How To Handle Limitations on Farm Payments

The USDA farm bill proposes changes on payment limitations, including making farmers ineligible if their adjusted gross income (AGI) is $200,000 or more (now $2.5 million). My guess, without doing much research, is that this is just another proposal that won't be enacted. That's the history of changes in payment limitation; lots more get proposed than get enacted.

There are at least two aspects of the proposal, aside from the general opposition to payment limitations, that will play into the prospects:

1. The size of the change, from $2.5 mill to $200 K. The bigger the change, the stronger the opposition from groups that are opposed.
2. The all or nothing aspect.

My suggestion, to USDA, to Congress, would be to consider a progressive payment structure. Assume that FSA has the payee's AGI recorded in its payment system. (The bureaucratic problem is getting the data attached to the payee; once you do that, getting the data into the computer system should not be a big deal.) It then would be easy to program the payment calculation to factor payments according to a progressive rule. For example:

AGI Payment

• < $100,000 100 percent of calculated amount
• <$200,000 80 percent of calculated
• <$500,000 50 percent of calculated
• <$1 mill 25 percent
• >$1 mill 0

Vary the amounts and percentages however you want, put in as many levels as you want.

The advantages of the proposal are:

1. Makes the implementation more gradual
2. Counters the widespread criticism that the bigger the farmer the bigger the payment--makes payments "progressive" in some sense
3. Might make payees less likely to try to evade the limitation. (The incentive to evade is variable, like boiling a frog slowly.)

Based on my experience with the Gramm-Rudman-Hollings factoring of payments in 1986, it would be imperative to think through the relationship of factored payment dollars to the payment limitation.