Ag Policy Blog

The U.S. Senate voted early New Year's morning to raise taxes on wealthier Americans with legislation that also extended some portions of the 2008 farm bill.

Though lawmakers missed a self-imposed deadline, the legislation approved 89-8 would avoid raising income taxes on 98% of the country. The bill, if approved by the House, also prevents the permanent farm law from going into effect, thus avoiding the possibility of soaring dairy prices.

The bill now goes to the House, where eyes will be on leaders of both parties and whether they can muster the votes to send the tax measures to President Barack Obama.

For members of the Senate and House Agriculture Committees, the fiscal bill remains a bitter pill to swallow. The only Congress committees that offered specific cuts to slow the growth of spending in their programs saw their efforts throughout 2012 go for naught. The legislation offers a partial, nine-month extension of farm programs.

The legislation also doesn't provide disaster aid from farmers. Provisions were removed from the bill that would have funded $664 million in disaster aid aimed mainly at livestock producers as well as fruit and vegetable growers not protected by crop insurance.

Roll Call reported Monday a more robust farm-bill extension ran into trouble with Senate Majority Leader Mitch McConnell, R-Ky., who didn't agree to add the disaster aid or a new safety net for dairy producers. Moreover, the legislation would not fund or extend any programs that expired last September. Roll Call reported Senate Ag Committee Chairwoman Debbie Stabenow, D-Mich., gave an angry rebuke on the Senate floor.

"Without consultation with me or the chairman in the House, we now have a partial extension," Stabenow said.

However, Stabenow voted to support the fiscal agreement.

The new dairy safety net was removed as lawmakers simply extended the 2008 dairy programs. That incensed leaders of the National Milk Producers Federation, which was one of the first groups to react with a statement sent early Tuesday.

"The Senate's vote earlier today on a nine-month extension of current farm policy is a devastating blow to the nation's dairy farmers," said Jerry Kozak, president and CEO of NMPF. "After months of inaction, the plan that passed overnight as part of the fiscal cliff package amounts to shoving farmers over the dairy cliff without providing any safety net below."

On tax provisions, which was the core driver keeping Congress in session through the holidays, the Senate fix would raise revenue by $620 billion over the next decade, making a minor dent in the annual budget deficits that now top $1 trillion annually.

Tax rates would be permanently raised to 39.6% for individuals earning more than $400,000 a year and couples earning more than $450,000.

The estate tax would be set at a $5 million exemption for individuals, or $10 million for couples with a rate at 40%. The $5 million exemption will also be indexed for inflation. While some farms groups had advocated eliminating the tax altogether, the deal still avoids going back to lesser asset exemptions.

Capital gains and dividends will be permanently set at 20% for those earners with income above the $400,000 threshold for individuals or $450,000 for couples. The rate remains at 15% for everyone else.

The Alternative Minimum Tax will be permanently patched to avoid raising taxes on middle-class earners.

The 2% payroll-tax break is allowed to expire, thus paychecks will be slightly smaller for virtually every wage earner in the country.

A failure in the negotiations came in dealing with budget cuts. So President Obama and lawmakers once again pushed off the $1.6 trillion in sequestration cuts from going into effect for another two months to allow talks to continue.

A late caveat to the legislation may have helped swing votes by helping lawmakers avoid some political wrath at home. The deal puts members of Congress in a vice because of a provision to eliminate their own pay raise. Thus, lawmakers voting against the plan could be seen as voting to raise taxes on the middle class while also voting to increase their own pay.

Three Democrats and five Republicans voted against the bill, including both of Iowa's senators. Some senators from both parties remained angry. Sen. Tom Harkin, D-Iowa, took to the Senate floor Monday morning to criticize the proposal as unfair to middle-class Americans.

"No deal is better than a bad deal," Harkin said. "And this looks like a very bad deal the way this is shaping up."

Later in the evening, Harkin was reported as one of the first Democratic senators to leave a meeting with Vice President Joe Biden and remained angry about the deal. Harkin said he would vote against it. Biden and McConnell were the two primary negotiators to close the deal over the weekend and Monday. McConnell said the tax measures ensured few people would suffer from higher tax rates.

"This has clearly been a good-faith negotiation," McConnell said Monday on the Senate floor. "We all want to protect the taxpayers."

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