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Farmers, farm policy and the 'fiscal cliff'

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Without a deal on the "fiscal cliff" farmers can't be sure about next year's farm policy. (File photo Eric Durban/Harvest Public Media)
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Grant Gerlock is Harvest Public Media's reporter based at NET News in Lincoln, Neb.

Congress and the White House appear far from a deal to avoid going over the "fiscal cliff at the end of the year." The sudden changes in taxes and spending that would result, would hit home for some farm families and people depending on support programs in the Farm Bill.

The "fiscal cliff" is shorthand for $1.2 trillion in tax increases and spending cuts set up when Congress was dealing with the debt ceiling in 2011. Without intervention by the president and Congress, the cuts and tax hikes will take effect in the new year.

Farmers were already peering over the edge at the recent annual meeting of the Nebraska Farm Bureau in Kearney, Neb., and did not like what they saw. For starters, like everyone else, farmers’ income taxes would go up. But a longer-term issue is also at stake: whether a family can leave the farm to the next generation.

Zach Hunnicutt stood out at the meeting in his bright red Farm Bureau shirt. The 30 year-old from Aurora, Neb., grows irrigated corn, popcorn and soybeans with his family.

Zach and his older brother, Brandon Hunnicutt, plan to take over the family farm when their dad, Daryl, is done. But Zach said those plans could change if Congress allows estate taxes to jump up at the end of the year.

In 2012, a farm would be taxed at a 35 percent rate if it is worth more than $5 million. Next year the law would go back to what it was in 2001, when estates over $1 million were taxed 55 percent.

“Honestly, if it’s at 55 percent and a million dollars, there’s not a good way to plan for that,” Hunnicutt said. “You’re looking at having to sell off significant assets just to foot the tax bill because Dad died.”

That’s tough for farmers.

“What do you do? Are you going to sell the land to pay a tax? Well, there goes the operation,” said Brad Lubben, an agricultural economist at the University of Nebraska Lincoln.

Lubben said $1 million dollars is a low bar for a farm estate at today’s land prices.

 “One million. Five million. It still sounds like a pretty big estate,” Lubben said. “On the other hand, if the policy goal is helping farm operations maintain continuity across generations, at today’s land values a million-dollar estate isn’t even a quarter section of land.”

Several producers at the Nebraska Farm Bureau meeting said if they do have to pay more taxes, they wanted to see more cuts.

That is the other part of the fiscal cliff. Sequestration. Automatic, across-the-board budget cuts.

At the U.S. Department of Agriculture, about $3 billion in cuts would be targeted on discretionary spending items including some farm loans, disaster relief, research and food inspections. But the largest amount of money cut from USDA would be felt far away from the farm.

Erica Arter coordinates the WIC (Women, Infants, and Children) program at Family Service in Lincoln, Neb. WIC is a supplemental nutrition program for low-income pregnant women and mothers with young children. Arter is concerned about cutbacks if more than $500 million in cuts to the federal WIC budget become a reality.

“It could mean not being able to serve all the participants that are able to qualify for the program,” Arter said. “It could mean staffing cuts. It could mean not being able to serve the clients as well by having reduced clinic hours.”

In Nebraska, over 43,000 women and children used WIC in 2011. Many depend on the program.

Leslie Blake said she uses money from WIC to help buy groceries. As she sat in a waiting room at the Family Service clinic while her young son and daughter played with some other kids on a plastic picnic table in the middle of the room, Blake contemplated what would happen if she wasn’t able to secure WIC funding.

“My husband is a part-time student and he works full time,” Blake said. “And he just doesn’t make enough (money). I stay home with my kids so we don’t have to pay daycare. But we have WIC because we have to. We have no choice. And if they cut the budget it would severely affect our family.”

The National WIC Association estimates more than 700,000 women and children could lose services nationwide – around 3,600 in Nebraska. The Nebraska Department of Health and Human Services said it is still too early to speculate on how federal cuts would play out locally.

Brad Lubben, at the University of Nebraska Lincoln, said Congress would save more money from USDA simply by passing a new Farm Bill. But, for now, Lubben said not to expect a new bill unless it is hashed out as part of a breakthrough on the fiscal cliff.

“If it’s going to move yet this year, it’s going to move as an attachment to a bigger bill,” Lubben said.

Any deal on the fiscal cliff is expected to address estate taxes, and Lubben said a new Farm Bill should take sequestration cuts to programs like WIC off the table. But unlike the taxes and cuts in the fiscal cliff, political compromise is not automatic.