Lowering the Income Cap for Farm Payments Would
Affect Few Farmers
Ron Durst
A substantial portion of farm program payments
go to large farms and high-income farm households.
In 2005, commercial farms (with sales of $250,000
or more) represented 9 percent of farms but producers
associated with these farms received 54 percent
of all payments. The principal farm operators of
these large farms had average household income of
approximately $200,000, more than three times the
average for all other farm households.
One way to reduce payments to
high-income farmers is to reduce the income eligibility
cap, which is currently $2.5 million. USDA’s
2007 farm bill proposal recommended reducing the
income eligibility cap to $200,000. It also proposed
eliminating the exception for those with at least
75 percent of their income from farming, ranching,
or forestry operations. In July 2007, the U.S. House
of Representatives passed farm legislation (H.R.
2419) that would reduce the cap to $1 million. These
proposals have generated interest in understanding
the number and location of high-income farmers that
could be affected by a reduced income cap. ERS used
2004 Internal Revenue Service (IRS) tax return and
Agricultural Resource Management Survey data to
examine the effects of a $200,000 income cap, the
lowest proposed cap.
The income cap would be based on
adjusted gross income (AGI), a tax-defined term
comprising taxable income from all sources, including
farming. Operators of more than 90 percent of all
farms file their tax returns as farm sole proprietors.
Based on 2004 IRS data, 84,932 farm sole proprietors
(about 4.2 percent of all farm proprietors) had
AGI over $200,000. Because not all of these farm
sole proprietors received payments, it is estimated
that only about 1.2 percent of farm sole proprietors
potentially would be affected by a $200,000 limit.
Even after factoring in the 8 percent of farms organized
as partnerships and corporations (which are more
likely to receive payments), only about 1.5 percent
of all farms potentially would be affected by a
$200,000 income cap.
The Northeast and West regions
report the largest share of farm returns with AGI
over $200,000, while the Corn Belt and Plains States
have the lowest shares. The shares range from 1.5
percent of farm sole proprietors in North Dakota
to 13.4 percent for New Jersey.
Only about one-fourth of farm
sole proprietors with an AGI over $200,000 reported
positive farm income in 2004, with an average farm
income of $45,000. In aggregate, farmers with AGI
over $200,000 reported an average farm loss of $23,600.
For the overwhelming majority of these farmers,
farm income and government payments account for
a relatively small share of total household income.
|
Download PDF version