President Vetoes Farm Legislation

On May 21, 2008, following Congressional passage of the Food, Conservation, and Energy Act of 2008 (HR 2419) by veto-proof margins, President Bush carried through with his promise to veto the legislation. The President wants much more significant reductions in farm subsidies. It is not clear that all of the Congressional votes in favor will still be there to override a Presidential veto.

Included in the tax and trade title of the legislation were $1.67 billion in tax relief and incentives and a larger amount of revenue raisers. Retired farmers and farmers on disability who participate in land conservation reserve programs will be permitted to count payouts under the program as investment income, preventing reductions in Social Security or disability benefits. New deductions and credits include a deduction for endangered species recovery expenditures and a credit for agricultural chemicals security measures. Deduction and credit enhancements include an increase in the cellulosic biofuels credit and an extension of the conservation easement deduction. Another provision creates uniform three-year depreciation for horses. Also included are a couple of provisions related to qualified timber gains and timber REITs. Bond provisions include authorization of forest conservation bonds and increased loan limits on qualified small issue bonds for farming. A number of Katrina relief provisions are extended to apply to tornado and storm damage in Kiowa County, Kansas. The legislation also authorizes like-kind exchange treatment of stock of mutual ditch, reservoir or irrigation companies where the state’s highest court has classified the stock as real property – apparently a reference at least to Colorado.

The principal offsetting revenue comes from a reduction in the ethanol credit. Some of the additional revenue is raised by limiting the ability to offset farm losses against nonfarm income, excluding denaturant from the alcohol fuels credit, creating an optional self-employment tax for Social Security, and the ever popular adjustments in corporate estimated tax payments.

It appears that the House and Senate may make an effort to hold veto override votes prior to the Memorial Day recess beginning at the end of this week.