Young looks at impacts of economy
Powell – “I think that we are in such a state of confusion and conflict that I don’t think the House or the Senate leadership really knows where they are going at this stage of the game,” said American Farm Bureau Economist Bob Young. “Where we are going in still a question.”
Young addressed attendees of Northwest College’s Spring Roundup, held on Jan. 24-25 in Powell, looking at the political climate affecting agriculture producers.
“We dealt with the fiscal cliff, and we did some good,” he added, “but we left an awful lot of stuff behind. We’ve got several things we are going to have to work on.”
Fiscal cliff positives
With the fiscal cliff deal that was passed in the 11th hour, Young noted that agriculture did see some positive developments.
“We ended up with a permanent provision of the $5 million individual exemption, taxed at 40 percent above that for the estate taxes,” he said. “There was every indication that folks were ready to pursue a $1 million and 55 percent exemption.”
However, he said that the provision is permanent now.
“We also got a permanent fix to the alternative minimum tax, which affects upwards of 40 million families,” he said. “Permanent changes on capital gains, extension of the renewable energy tax credit and bonus depreciation were all pushed through.”
“Those are all good things,” he added.
Young noted that in the near future an extension of the debt limit is going to be a prominent discussion.
“Yesterday, the House passed a clean extension of the debt limit,” said Young. “They said, ‘Let’s suspend the debt limit so it can rise as much as it needs to and have it expire May 18 and we’ll raise the debt limit to that number and talk about it then.’”
At the same time, the U.S. is seeing the highest debt to gross domestic product (GDP) ratio ever.
“In 1912, the ratio of debt held by the public to GDP was small,” he said, noting that the federal debt was much lower. “We had a ratio north of 122 percent debt to income at the end of 1947 after federal spending from World War I.”
He noted that during the last year of the Bush administration through President Obama’s term, more debt was added.
“We have added more debt in the last four or five years than we built in the first 200 years,” he said. “The kicker is when you start looking at what things look like in front of us.”
Going forward, Young mentioned that Congress will likely to continue to work to cut programs like agriculture, rather than addressing major portions of the budget.
“The first challenge we are going to fight this year is in the sequester,” he explained. “The idea is we are going to take a 50/50 split out of defense and non-defense spending. We are going to split the $500 billion in non-defense between discretionary and mandatory spending.”
Young continued, “This seems like a reasonable approach, but you have to read the fine print.”
While the cuts are defined, Young points to 13 pages of legislation that lays out programs exempt form the sequester, saying Medicare, for example will take only a two percent hit of the approximately eight to nine percent that the entire cut encompasses.
“Because Medicare isn’t taking the full eight percent, other programs will have to take a bigger hit,” he said. “Supplemental Nutrition Assistance Program, or SNAP, won’t take a hit, conservation reserve program contracts don’t take a hit, and crop insurance contract won’t take a hit.”
Looking specifically at agriculture programs, Young described that commodity programs account for approximately six percent of the budget, conservation programs are at six percent, crop insurance is 10 percent and all other programs are at 0.3 percent, with nutrition funding making up the majority of the funding.
“Nutrition – the biggest piece of the pie – will not get cut,” he said, “but the other pieces will get cut. What that means is, for example, for every $13 we cut, we will take $4.50 out of crop insurance, $5.50 out of commodity programs, $2.35 from conservation and $0.40 for research.”
The majority of spending by the U.S. government comes from Social Security, Medicare and Medicaid, Defense and Interest on the National Debt, said Young. Those programs, he noted, are funded by money that is taken in by the government in the form of taxes and other income.
“Everything else in government – the things like the FBI, FAA, Department of Transportation, BLM, etc. – are funded on borrowed money,” he said.
However, when cuts are made in Congress, they are frequently made to the other programs, such as agriculture programs, that each make up less than $100 billion of the budget.
“Those big chunks of money, the entitlement programs like social security and Medicare, are the ones that have to be dealt with so we can continue into the future,” he remarked.
A longer-term issue, said Young, is the fact that Americans aren’t having children anymore.
“When we look at social security, we are paying to sustain the folks that are retired now,” he said. “In 1960, there were five to six working people that supported one retired person.”
However, today, he noted that only three workers support one retiree.
“By 2029, we are talking about only two workers for every retired individual,” he commented. “We are going to have to take more from their check than in the 60s.”
“We are going to have to start talking about the tough decisions,” he said. “They are longer-term decisions.”
As far as agriculture spending comments, Young said he projects we will see $35 to $40 billion, rather than the $23.4 billion that was cut in last year’s bill.