Washington Report for 3-3-14

By Steve Kopperud

House Ways & Means chair unveils sweeping tax reform draft

House Ways & Means Committee Chair Dave Camp (R-Mich.) has unveiled a sweeping 1,000-page draft federal tax reform bill, a proposal said to be the most ambitious rewrite of the federal tax code for individuals and business since 1986.

Camp received praise for being bold enough to put the draft bill into the public arena, with nearly unanimous agreement the federal tax code is broken and badly needs fixing. However, both industry and lawmakers shied away from endorsing the plan.

The bill takes on both individual and corporate tax rates, effectively scrapping seven personal tax rates for two at 10 percent and 25 percent, and cutting the corporate tax rate to a globally competitive 25 percent. Congress’ Joint Committee on Taxation said the package would save $700 billion over 10 years and wouldn’t add to the deficit but would save the average family of four about $1,300. In a press release, Camp said the “simpler, fairer tax code” will help create 1.8 million private sector jobs and boost the Gross Domestic Product by $3.4 trillion, 20 percent of today’s economy.

Camp, who surrenders the tax-writing committee chair at the end of December, has been pushing federal tax reform since he took over the Ways & Means Committee when the Republicans took control of the House. He’s had support from Sen. Max Baucus (D-Mont.), former chair of the Senate Finance Committee, but with Baucus’ recent resignation from the Senate to become ambassador to China, Camp decided it was time to begin the process with or without Democrat or broad Republican public support.

The bill has no chance of seeing action this year said leaders of both chambers. In an election year, particularly in a Congress marked by such bitter partisan rivalry, such a major effort would be difficult to generate a consensus. Plus debate and compromise over the details of broad federal tax reform will take months, particularly since there is no Senate counterpart to the Camp plan on the horizon. House Speaker John Boehner (R-Ohio) did allude to action in the 114^th Congress beginning Jan. 1, 2015.

Tax reform plan targets agriculture

Agriculture and agribusiness are the targets of specific federal tax action under the Tax Reform Act of 2014, draft legislation made public last week by lame duck House Ways & Means Committee Chair Dave Camp (R-Mich.).

The universal effects of the Camp plan would first cut personal tax rates – currently ranging from 10 percent to nearly 40 percent – to just two rates, 10 percent and 25 percent, with a 10

percent surtax tacked on to certain wage earners making over $450,000 a year. The standard deduction would be increased to $11,000 for individuals and $22,000 for married couples. The alternative minimum tax would be repealed across the board, as would deductions for state and local income taxes. Camp’s plan would cap the mortgage interest deduction at $500,000, but make permanent the child credit, raising it to $1,500.

The corporate rate would be cut to 25 percent. Under the capital gains rewrite, the first 40 percent of the gain would be excluded from tax, with the remainder treated as regular wages. The highest rate would be reduced by 6 percent. The research/development tax credit would be made permanent.

Farmers would continue to use cash accounting regardless of size, and the plan allows for continued expensing of deductions under Sec. 179, covering deductions for equipment and infrastructure. The plan, however, does not allow continuation of various biofuels tax credits, an issue Congress is expected to deal with separately.

The plan proposes repealing the business deduction for fertilizer and other farm materials after 2014, increasing revenues by $3.4 billion by 2023. It also would repeal the special five-year carryback provisions for deduction of farming losses, aligning ag with other business sectors. In terms of conservation, Camp would make permanent rules allowing contributions of livestock/crop production land to conservation easements be deducted up to 100 percent of the owner’s adjusted gross income, but would repeal special deductions for soil and water conservation, farmland erosion prevention and endangered species protection starting in the 2015 tax year, which the lawmaker said will raise $800 million by 2023.

Camp would make permanent current tax law allowing farmers and rural small business owners to expense depreciable assets of up to $25,000 for property valued at up to $200,000. This change would cut federal income by about $55 million. The plan would repeal current IRS provisions allowing producers to average the previous three years income in computing tax liability after the 2014 tax year.

According to the Waterways Council, the draft includes a 6-cent increase in the 20-cent-a-gallon user fee paid into the waterways trust fund, a move supported by inland waterways barge operators, but not included in the Water Resources Reauthorization Act conference committee discussion.

Billions in Obama transport funding pegged to tax reform savings

President Obama has proposed authorizing $302 billion over four years to repair and update the nation’s roads, bridges and transit systems. About half of the money would come from adding to motor fuel and other taxes under tax reform. The announcement came just after Obama and House Speaker John Boehner (R-Ohio) met to discuss prospects for a new omnibus highway bill since the current law expires at the end of September.

The announcement was greeted more as a message of positive direction on surface transportation improvement than a solid plan of action. The Obama plan is seen in much the same way as House Ways & Means Committee Chair Dave Camp’s (R-Mich.) ambitious federal tax reform, namely not enough time, not enough political will in an election year and not enough up-front agreement to move such an ambitious package.

The Obama plan is built on $150-billion in “one-time transition revenue from pro-growth business reform,” which translates into tax reform savings. The plan would authorize $63 billion to plug the Highway Trust fund revenue gap; invest $72 billion in transit systems – a nearly 70 percent increase – and allocate $19 billion for rail, among other investments. The White House said the proposals will create 700,000 new jobs.

The federal Highway Trust Fund is predicted to run out of money this summer, mainly because Americans are driving less, not buying as much gasoline and are buying more fuel efficient vehicles. The federal gas tax has not been adjusted since 1993, and the willingness to increase it in an election year is slim.  

In a related development, the Senate said it’s on track to markup a multi-year highway reauthorization bill in April.

CFTC nominations to be heard in Senate ag committee this week

Hearings to confirm President Obama’s nominees to become Commodity Futures Trading Commission members will be held Thursday, according to Sen. Debbie Stabenow (D-Mich.), chair of the committee.

Nominations up for consideration are Timothy Massad to be CFTC chair, and Sharon Y. Bowen, New York, and J. Christopher Giancarlo, New Jersey, to be new commissioners. Massad is currently the Department of Treasury assistant secretary for financial stability.

USDA says U.S. biofuel production to grow at slower rate

U.S. biofuels production will continue to increase through 2023 but at a slower rate and consume 35 percent of the corn crop on average, according to a U.S. Department of Agriculture report. The growth rates for ethanol and biodiesel are each predicted to drop to below 3 percent each year, which for ethanol translates to about half the historical growth rate.

The Renewable Fuels Association said the USDA projection of slower but steady growth in ethanol is “consistent with the projected demand for grain-based ethanol required by the Renewable Fuels Standard,” according to a report in AgriPulse. However, USDA may not be accounting for an expected increase in ethanol export demand, RFA said.

Obama, USDA, Interior, governors talk drought, as Congress approves forecasting bill

Following on his recent executive order to expedite federal drought assistance to California and other states, President Obama, Secretary of Agriculture Tom Vilsack and Interior Secretary Sally Jewell met with a group of western state governors to talk about drought, forest fires and other issues unique to their states.

In a related development, the Senate approved and sent to the President a bipartisan bill authorizing up to $68 million in federal spending on drought forecasting over five years. The money goes to the National Oceanic & Atmospheric Administration to pay for a national drought forecasting system and sends $13.5 million to the National Integrated Drought Information System.

The president reiterated to the governors that drought affected areas will receive assistance as will other natural disasters. He also unveiled a new plan that will be part of his FY2015 budget proposal to pay for “extreme” forest fire control by financing federal efforts through an accounting system similar to that used in the Federal Emergency Management Agency. USDA and the Department of Interior would control a special account that would pay the costs of federal wildfire fighting. Normal funding for such efforts would have to be expended, allowing both departments to draw on the special account to cover their costs rather than redirecting other program money to firefighting.

Attending the White House meeting were the governors of Arizona, Colorado, Nevada, Oklahoma, Oregon, Utah, Washington and Wyoming.

Trans-Pacific trade deal on the ropes; STR remains ‘optimistic’

The Trans-Pacific Partnership, a multi-nation negotiation to loosen trade barriers in the Pacific Rim market, has hit some rocky patches – mainly due to actions by Japan. The latest round of negotiations ended last week without an agreement in several key areas and no timeline for further talks.

Japan, despite assurances to the contrary given when it was accepted as a member of the negotiating nations, continues to oppose new increased market access for rice, beef, dairy products, sugar and wheat, as well as long-standing opposition to increased auto imports. The United States is insisting on greater market access in all those areas; however, the United States has raised similar objections to sugar import increases, and Canada is balking at greater access for dairy and poultry imports.

U.S. Trade Representative Michael Froman continues to voice optimism on the talks’ outcome. He has been meeting with his Japanese counterpart to talk about market access. Trade experts agree if the United States and Japan reach an agreement, a final deal is much easier to achieve. Last week Froman received a letter from a bipartisan group of senators seeking his assurance the United States will not sign off on a deal until Japan agrees to eliminate tariffs and non-tariff limits on agricultural imports.

Market access issues are not the only roadblocks to the TTP treaty. While Froman had hoped to conclude the agreement at the end of 2013, increasing pressure for and against the pact over labor protections, environmental rules and other assurances makes it unclear whether the multi-nation treaty will be approved in 2014. Additional pressure for a deal will be exerted when President Obama makes an Asian trip in April, which includes stops in Japan and Malaysia.

New poll says farmers not so optimistic on 2014 returns; RFS is key to profitability

A poll of 130 Iowa Farmers produced through a new joint venture between Agri-Pulse and the Iowa Soybean Association shows farmers aren’t expecting stronger financial returns in 2014, expect to spend less on fertilizer and equipment and are investing more in crop insurance. Here are some of the other results of the Agri-Pulse Farm Opinion Poll:

• 92 percent of the farmers polled oppose the U.S. Environmental Protection Agency's proposal to reduce the Renewable Fuel Standard blend rate for corn ethanol and biodiesel. 58 percent said the future profitability of their farm is linked to the health of the RFS and outstrips the farm bill, trade, tax codes and immigration in importance;  
• Nearly 80 percent of farmers polled expect their financial outlook to worsen this year;
• 75 percent of farmers expect to see their land values to decrease;
• 87 percent of respondents expect to buy the same or more crop insurance coverage in 2014 as compared to 2013, calling it an important tool to maintain profitability. Over 62 percent said crop insurance is as important as other programs in the new farm bill;
• 58 percent are targeting reductions in equipment purchases, 32 percent plan to buy less fertilizer and 15 percent will reduce crop chemical purchases.