GRASSLEY: Last week, I mentioned briefly about some new rules on several provisions of the 2008 Farm Bill, the things that are related to limiting farm income so people don't take advantage of it if they aren't involved in farming.
Just yesterday, the department published in the Federal Register the changes that it plans to implement to make, quote-unquote, "actively engaged in farming." I'm disappointed that they didn't do exactly what we set out in the Farm Bill to do. They didn't take the opportunity then to make real changes to payment limit eligibility when they clearly had the instructions from Congress to do that.
The new rule that the department left -- it effectively left the management test exactly the same as in current regulations. The problem there is that there's no quantifiable test, so we still have the same language which measures a significant contribution to management that has, quote, "activities that are critical to the profitability of the farming operation," end quote.
The department did make two changes. The first is that all shareholders have to meet the significant contribution of management test. But as I said before, since there's no real management test in place, in other words, they didn't take advantage of changing it when they could have; this change for stockholders is much about nothing.
Secondly, the U.S. Department of Agriculture added that if you buy or lease more land to increase the number of people getting payments under existing regulations, you had unlimited payees for each 20 percent increase in farming operation, the new regulations are a little tighter. You can only add one more person also requesting a waiver under special circumstances.
Well, the department made a couple of minor changes. The department has still ignored the central recommendation of both the Government Accountability Office and the USDA Payment Limit Commission that was set up in the 19 -- 2002 Farm Bill to make recommendations on these changes.
And they instructed the department to draw a very bright line management test. And, obviously, they didn't do it. So I'm looking to President-elect Obama's agricultural platform as evidence that payment limit reform may be top on his agenda.
So early next year, I'm obviously going to be talking to our new secretary of agriculture, Governor Vilsack, to take another look at this rule and urge him and the president-elect to do what those two reports recommended and what my payment limit bill introduced last year did. And that is to tighten the management test for actively engaged in farming and do it in a quantifiable way.
I'm ready for questions.
OPERATOR: OK. Dan at Successful Farming?
QUESTION: Good morning, Senator Grassley.
I just wondered if -- have you had any contact with the Obama transition team about this or talked to Governor Vilsack about that issue maybe before he was selected to be the secretary?
GRASSLEY: No. I did have a telephone conversation with him, but it was more or less one of courtesy. He called me. I was a member of the agriculture committee and, hopefully, I'll be a member of the agriculture committee in the next Congress. That's up to our floor leader.
But either way, I'm going to bring it up with him. But to answer your question, I think not discussed it with him at this point.
QUESTION: OK. Thank you.
OPERATOR: Tom at WNAX?
QUESTION: Good morning, Senator.
Senator, earlier Mexico had delisted about 30 U.S. meat plants. And the thought is that they were doing that in retaliation to us enacting the country of origin labeling. Does this concern you that now we're see this type of retaliation from them?
GRASSLEY: The answer is yes. And I believe it is directly related to that. And I'm very disappointed. I'm also disappointed that Canada is talking about doing something through the WTO on it because common sense tells me, but there could be something different in the case of food versus T-shirts. But whether anything that's imported from other countries has to be labeled, so what's the big deal on food?
In other words, we get T-shirts from Guatemala or maybe even from Mexico that are labeled "made in Mexico." So what difference does it make if the food is labeled as being -- coming from Mexico?
So I'm disappointed. I don't know how serious they are about it, but they have cut off imports of meat from certain plants. And so we'll have to look into it. The bright line is that when you interfere with the production of food, it's got to be based upon science and not on politics.
OPERATOR: Gene at Iowa Farmer Today?
QUESTION: No questions.
OPERATOR: Tom at Brownfield?
QUESTION: No questions for me.
OPERATOR: Ken at WHO?
QUESTION: Good morning, Senator.
I wonder if you could address the potential for Obama administration to allow the tax cuts of the Bush administration to expire and taxes to go up. But more than that, whether or not you want to do something legislatively to make sure that the increase in the deduction for the inheritance tax remains in place after 2010.
GRASSLEY: Well, in regard to income tax, I think you basically have two questions -- one on income tax and one on estate tax. And I'll explain why they probably have to be handled separately.
On next tax, it's my hope -- although I don't know what the administration is going to do -- that they don't increase taxes at all because in a time of recession, that would be a very bad thing to do and it would be counterproductive. It would make the recession last longer. And for all those reasons, there should be no increase in taxes.
Now, in regard to the income tax, there is talk about some decrease in taxes for middle income Americans as an incentive and as a stimulus to overcome the recession. And I think that that's a very much a possibility.
Whether those will be changes in rates or rebates like we did last year -- which I don't think they should be because it didn't accomplish what we wanted -- or maybe some forgiveness for a short period of time of payroll taxes. I don't know what direction they're going to take, but I'm led to believe that they're going to make some changes in those areas.
Now, on the estate tax, on January the 1st, it goes up to three and a half billion dollars -- three and a half million dollars exemption, effectively $7 million if people plan their estate right. Since Obama campaigned on a platform of estate tax exemption increase of three and a half million dollars and a 45 percent tax rate, which I think is awful high, I don't think we're going to have any progression in this as normally would happen on January 1st, 2011, that it would go down to $1 million.
And I don't think that he would let us get into the year 2010 -- and I wouldn't recommend it that he let us get into 2010 where you've got one year of no estate tax because that's idiotic to go to no estate tax and back to $1 million.
So I think it's very essential that we finalize on the estate tax something in 2009. And I believe we will for the reason that I just gave that you wouldn't have no tax in 2010 but a million dollar exemption instead of a three and a half million dollars exemption in 2011. That's very difficult to explain why you'd let that happen, so I don't think it will happen. So I think we'll finalize the estate tax during 2009.
But I don't think any sun setting of the income tax that would (inaudible) December 31st.
QUESTION: Senator, can you back up just a second and start again with that?
GRASSLEY: Yes. I think that when it comes to the income tax, that -- that -- that it would normally sunset December 31, 2010 and go back to the rates that we had in the year 2000. The final decision on that may wait till the year 2010 as opposed to 2009.
QUESTION: Thank you.
OPERATOR: Dan at Spencer?
QUESTION: Good morning, Senator. As to the committee assignments, you've been in this exact same position before, do you have -- two questions -- do you have any reason to believe that you will not be reassigned to Agriculture? And when will that decision be made?
GRASSLEY: I think it's going to be made -- well, you know, when will it be made? I better start over again. When will it be made? It will be entirely dependent upon when Senator Reid and Senator McConnell reach final negotiations on the ratio of Republicans to Democrats on all the different committees.
And I would expect that to be done this week, but I don't know that it will be done this week. But until that's done, we won't know how many Republican seats that are on the various committees, including Agriculture, and I don't think he can appoint people to that.
Now, in regard to my position on Finance and my position on Budget and on Judiciary, those are done by seniority, so I'm pretty certain that they will hold. But on Agriculture, I just don't know. But I have put in a request to be reappointed to Agriculture.
And a determination whether or not I will kind of depends upon how many people ask to be appointed as a third committee assignment or -- and another factor would be are there any seats left after people pick according to seniority because if people would take that position based entirely on seniority and use up all the slots, then there wouldn't be any position for him to appoint me to because, see, the rule is that I can take my first committees by seniority, but a third committee can't be taken by seniority. It's got to be taken by appointment by the leader.
QUESTION: If I might follow up, you mentioned payment limits and tax issues as being high on your agenda. Can you mention a third item that would be high on your Ag agenda in 2009?
GRASSLEY: Yes. Health care reform. And that involves a lot of different issues, but the most important objective is to make it possible for people that don't have health insurance to be able to get health insurance.
QUESTION: Thank you.
OPERATOR: Chris at DTN?
QUESTION: Senator, I wanted to just go back to the something in your initial comments on the payment limits and actively engaged. Do you think that there still can be a great deal of tightening -- you still see it how it's written there's still a great deal of room for loopholes or navigating?
GRASSLEY: Yes. When they leave actively engaged in farming rules as they are and there's no quantifiable determination of who's actively engaged or not, you get into all these situations that I'd have to reference you back to -- Government Accountability Office reports that have shown abuse of this, people who have been dead still receiving farm payments as just one example of abuse, and the department not activity following who's alive and who isn't as just one example of people not actively engaged in farming getting the benefits out of the farm program.
QUESTION: But if they're making adjustments to say that you have to show your own individual contribution of active labor or active personnel management, wouldn't that seem to address, maybe, the issues of people living in Phoenix or New York or something like that dealing with farm land in Iowa?
GRASSLEY: Well, I think the point is -- and if I'm wrong on this, I'll have Amanda get back to you and correct me -- but they have not made no changes that have been recommended by the commission on -- that was set up in the 2002 Farm Bill.
QUESTION: OK. Thank you.
OPERATOR: Gary at ARN?
QUESTION: Senator, getting back to your comments on the inheritance tax, I read that President-elect Obama has proposed freezing the 2009 level to pay for these tax cuts he wants. Would that be palatable to you as opposed to letting the thing phase out and then revert in 2011?
GRASSLEY: Yes. Only because -- not because I agree that three and a half million dollars is enough -- and I want to emphasize that I have voted for and supported doing away with the estate tax because I don't think it's wrong to have incident of death trigger tax policy.
Anyway, I'm not going to get what I want so -- and -- and the second best thing -- and we may try to have some votes on a $5 million or $6 million exemption with a 15 percent rate. But I think the practicality of it is that we're going to end up with the three and a half million dollars and I don't know whether you end up with exactly a 45 percent marginal tax rate on estate taxes, but that seems to be what Obama has proposed.
Now, he proposed that during the campaign. Will he adjust it differently because of his election or because of other circumstances; I don't know he could do that. But it seems to me that he wouldn't dare go below three and a half million dollars considering that he campaigned on three and a half million dollar exemption.
QUESTION: Could you make the tax cuts he wants for the middle class work with a compromised estate tax proposal with, as you say, a higher deduction and a 15 percent rate?
GRASSLEY: Well, I think normally you could, but with the recession, what it is, I think the only thing that's going to be done is income taxes early on this year is whatever is considered stimulus to the recession. And the recession is going to be the overriding determination of what's in the stimulus package and what's done on income taxes.
QUESTION: OK. Thank you.
OPERATOR: Phillip (ph), did you get added?
QUESTION: Yes, I did.
Senator, I don't know if you've -- I haven't talked to you in a while about this, but what do you think the prospects are for increasing the ethanol blend wall either through EPA or legislatively? What's going to happen with that?
GRASSLEY: Well, I consider President-elect Obama very friendly to ethanol and friendly to greater use of ethanol. And the wall that we're up against now is the E-10, and it needs to be increased to E-11, E-12, E-13. And I -- I'm hopeful that we can do that.
But you probably know that within the last week, there's been a combination of environmental groups and petroleum interests that have come out against any increase. Well, technically, they didn't come out against any increase; they said it deserves a lot more study.
And we're up against this wall right now. A decision needs to be made. So they talk about harm to engines or the impact on the environment. Well, let's say E-11 would make it pretty -- help us for a few years to move the wall down the road. You know, one percentage point, two percentage points isn't going to make a big difference. And I would think that we could surely do that and continue to study whether E-15 is a problem with engines or E-20 is a problem with engines or with the environment and still not harm ethanol in the process because the wall is a very limiting factor.
QUESTION: Would that be done by the EPA, or would that be done by Congress?
GRASSLEY: Well, it could be done by Congress for sure, but it can be done by EPA if they want to do it. I think you've heard me refer to either September or July when we had meetings with the U.S. Department of Agriculture, U.S. Department of Energy, and EPA. And Agriculture and Energy were very willing to move ahead to a slight degree. And we never got a no from the EPA that were setting across from the table, but we always got the feeling that they were not really in favor of doing that and that they needed to study more, et cetera, et cetera.
And so if EPA is going to be the guiding agency in the Obama administration, that's what gives me reason to pause on whether or not we can move ahead. And the extent to which we can't move ahead is going to be very harmful to the ethanol industry, more harmful to the farmer.
OPERATOR: OK. Did anybody else have a follow-up or get added late?
GRASSLEY: OK. Thank you all very much.
END