Thursday, February 01, 2007

And the answer is...

I appreciate the thoughtful and civil comments regarding the "1031 recommendation" in the Bush farm bill proposals. I thought, "What would Milton Friedman do?" and came to these suggestions.
  1. My favorite: Don't give subsidies to 1031 exchanged ground. Don't give them to any other ground either. It is simple, fair and saves taxpayer money. But as many of you have pointed out, the only farmers who think subsidies are the problem, not the solution are me and Bob and Gene and this guy I met in Nebraska a while back. So I'll give that idea a rest.
  2. Lower the capital gains rate to 8%. Lowering the capital gains tax rate has been shown to increase capital gains tax revenues. You read that right. Of course, lowering it to zero (which some recommend) would generate zero tax revenue, so somewhere between the current rate (15%) and zero there could be a peak. My guess is around 8%. Interestingly, I once asked a 1031 exchange expert what rate would make the expense and hassle of such exchanges more trouble than just paying the tax. His answer was "about 8%". So lower the rate to 8%, get more tax revenue, and slow drastically like-kind exchanges by encouraging investors to just take the cash instead.
Thank ya, thank ya vera much


Anonymous said...

A few comments on idea #1. We really shouldn't give "it" a rest, but rather, provide some practical protocol for the weaning process. We can't expect the program to just go away overnight. There is no need for a new programs to help eliminate the old - let's just gradually eliminate different elements of the existing. '07-no counter cyclical; '08 no ldp, no new conservation contracts, elimination of penalty for early exit of crp; when existing conservation contracts expire, they expire. Let it go. If hunters need the recreation, let them pay us for it. '09 - no new enrollment in lending assistance programs, with all participation ending by '11; '09-eliminate milk and all the misc. assistance. And most importantly, let's give tham a way out, or they will fight us all the way down - beginning in '08, utilize unused support dollars to fund an early retirement/career buyout program for USDA employees. Costly, yes, but in the long run, our cheapest option. We can't expect those get their identity from the program to help us find a way to end it. Somebody's got to hold their hand, and help it not hurt so much. Oh - one more thing I forgot - '08-deport Harkin to Venzuela.

John Phipps said...

Stephen - see, see - there ya go making perfect sense and right at the end, you throw in the Harkin thing. No wonder we anti-subsidy guys shoot ourselves in the foot so often.

Seriously, I'm not convinced cold turkey is a bad idea. It worked in NZ and it prevents a prolonged period of denial and pushback.

Anonymous said...

I totally agree. But how are you going to spin it so that we get it done. Our window of opportunity lasts only a short while here. One of two things is inevitable: either we give our new-found monster margins to our supply side friends, or, before we have a chance to self destruct, this new "price plateau" becomes an "E" slope. In either scenario, we will allow our political "servants" to protect everyone else's, (often their own) margin with producers as the conduit. No matter what we do here in the U.S., with our world economy we will never be free from the impact of government meddling in ag. It really sucks torealize that the idealistic question of what "should we do?" is preempted by "what can we do?"