With the clock ticking down to the end of the year, there is still no agreement to avoid the fiscal cliff. House Speaker John Boehner (R-OH) and President Obama have made progress on taxes and spending, but significant differences remain. Since an agreement remains elusive, Speaker Boehner is working on a “Plan B” that would extend current tax rates for everyone except those with incomes of more than $1 million. If approved by the House, the Senate would be under pressure to do something to head off the tax rate increases that kick in at the beginning of January.
Some had hoped that the new farm bill would be rolled into any agreement to avoid the fiscal cliff, but that now looks unlikely. House Speaker Boehner says he can’t include the farm bill in any package because he would probably lose more Republican votes. So it looks like the votes on a new farm bill will be put off until next year. However, that probably means the debate will be faced with a new budget baseline and the new Congress will have less money available when the farm bill is finally developed.
There is talk that a fiscal cliff deal will set top-line targets for tax revenue and spending cuts and that Congress will have until August to figure out exactly how to make the numbers work. All of this leaves a lot of uncertainty about farm programs. By August most of the wheat crop will be harvested and next year’s crop will be subject to the 1949 permanent legislation unless Congress takes some action. So some type of extension of the current farm bill seems likely, but it is not clear what an extension would include. House Agriculture Committee Ranking Member Collin Peterson, D-Minn., says he will oppose any extension that does not include new dairy security provisions. The fate of direct payments is also unclear under a scenario of a farm bill extension. We will just have to wait and see.
Some members of Congress and the Administration have been pushing for including the farm bill in any fiscal cliff deal because of the savings of $23 billion to $35 billion over 5 years included in the proposals. But some groups are arguing that those “savings” aren’t real. Taxpayers for Common Sense claims that CBO estimates for the 2002 and 2008 farm bills were 30% to 50% below the actual costs. CBO estimated that the 2008 farm bill would cost $604 billion, but the actual cost was more than $900 billion. A recent study by several university economists say the “Price Loss Coverage” plan in the House-passed farm bill proposal could cost $18 billion per year, more than 4 times the cost of direct payments that the plan replaces! These claims may make getting a new farm bill passed even more difficult.
For months members of the House and Senate Agriculture Committees have said that the differences between the bills passed by the respective bodies could be easily bridged in a conference committee. But now they find that compromise is a lot harder than they thought it would be. House members insist that the Price Loss Coverage component (with higher target prices) be included in any deal and Senators claim that funding that part of the program would make the Agricultural Risk Coverage (shallow loss) program unworkable. The point may be moot if the current farm bill proposals die at the end of the year, but the complications of farm safety net provisions are noteworthy.
House Republicans plan to force a debate about the Renewable Fuels Standard next year. Several members of Congress supported the request for the RFS mandate waiver this fall and still believe the mandate distorts the corn market. There is also substantial resistance to the use of E-15. Reportedly, 12 automobile manufacturers can or will void their warranties if E-15 is used in cars made before 2012. And inadequate production of cellulosic ethanol is also a problem for the industry.