Senate farm overhaul gets $16 bln from tax bill

WASHINGTON (Reuters) - The Senate Finance Committee approved a $16 billion tax bill on Thursday to pay for an ever-ready disaster aid program for farmers and ranchers, encourage ethanol fuels and preserve fragile land.

It was the first step by the Senate toward a new farm subsidy law and effectively frees up money for use by the Agriculture Committee, which is expected to meet October 23 to draft its farm bill.

The bill lowers the excise tax credit for ethanol by 5 cents a gallon, to 46 cents, when production exceeds 7.5 billion gallons a year and it extends until 2011 a 54-cent-a-gallon tariff on ethanol imports.

Written every few years, farm bills are panoramic legislation that cover farm subsidy, land stewardship, public nutrition, renewable energy, agricultural trade and rural economic development programs.

A major goal for the farm bill for Finance Committee Chairman Max Baucus and Budget Committee Chairman Kent Conrad was the creation of a stand-by disaster aid program. Funded at $5.1 billion from tariff receipts, the program approved by the Finance Committee would offset "shallow" losses not covered by crop insurance.

"An awful lot of people will benefit around the country," said Conrad, a North Dakota Democrat. Baucus, a Montana Democrat, said the new program "is tailored to actual losses," unlike stop-gap disaster bills passed by Congress from time to time.

Finance Committee members approved the tax bill, 17-4, after a 14-8 vote on the major way to pay for it -- tighter rules on tax shelters that would raise $10 billion over 10 years. Baucus and Iowa Sen. Charles Grassley, the Republican leader on the committee, said a uniform definition of "economic substance" was needed because of differing court decisions.

"I am convinced the only reason we are legislating it is as a revenue-raiser," objected Arizona Republican Jon Kyl. Most Republicans on the committee voted against the Baucus-Grassley amendment while all Democrats voted for it.

Under the bill, landowners could ask for tax credits instead of a cash payment when they enroll in the Conservation Reserve, which idles fragile farmland, sell easements to preserve wetlands and grasslands, or take part in a handful of other soil, water and wildlife programs. Estimates say some $7.2 billion in credits would be used over 10 years.

The Sustainable Agriculture Coalition said the Agriculture Committee ought to put "at least an additional $2 billion" of its own money into land stewardship on top of $3 billion in savings created by the Finance Committee tax credits.

Due to high market prices, there will be far less money earmarked for farm supports in the farm law being written this year than was available for the 2002 law that just expired.

"We are facing an extremely tight budget on this farm bill and we welcome the help from these added funds," said Iowa Democrat Tom Harkin, the Agriculture Committee chairman, of the Finance Committee package.

Georgia Sen. Saxby Chambliss, the Republican leader on the committee, said senators agreed "philosophically" on the shape of the farm bill -- similar to the House's farm bill -- but were at odds over spending for various programs. The House bill made modest changes in crop support rates and allotted $4 billion in new funding for nutrition, $2 billion in new funds for biofuels and a large increase for specialty crops.