October 2013 – Significant Developments
Farm Bill. House and Senate conferees continue attempts to hammer out a Farm Bill. The present Farm Bill was extended by the ATRA provisions to September 30, 2013, and has since expired. It is anticipated that the conferees will agree to include in the Farm Bill a provision that will mandate that farmers participating in the farm programs must apply government-approved conservation practices. The required conservation practices would be required for a participating farmer to get government-approved crop insurance. Under the provision, farmers would only be able to cultivate “highly erodible land” upon the adoption of acceptable conservation practices. Second, a farmer could not convert “wetlands” to crop production. The conservation provisions are being pushed because of the economic incentives of the crop insurance program. Under that program, some farmers are incentivized to make cropping decisions that they otherwise wouldn’t make, and some of those decisions may not be friendly to the environment. At the present time, it appears that conferees are not looking to meaningfully reform the crop insurance program. Instead, the discussion seems to be centered on a “shallow-loss” program that covers minor losses and would essentially guarantee revenue and eliminate risk. That would send a signal to farmers to incur even more risk in certain situations. Also, it doesn’t appear that the conferees are considering a cap on crop insurance subsidies.
There are other issues that the Farm Bill conferees are considering. Perhaps by then end of December there will be a new Farm Bill. If not, it may be likely to see a one or two-year extension of the existing policy.
Health Care Legislation. The debacle with respect to the roll-out of the government’s healthcare website continues, and it looks likely that more changes concerning the individual mandate and the associated penalty will be forthcoming. Presently, for more people have faced cancellation of their health insurance than have signed up for government healthcare. That prompted former President Clinton to urge the White House to allow people to keep their existing coverage if they want to. So, our guess is that the politicians will come up with another mandate. This time it will be a mandate that the insurance companies can’t cancel policies so that it looks like the problem is with the insurance industry. On November 14, however, the President announced that insurance policies need not comply with the requirements of the health care law until 2015. That may be a moot point, however, because insurance companies have already made changes to comply with the law as of January 1, 2014, and will largely be unable to adjust to this most recent announcement immediately to reverse the cancellation of millions of policies caused by the President’s health care act.
In late October, the White House announced a “postponement” of the individual mandate and the associated penalty until April 1, 2014. It’s really May 1, 2014 because the system (applications via the website) presently takes two weeks to process applications (once it is working), and coverage is effective on the first day of the month. The employer mandate has already been delayed by the White House until January 1, 2015. As we have been detailing at the Tax Schools, another complication in all of this is that because the employer mandate has been delayed until 2015, the required employer reporting in accordance with I.R.C. §§6055 and 6056 has also been delayed until January 1, 2015. That means that the Department of Health and Human Services and the IRS won’t be able to confirm employer health coverage that individuals claim for 2014.
Stay tuned. We are teaching on the health care act at the tax schools and are adjusting on the fly to the changes in the law (and the associated tax rules) as they occur.
Cash for Clunkers. In October, the Brookings Institution released the findings of a study that they did on the Cash for Clunkers program that used $2.85 billion taxpayer dollars to encourage people to get old, inefficient cars off the market and create jobs. The program gave participants a voucher of either $3,500 or $4,500 toward the purchase of a new car depending on the difference in fuel efficiency of the car given up and the car acquired. In addition, the car given up had to be destroyed – it was removed from the used car market. After the program ended in August of 2009, auto sales dropped 38 percent in September. The study showed that the program pulled forward auto sales into the third quarter of 2009 from subsequent months. In addition, the study showed that the fuel savings of the program was estimated to be the amount of fuel consumed in the United States for a range of 2.4 to 7.9 days. The study concluded that the taxpayer cost per job created was $1.4 million. The study estimated that the car sales stimulated under the program resulted in 3,676 ”job years.” That’s the number of sales that would support a job for a single year.
Other studies have produced similar results. Clearly, the program was not well thought out, and was an example of government waste of taxpayer dollars. Politicians of all stripes voted for the program in 2009.
Economic Woes. Here at the Center, we track the publicly available information from various government agencies concerning economic data for use in the seminars that we do for all types of groups. The information is available from the Bureau of Labor Statistics, the Social Security Administration, the Energy Information Agency and the IRS, just to name a few. It is important to keep a handle on this data due to its potential impact on your clients and, in turn, your business’s bottom line and how you advise clients. Economic policy has been highly questionable over the past decade or so, and the economic woes in the general economy continue. Available economic data indicates that the following has occurred since January of 2009:
- Real median income has declined 4.3 percent.
- The percentage of people in poverty has increased 13.6 percent and the number of people in poverty has increased 16.7 percent.
- The percentage of people that have dropped out of the labor force has increased 10.7 percent.
- The amount of unemployed workers has increased 52 percent.
- The number of part-time jobs held by people that say they want full-time jobs has increased 62 percent.
- The number of people on food stamps has increased 49.2 percent.
- The amount of federal disability payments has increased 19.9 percent.
- The total debt of the U.S. has increased 57.5 percent.
Those are some incredible numbers. Fortunately, agriculture has been spared largely from the downturn in the economy. However, we should always be prepared for times that may not be as good. Appropriate financial, estate and tax planning remain critical. Making sure that a client is flexible and well diversified in investments remains a critical aspect of appropriate financial planning. Estate and tax planning that takes a long term view of things is also the best approach. If we are correct in our projections based on the economic data, it would appear that many individuals are leveraging heavily at the present time and that financial distress issues (both tax and non-tax) will be significant in the coming months and years.
The Center for Agricultural Law and Taxation does not provide legal advice. Any information provided on this website is not intended to be a substitute for legal services from a competent professional. The Center's work is supported by fee-based seminars and generous private gifts. Any opinions, findings, conclusions or recommendations expressed in the material contained on this website do not necessarily reflect the views of Iowa State University.