I came across two items within the span of about 30 minutes that both questioned whether our elected representatives understand what they are voting on. The first was on the Farm Bill that just passed. The second was about John McCain’s speech about the cap and trade bill.

The Farm Bill question came from a CPA in California who is a member of a tax issues listserv. He wrote,

What am I missing? Is Congress using tax dollars to make payments to subsidize businesses with net income approaching three quarters of a million dollars annually? My question is posed to see if the article attached is correctly interpreting the proposed farm bill. Any responses will be
appreciated.

It’s Sunday morning. There haven’t been a lot of responses yet. Here’s the response I just posted:

I’m no expert here, but I looked at the Conference Report linked at http://www.farmbill2007.com/ and found this:

‘(b) LIMITATIONS.—

‘‘(1) COMMODITY PROGRAMS.—

‘‘(A) NONFARM LIMITATION.—Notwithstanding any other provision of law, a person or legal entity shall not be eligible to receive any benefit described in subparagraph (C) during a crop, fiscal, or program year, as appropriate, if the average adjusted gross nonfarm income of the person or legal entity exceeds $500,000.

‘‘(B) FARM LIMITATION.—Notwithstanding any other provision of law, a person or legal entity shall not be eligible to receive a direct payment under subtitle A or C of title I of the Food, Conservation, and Energy Act of 2008 during a crop year, if the average adjusted gross farm income of the person or legal entity exceeds $750,000.

“Average adjusted gross income” means “the average of the adjusted gross income or comparable measure of the person or legal entity over the 3 taxable years preceding the most immediately preceding complete taxable year.” I’d interpret that to refer to average AGI.

Another tidbit that I got from here: the AGI limitation used to be $2.5 million. Bush wanted it lowered to $200,000 and apparently this $750,000 figure was a compromise.

For readers who are not conversant with tax-speak, a business’ “AGI,” or adjusted gross income,is composed of net business income after deducting business expenses. This is not a complicated or obtuse tax issue.

But apparently at least one of the legislators who voted for the Farm Bill thinks that AGI is computed before deducting business expenses. A Denver attorney who blogs at washparkprophet.blogspot.com reports:

Sen. Ken Salazar, a Denver Democrat who supports the bill, disputed the idea that it pays rich farmers. The bill allows payments to farmers with adjusted gross incomes of $750,000 or less.

That number doesn’t take into account deductions for the cost of running a farm, Salazar said.

“A farmer with an adjusted gross income of $750,000 might be losing his shirt” after paying for fuel, a new tractor and other expenses, Salazar said.

From The Denver Post.

The trouble is that Ken Salazar is wrong. Adjusted gross income is income after business expenses (and student loan interest and self-employed health insurance deductions), not before. Indeed, even gross income for tax purposes is after business expenses.

The amount of crop subsidies received are based upon gross cash crop sales, but the limitation on farm subsidies to prevent rich corporate farmers from unduly benefitting from them, are based upon adjusted gross income (see Section 1601 of the Farm Bill), which, for a farmer with no other form of income, is simply taxable profits from farming.

The notion that our government needs to be spending $43 billion a year, more or less, subsidizing farmers making $750,000 a year net is absurd. The lion’s share of these subsidizes go to farmers who are financially comfortable. The is no reason that the U.S. government should be providing corporate welfare to farmers making more than ten times the median family income. If we must have crop subsidies, which have multiple negative impacts on our economy, as a way to preserve open space and a historic way of life, they should be limited to famers who are actually struggling economically.

If Ken Salazar is going to provide corporate welfare to extremely high income farmers (and the limitations is based on a multi-year average further mitigated by generous income averaging provisions available to farmers who file their returns on Schedule F), he should at least do so knowing what he is doing and defending his stance on the merits rather than on a misunderstanding of the bill.

Also, the fact that Anne C. Mulkern, who wrote the story for the Post, didn’t note that Salazar was mistaken is a classic example of the mass media’s abdication of their responsibility to provide not only each side’s opinions about the story, but also the facts. Reporters covering stories like this one have an obligation to their readers to know what they are talking about, and to take to task spin that is plain wrong on the facts, rather than blindly parroting it.