Rep. G.K. Butterfield introduced legislation Tuesday to help tobacco farmers and quota holders keep more buyout money.
The Wilson Democrat’s Small Tobacco Farmers Relief Act would exempt up to $5,000 a year from federal taxes for a total of $50,000 over the 10 years of the tobacco buyout.
“The buyout was welcome news for our tobacco farmers, but many of them have been brought to the edge of their finances,” said the congressman, whose eastern North Carolina district includes Henderson and the northern half of Vance County. “I hope to provide them with some of the financial relief they need.”
The Internal Revenue Service is expected to treat payments to quota holders as capital gains — long term if the quota was held more than a year. Payments to growers are expected to be taxed as ordinary income.
The Farm Service Agency is signing up growers, eligible for $3 per pound, and quota holders, due $7 per pound, through June 17. Those who miss the signup for the Tobacco Transition Payment Program this year may sign up next year.
The payments are broken into 10 equal, annual checks. The first year’s checks should go out by September. Future payments will be made in January each year.
An estimated 1,040 tobacco farmers in Butterfield’s district are expected to get shares of the $10.1 billion buyout; about $3.9 billion of that will go to North Carolinians. The buyout ends the tobacco quota system, which Congressman John Kerr of Kerr Lake fame created in the 1930s to provide stable prices.
Now anyone may grow any amount of any type of tobacco anywhere, but with no guarantees of price or purchaser.
Butterfield said he is working to secure the best rates for those who opt to sell their buyout rights in exchange for a lump-sum payment. This month he asked Agriculture Secretary Mike Johanns “to back the tobacco payments with the full faith and credit of the United States Treasury.”
Rep. Bob Etheridge, D-Lillington, who represents the southern portion of Vance, also has pushed the Agriculture Department for written assurance that the buyout payments won’t be reduced or eliminated.
Such a guarantee would increase the value of buyout in a lump-sum exchange because financial institution could have full confidence in the decade of payments.
“Right now, when farmers approach financial institutions to borrow against future payments, they’re being offered a discount rate because of the struggles they’ve faced in recent years,” Butterfield said in a written statement. “This is another way we can and should help our farmers.”