Potential changes to the eligibility rules for farmers to receive payments under the commodity programs of the U.S. Farm Bill would affect Minnesota farmers, but not many.
Under the current Farm Bill, individuals with a three-year average adjusted gross income greater than $2.5 million are ineligible for farm program payments, unless 75% of their income is agriculturally related (in which case the limit does not apply). The USDA proposed changing the limit to $200,000 regardless of the source of that income.
The House Committee on Agriculture, chaired by Collin Peterson, D-Minn., is in the midst of proposing a change to a two-tiered limit system: 1) individuals with a three-year average AGI greater than $1 million would be ineligible for payments with no exceptions; and 2) individuals with a three-year average AGI between $500,000 and $1 million AGI would be ineligible for payments, unless 66.66 percent of their income is agriculturally-related (in which case the limit does not apply).
So, how many Minnesota farmers are affected by these potential changes? The general answer is not many.
Using publicly-available IRS data tables for 2004, the most recent year with data available, less than 50 Minnesota returns (0.1% of all Minnesota individual farm returns) would have been ineligible for farm program payments under the current $2.5 million rule, if the 2004 incomes accurately reflected three-year AGI averages. Just over 150 Minnesota returns (0.2%) would have been affected by the House Committee's proposed limit of $1 million, and almost 1,800 Minnesota returns (2.4%) would have been affected if the USDA proposal of $200,000 had been in place.
At the national level, just over 2,200 returns (0.1% of all individual farm returns) would have been ineligible for farm program payments under the current $2.5 million rule. Almost 7,400 returns (0.4%) would have been affected by the House Committee's proposed limit of $1 million, and almost 85,000 returns (4.2%) would have been affected if the USDA proposal of $200,000 had been in place.
The IRS' publicly-available data tables do not allow the determination of the percentage of individuals' agriculturally-related income. This means that estimates of the impact of the rules related to the share of income could not be estimated. The tables do not provide information on the filing status of the individuals, nor do they allow the determination of whether other returns had income from farm partnerships and corporations. These also do not factor in income received from renting farm land to others.
For the current and proposed eligibility rules, AGI is based on IRS Form 1040. A common misconception is that the eligibility determination is made using Schedule F farm income, but that is not correct.
- Kent Olson is a University of Minnesota Extension economist and internationally renowned farm management and farm policy issues expert.