Thursday, February 08, 2007

Means testing, inequality and subsidies...

Economists love blogs and more than a few of them have been opining about inequality in the US and the globe. When Pres. Bush surprisingly mentioned it (where has this part of his personality been for 6 years?) along with admonishing Wall Street on CEO salaries, he poured gasoline on the debate.

But there is a linkage I believe between inequality of income/assets and the administration ideas for means testing "middle-class" benefits.

The budget represents a challenge to parts of the system of entitlements enacted as part of the Great Society agenda of the 1960s, with plans to cut Medicare spending, the main publicly funded health insurance programme for those over 65, by raising premiums for wealthier recipients.

That could save $66bn over five years, according to budget estimates, and up to $9,000bn during the next 75 years, according to some analysts.

Michael Franc, vice-president for government relations at the Heritage Foundation, said Mr Bush had considered means-testing as part of Social Security reform. “Now there is a shift to applying it across the board for all entitlements. The big change concerns the wealthy. Democrats want to tax them more. Republicans say they want to make them pay more for their middle-class benefits and shoulder more of the burden.” [More]

While normally associated with Medicare, the practice is exactly what prompted the "AGI Test" in the farm bill proposal.

"Going from a $2.5 million AGI to $200,000 AGI is huge," she said.

The AGI is a limit for farmers who wish to receive farm program payments. The lower AGI limit means a producer with more than a $200,000 AGI would not be eligible for commodity payments. The Internal Revenue Service data for 2004 indicated that 97.7 percent of tax filers have an AGI under $200,000. [More]

Regardless of your position on whether inequality is a problem or simply a characteristic of a dynamic and growing economy, one of the social consequences could be the willingness, even the hope of sticking it to the wealthy. For those whose economic conditions have improved, but at a far slower rate than the very top, disallowing federal payments to the privileged is a thought to savor.

There are many of our fellow citizens in this group. Some even vote.

The result might be, in our part of the economy, an amazing number of farmers who somehow make $199,000 every year.


brian said...


It doesn't take too big a farm and some off-farm income to reach $200,000 AGI. I bet there were not too many folks at that Top Producer seminar who weren't above this ceiling. Do you think the farm lobby (especially southern) will go for this? Not too many are huffing and puffing now, but I am sure there are several quiet conversations going on with a few key congressmen. And they know enough to hold their ammunition until the middle of the night when the bill is in conference.

And you are right, the $200,000 number will just become one more piece in the cash accounting jujitsu that takes place each December.

Ah yes, cash accounting. I have often read your specious view of the special treatment for farmers in various government policies, but I bet even you would like to hold on to cash accounting. :)


John Phipps said...

brian: Well, Mr. Smarty-pants, you are sooo wrong. Having used cash accounting to delay my taxes until late in my career which is ummm, now, I would happily embrace another scheme to allow me to dodge them altogether.

No kidding, I did some proforma forecasting out through 2009 and the taxes I haven't paid seem to be coming home to roost. Accelerated depreciation (Sec 179) was just too tempting for simple farm boys like me.

Time to lobby for investment tax credits, maybe.

You are right about the 200K limit. Next year at this time some guys who weren't close with $2.50 corn could be over the top with $4 corn. And they may find out too late.


brian said...


2009 forecasting? Sounds like counting of the proverbial eggs to me.

Ah yes again, the investment tax credit. I know several (mature?) farmers who still talk wistfully about that one.

Just build some more bins. You can write off the bins and defer grain sales indefinitely. And put in some tile. Heck, buy a tiling rig and do it yourself. Isn't it amazing how we can figure out ways to keep it out of Uncle Sam's hands. I think that was one of the 70's mantras: "Might as well spend it, otherwise I pay it to Uncle Sam." As you say, we just need to remember how to handle prosperity.;)


Bill Harshaw said...

Rather than the flat cutoff at $200K, I'd think it would be better to reduce the payments gradually. Pay 80 percent of calculated at $150K AGI, 60 percent at $200K, etc.

Or see How to handle payment limitations