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House Passes Massive Farm Bill
Tax Issue Prompts GOP Opposition

By Dan Morgan
Special to the Washington Post
Saturday, July 28, 2007

The House yesterday passed a far-reaching new farm bill that preserves the existing system of subsidies for commercial farmers and adds billions of dollars for conservation, nutrition and new agricultural sectors.

Passage of the 741-page bill by a vote of 231 to 191, after partisan battling unusual for farm legislation, was a major achievement for the new Democratic leadership.

With most Republicans opposing the five-year bill over a tax issue, House Speaker Nancy Pelosi (D-Calif.) hammered out a compromise that held together a shaky majority of Democratic farm-state lawmakers committed to the entrenched farm subsidy system, together with urban liberals and reformers seeking sweeping changes.

"This signals change and a new direction," said Pelosi, in calling for the party to stick together on the contentious vote.

The bill, which has a price tag of almost $286 billion, boosts spending on preservation of grasslands and wildlife habitat, and mandates a major study of the Chesapeake Bay watershed as a first step to restoring the bay by reducing agricultural and other wastes.

The measure updates the food stamp program, indexing benefits to inflation, increasing the minimum benefit and raising the standard deduction. Youth obesity is addressed by a program to introduce healthful snacks in schools, and more money is authorized for famine relief abroad.

In an important victory for consumer organizations, imported meat, including hamburger made from multiple animals, will be labeled by its country of origin starting in October 2008.

Pelosi also cited the bill's emphasis on credits and loan guarantees for new forms of biofuel produced from grasses and biomass. "Future farm bills will never look the same," she said.

Nonetheless, major hurdles remain before the massive legislation becomes law.

The White House, citing insufficient reforms of the subsidy system, has threatened a veto. Only 19 House Republicans supported the bill's passage because of the last-minute addition of a tax provision needed to offset the new Democratic-backed spending on food stamps and nutrition.

Rep. Robert W. Goodlatte (Va.), the ranking Republican on the House Agriculture Committee, accused Democrats of "poisoning the well" by adding the tax provision to what had been a bipartisan farm bill. Business lobbies, including the National Association of Manufacturers, warned that the action could discourage foreign investment and cost jobs.

Democrats said the provision merely closes a loophole that allows a limited number of U.S. subsidiaries of foreign companies to avoid taxes. Aides said it is aimed at companies headquartered in tax havens such as Bermuda, with which the United States has no tax treaty. Subsidiaries avoid a tax bite by funneling earnings through European countries that have reciprocal tax-reduction arrangements with the United States.

Rep. Lloyd Doggett (D-Tex.), a senior member of the House Ways and Means Committee, said the provision levels the playing field for "small American companies that are paying their share of taxes."

House Agriculture Committee Chairman Collin C. Peterson (D-Minn.) charged that Republicans had fixed on the tax issue as an excuse for killing the bill. "They don't want to see success," he said.

But Democrats acknowledged that the entanglement of business issues in the farm bill could cause problems down the line.

Last week, a coalition of business groups, including the U.S. Chamber of Commerce and Business Roundtable, urged Congress to reject a farm bill that did not make major cuts in agricultural subsidies, so as to expedite a global trade deal benefiting manufacturers.

Developing countries are demanding a reduction in U.S. and European agricultural protections before opening their markets to American manufactured items.

Peterson responded hotly yesterday, saying farm-state lawmakers were in no mood to appease big business. Previous trade deals, such as the North American Free Trade Agreement (NAFTA), have been tailored mainly to help manufacturers and have not been good for U.S. agriculture, he said.

In defiance of international trade rules that discourage price supports that lead to overproduction, the bill raises price guarantees for wheat, soybeans and sugar.

Pressures on Congress could increase after a ruling this week by the World Trade Organization in Geneva. A WTO panel held that the U.S. cotton industry has not adequately responded to a 2005 ruling that certain subsidies violate international trade agreements. The panel said Brazil has the right to retaliate.

The centerpiece of the bill is a web of price guarantees and direct payments going mainly to corn, wheat, cotton, rice and soybean growers in a few Midwestern and Southern states. The cost to taxpayers will be about $7.5 billion a year.

Farm organizations pulled out all the stops to defend this system, hiring lobbyists, setting up blogs attacking critics and buttonholing farm-state lawmakers. Among the lobbyists was the former chairman of the House Agriculture Committee, Larry Combest (R-Tex.).

The House bill includes a new concession for cane and beet sugar producers, ensuring that they will not have to cut back on their planting when unrestricted Mexican sugar imports start next year under NAFTA. The Department of Agriculture will be required to buy up volumes of sugar comparable to the imports and sell it to ethanol plants for a reduced price, at a 10-year cost to taxpayers of $1.4 billion.

In the last-minute jostling, a provision to make leaf tobacco farmers eligible for funds to promote their product abroad was stripped to avoid a floor battle with anti-tobacco forces. Rep. Bobby R. Etheridge (D-N.C.) had argued that it was a "matter of patent fairness" to tobacco growers.

Farm-state lawmakers also united yesterday to defeat an amendment by Minority Leader John A. Boehner (R-Ohio) aimed at preventing farmers from reaping unintended windfalls from a key subsidy, the loan deficiency payment. In 2005, the subsidy cost nearly $5 billion.

Late Thursday, an amendment by Rep. Ron Kind (D-Wis.) to reform the subsidy system garnered only 117 votes. Kind was backed by consumer, environmental, religious and anti-hunger groups.

The defection of Republicans this week forced Democratic leaders to scramble to strike deals with urban liberals to assure the final majority.

In the maneuvering, the Congressional Black Caucus came away with at least $100 million to help the USDA settle discrimination lawsuits filed by minority farmers. But the dealmaking forced a hasty search for offsetting funds.

To help pay for mandatory new spending on food for children abroad, Democratic leaders imposed a new "conservation fee" on some offshore oil and gas leases. It would recoup billions of dollars in royalties lost because of faulty federal leases with companies operating in deep waters of the Gulf of Mexico.

Morgan, a former Post reporter who specialized in agriculture, is a contract writer of the newspaper and a fellow with the German Marshall Fund, a nonpartisan public policy institution.

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