Bill

In yet another example of election year politics and budget hawk pressures, House GOP leadership this week announced they'll abandon plans to try and pass a five-year, $260-billion federal highway program re-authorization, opting instead to try and pass an 18-month extension of highway infrastructure and urban commuter program funding. One report indicated the reason was mounting opposition to the mammoth reauthorization bill, particularly among conservative Republicans.  One staffer is quoted saying the new bill will "still provide plenty of time for a new Congress and a new President to enact a long-term re-authorization."  Leadership is also reportedly abandoning its effort to tie funding for highway programs to a source other than the Highway Trust Fund, which is funded by gasoline, diesel and highway use taxes. Part of the reason a shorter bill is now being contemplated is that offsets for the cost of the bill have no disappeared, having been used to pay for other programs. Also, the Senate is working a $15-billion two-year bill, and reconciling House and Senate versions will be easier. House leaders said, however, they'll still try and pay for part of the shorter-term bill through ties to fees to be collected from new federal permits for oil and gas exploration. The new bill will be passed on its own and then likely attached to a previously passed energy production bill and sent to the Senate as a package, according to a source close to the situation. 

House Ag Leaders Tell CFTC to Ramp Up Ag Advisory Committee

For 20 years, the Commodity Futures Trading Commission (CFTC) has had an Agricultural Advisory Committee to inform commission actions and decisions that directly affect production agriculture. This week House Agriculture Committee Chair Frank Lucas (R-OK) and Rep. Mike Conaway, chair of the committee's subcommittee on general farm commodities and risk management, told CFTC Chair Gary Gensler in a letter that it's time to reinvigorate that committee by naming a chair to replace Commissioner Mike Dunn who resigned to join a Washington, D.C. lawfirm. Lucas and Conaway said in their letter, "The Agricultural Advisory Committee is intended to 'be utilized by the Commission in assessing issues affecting agricultural producers, processors, lenders and others interested in or affected by the agricultural commodities markets.' They pointed out that passage of the Dodd-Frank Act and its ensuing regulations, as well as the MF Global bankruptcy, demand the commission ‘have the benefit of the insight of the Agricultural Advisory Committee.’ It's important the Committee have the leadership necessary to ensure its active role within the Commission," Lucas and Conaway said.