There is a time-honored political axiom that says there are two things that you never want to see being made. One is sausage. The other is legislation. That was certainly the case as the Senate and House furiously dealt with the fiscal cliff, the dairy cliff and farm policy. All were woven together Monday and Tuesday and it seems no one is happy with the outcome so that means it must be as fair as it can get.
The dairy legislation was what spurred action because Congress did not want the consumer ire of $7 milk dictated by the 1949 Farm Bill. While the latest congressional action averts the "dairy cliff," it also postpones dairy policy reforms that were sought by the National Milk Producers Federation and approved last summer by the U.S. Senate  and the House Agriculture Committee .
National Milk Producers Federation President and CEO Jerry Kozak expressed frustration over the continuing delay of policy reforms. “Dairy farmers across the country have united behind the Dairy Security Act provisions in the original farm bills that have already been approved by the full Senate and by the House Agriculture Committee...." The International Dairy Foods Association – representing the grocery companies – was more congratulatory toward Congress’s efforts.
Interestingly, the producer-backed Dairy Security Act was in both the Senate Farm Bill and the House Ag Committee Farm Bill – but was totally eliminated as an alternative solution to the $7 milk problem by Senate minority leader Mitch McConnell who negotiated the compromise for the Republican Party.
What was passed was an extension of the 2008 Milk Income Loss Contract – but it was weak in its ability to protect farmers from low dairy prices and high feed costs, which could be the scenario for the next nine months of the 12 months it will last.
Farm policy reform did not make it into the rest of the Farm Bill that was extended earlier this week. Although nearly all sectors wanted to abandon direct payments, that was the program that was extended through Sept. 30 – the deadline for Congress to settle on new farm policy.
Nearly all of the 2008 legislation was extended, except for 37 different programs that had lost their budget lines. They are on the books, but just are not funded. That includes disaster legislation. While the farm bill proposals from the Senate and the House Ag Committee designed disaster programs to assist livestock producers after the drought, those programs were considered new and were not included in the legislation.
There are also a couple items that should be mentioned as farmers intensify their tax preparation efforts, since the March 1 filing deadline is not that far away. Bonus depreciation was set at 50% for property put into service in 2013 – which duplicates the 2012 tax schedule. Also, for Section 179 expensing, the deduction for both 2012 and 2013 was set at $500,000, with phase-out beginning when investments reach $2 million.
Finally the estate tax got a work over, which had been set to revert to a 55% tax on estates over $1 million. As for estate taxes, under the agreement, the rates will rise from 35% to 40% for estates valued at over $5 million dollars; however the Republicans did succeed in building in a provision that allows the amount of the $5 million exemption to be indexed to the rate of inflation. The higher exemption is an important issue to farmland estates, which only takes 333 acres, at $15,000/acre to max out on the exemption.
Dairy and farm legislation was approved by Congress as part of the fiscal cliff deal, but it was not the reform legislation that many sides wanted. The legislation extends the 2008 Farm Bill, and is essentially based on that farm policy, instead of anything new being developed by the Senate and the House Ag Committee.