WASHINGTON - It's not just Wall Street moguls who will feel the wrath of President Obama's budget.
Farmers in Minnesota and across the Midwest are headed for a showdown with the Obama administration over subsidy caps intended to limit government payments to the nation's wealthiest farmers.
Obama's first budget, released Thursday, rekindles the debate about millionaire farmers by ending direct payments to farmers with sales revenue greater than $500,000 a year, and limiting all commodity payments to a total of $250,000 per farmer.
Minnesota farmers received $305 million in direct farm payments in 2007, ranking the state sixth in the nation, according to the Environmental Working Group, which has long advocated for tighter limits on large farms that receive the bulk of the subsidies.
But some farm groups -- even those that advocate payment limits -- say that Obama's proposals go substantially beyond the farm reforms Congress enacted last year, and could cut into the earnings of more modest family farms.
"If you're a 1,000-acre corn farmer in western Minnesota, you will certainly hit that $500,000 gross sales limit," said Madison, Minn., farmer Doug Peterson, president of the Minnesota Farmers Union.
In 2007, 6,426 Minnesota farms had sales exceeding that level, according to U.S. Census data.
At current commodity price levels, Peterson said, the new limits could cost farmers as much as $1 a bushel.
"It's a little bit of a shock," said Blue Earth County corn and soybean farmer Kevin Paap, president of the Minnesota Farm Bureau Federation. "These payments are a critical part of the farm safety net."
State Democrats have doubts
Although only a handful of Minnesota's largest farms currently take in more than $250,000 a year in total government payments, farm lobbyists are wary of reopening the difficult political negotiations that restricted payments to "millionaire farmers," many of them wealthy absentee landowners.
"We just passed a fiscally responsible farm bill that made cuts to farm programs, so now is not the time to reopen it," said Minnesota Democratic Rep. Collin Peterson, who shepherded the legislation through Congress as chairman of the House Agriculture Committee.
Peterson, who will be in the spotlight of the debate, is already feeling pressure from some of the nation's largest farm groups, including the American Farm Bureau Federation.
"The recently reformed farm bill substantially reduced commodity spending and tightened eligibility criteria for farmers," said Bob Stallman, the Farm Bureau's president. "We should not be singled out by any proposal."
Sen. Amy Klobuchar, a Minnesota Democrat who serves on the Senate Agriculture Committee, said she is open to additional limits on farm payments, but not if it means reopening other parts of the farm bill, the bulk of which provides food and nutrition programs for low-income families.
Obama's farm proposals, taking aim at a swath of rural America that typically votes Republican, provide substantial change from the law that went into effect this year. Farmers currently face a $750,000 cap on adjusted gross farm income to be eligible for farm subsidies. Obama's proposed $500,000 sales revenue cap would represent a much lower threshold.
"That's a big difference, and one that we think could pose a problem," said Rep. Tim Walz, a Democrat who believes the proposed limit could snag many of the dairy farms in his southern Minnesota district.
Payments can be huge
While farmers now face limits on many different types of farm programs, there are no limits on price support payments, meaning large farm producers can reap huge direct payments. Obama would set a total payment limit of $250,000, the same income threshold he wants to set for tax cuts.
In his first speech to Congress, Obama said on Tuesday that he wants to "end direct payments to large agribusinesses that don't need them."
Savings from the new limits would represent a small part of the $2 trillion Obama needs to meet his 10-year budget goals, but they follow on populist promises he made on the campaign trail. "The president's budget promotes efforts that strengthen small- and medium-sized farms," said White House spokeswoman Amy Brundage.
Doug Peterson said he understands the public anger over financial abuses on Wall Street, including stories of millionaire investors who have reaped farm subsidies over the years. But he fears some of the anger is misplaced.
"The bleeding from Wall Street and the impression that farmers are receiving payments for nothing has really hurt agriculture," he said.
Paap said that with rising farm costs and falling incomes, "we need as many tools in our tool box to manage risk as we can."
Some farm subsidy critics say the proposed changes are overdue, especially in a tough economy.
"The justification for people taking these kinds of payments has been mortally wounded," said Craig Cox, Midwest vice president of the Environmental Working Group. "The credibility of the programs has been called into question."
But some farm subsidy critics remain skeptical of Obama's ability or willingness to take on the powerful commodity groups that have long held sway in Congress. "It will be interesting to see if Obama really does pick this fight, or if he's just giving it lip service," said John Frydenlund, a former U.S. Agriculture Department official from Minnesota who now works for Citizens Against Government Waste.
"With some of the commodity groups in this farm bill, I don't think they're going to roll over and let it just fly through the budget."
Kevin Diaz • 202-408-2753