What’s in the Inflation Reduction Act for agriculture?

After months of trying to pass “Build Back Better”—a multi-trillion budget reconciliation package that could pass with a simple Democratic majority, Majority Leader Charles Schumer, D-NY, finally cut a deal with Sens. Joe Manchin, D-WV, and Kyrsten Sinema, D-AZ, on a much narrower package. The House was expected to approve the package on Aug. 12.

The $740 billion bill, which Democrats have now dubbed the “Inflation Reduction Act” includes tax and financial provisions, including many that will impact farmers, ranchers, the renewable fuels industry and rural electric cooperatives.

“With the passage of this historic bill, Americans will see their energy costs go down while we tackle the urgent threats we face every day from the climate crisis,” said Senate Agriculture Committee Chairwoman Debbie Stabenow, D-MI. “We are equipping farmers, foresters, and rural communities with the necessary tools to be a part of the solution. At the same time, we are investing in good-paying clean energy jobs to grow small towns and rural economies.”

Ahead of the final Senate vote, Democrats stayed largely united in fending off a long series of largely symbolic amendments offered mostly by Republicans to highlight concerns with the legislation or put the other party on the spot.

The GOP amendments voted down included one by Tennessee Sen. Marsha Blackburn to bar federal funds from helping the Chinese Communist Party buy United States farmland and another by North Dakota Sen. John Hoeven that would have kept the bill from taking effect until inflation was back to pre-2021 levels.

Sen. John Thune, R-SD, was successful in winning approval of one of his amendments that would protect small- and medium-sized businesses from a brand-new $35 billion tax increase.

“At the last minute, Senate Democrats attempted to sneak yet another tax hike on American job creators into their reckless tax-and-spending spree, but fortunately, common sense prevailed,” Thune said. “The adoption of my amendment will protect small- and medium-sized businesses, many of which are trying to recover from the pandemic and survive a rocky economy, from this onerous tax hike.”

The original bill included a change that would require separate businesses of any size held by funds or partnerships to combine their otherwise unrelated income to determine if they meet an aggregate $1 billion income threshold—subjecting each respective company to the new tax even if its own income is far too low. Without Thune’s amendment, more than 18,000 small- and medium-sized businesses in the U.S. that employ 11.7 million workers would risk being subjected to $35 billion in tax hikes, according to Thune.

Conservation programs get boost

The bill contains about $18 billion for four conservation programs, starting in fiscal year 2023, with direction to the U.S. Department of Agriculture to prioritize projects that "mitigate or address climate change through the management of agricultural production."

The Environmental Quality Incentives Program, which has long been oversubscribed, would get $8.45 billion, starting with $250 million in FY2023, which begins Oct. 1.

The Regional Conservation Partnership Program would receive $4.95 billion, an amount that was trimmed in the final version of the bill; the Congressional Budget Office had estimated that USDA would have been unable to spend a large portion of the $6.75 billion that was originally allocated for the program. Under the budget reconciliation rules used to move the legislation through the Senate without the need for GOP support, all of the funding authorized by the bill.

Another $3.25 billion would go to the Conservation Stewardship Program, and the Agricultural Conservation Easement Program would get $1.4 billion. An additional $1 billion would be provided to USDA’s Natural Resources Conservation Service for conservation technical assistance and $300 million is allocated to USDA for measuring the impact of agricultural practices on greenhouse gas emissions.

Also included in the bill:

• $9.7 billion in assistance to rural electric cooperatives for renewable energy and energy efficiency projects and another $1 billion in loans for renewable energy projects in rural areas.

• About $2 billion for USDA’s Rural Energy for America Program, which funds renewable energy and energy efficiency projects.

• $500 million for blender pumps and other biofuel infrastructure.

• More than $5 billion for wildfire prevention and climate resiliency projects in public and private forests.

• $3.1 billion in assistance to "distressed" borrowers who hold direct or guaranteed farm loans and another $2.2 billion in payments to farmers who had experienced discrimination in USDA loan programs. The payments would be capped at $500,000 per producer. The debt relief provisions would be paid for by repealing a debt relief program authorized by the American Rescue Plan in 2021 and later blocked by the courts. In both cases, there are relatively few restrictions on how USDA determines who qualifies for the aid.

• $4 billion in Reclamation funding that would be used as compensation to water users for temporary or multi-year reductions in water usage; projects that reduce use of or demand for water supplies, or provide environmental benefits, in the Colorado River Basin; and for ecosystem and habitat restoration projects that address drought impacts.

• The $1-a-gallon tax credit for biomass-based diesel would be extended through 2024 and then replaced by the clean fuels tax credit that would vary according to the carbon rating of the biofuel. A temporary tax credit would be created for sustainable aviation fuel to serve as a bridge to the implementation of the clean fuels credit in 2025. The new clean fuels credit would be in effect only through 2027.

• Rural electric cooperatives would get direct payments for the benefit of renewable energy tax credits. Electric co-ops, which are organized as non-profits, currently have to work with third parties to get the benefits.

The legislation is largely funded through a 15% minimum tax on corporations, a new excise tax on stock buybacks, funding to hire 87,000 new Internal Revenue Service agents and enhance tax collection and a provision that would allow Medicare to negotiate drug prices. While the bulk of the spending in the bill is climate-related, it also would extend expiring Affordable Care Act subsidies.

Republicans concentrated much of their criticism of the bill on the tax increases.

"This bill does nothing to address the significant inflation we are facing, or to ease burdens born today by low- and middle-income Americans. Rather, it promises higher taxes, more reckless spending, higher prices, a supersized IRS and prolonged stagflation," said Idaho Sen. Mike Crapo, the senior Republican on the Senate Finance Committee.

Farm groups had remained relatively mum in the wake of the Schumer-Manchin deal and GOP criticism. But Chuck Conner, president and CEO of the National Council of Farmer Cooperatives applauded the increased funding “to support climate-smart agriculture through voluntary working lands conservation programs and technical assistance to producers.”

“This investment in the future is needed to help America’s farmers, ranchers and growers explore and adopt innovative approaches to production to help address the challenge of climate change. It will also help provide the resources needed to ensure a strong conservation title in the 2023 farm bill,” Conner added.

Editor’s note: Sara Wyant is publisher of Agri-Pulse Communications, Inc., www.Agri-Pulse.com.