31,000 Expected to Bypass Limit on Subsidies, Lawmakers Complain : Farm Law Loophole May Cost U.S. $1 Billion

Thousands of farmers are using legal means to bypass the $50,000 limit on federal subsidies, in a trend that could cost taxpayers more than $1 billion through 1989, government investigators said Wednesday.

Lawmakers said that while the 31,000 individuals likely to reshape financial operations to skirt the limit through 1989 represent only a few bad apples among the 2.2 million U.S. farmers, the budgetary effect already has been significant.

Calls for loophole-closing legislation accompanied a report from the General Accounting Office, a watchdog for Congress, that estimated that reshaped farming operations have cost taxpayers an extra $328 million since 1984.

A separate GAO study released Wednesday said foreign owners of U.S. cropland received $7.7 million in federal payments. More than a third of the money went to the Netherlands Antilles and Switzerland, where banks for the most part refuse to divulge names of depositors when the U.S. government inquires.

The Antilles, Dutch islands off Venezuela, have served as a haven for those avoiding U.S. taxes. They were the destination of 27% of the payments to foreign owners, or $2.09 million. Authorities said an American-owned corporation amounting to nothing more than a file folder in an Antilles law office could end up classified as a foreign owner if shareholder names remained secret.

Farm lawmakers said the trend toward restructuring to increase payments could mean reopening the 1985 Farm Act under pressure from urban congressmen in the name of fiscal restraint.

The Reagan Administration and many lawmakers pin hopes for revitalization of the farm economy on the 1985 law’s stress on stimulating exports through admittedly expensive subsidies. This year’s program carries an estimated $26-billion price tag.

Rep. Dan Glickman (D-Kan.) told the House subcommittee on wheat, soybeans and feed grains that it had authority not only over those commodities but over “another commodity--and that may be the most important of all--and that is political integrity.”

Concern About Drain

“Unless we can demonstrate to our colleagues who would cut these programs in favor of their own that our house is in order, we must indeed worry about these pressures,” Glickman said.

Rep. Arlan Stangeland (R-Minn.) urged the lawmakers to make sure that a minority of farmers are “not just draining the treasury.”

GAO representatives demonstrated various means used to avert the $50,000 ceiling on so-called deficiency payments made by the Agriculture Department to those who participate in the farm program.

They include setting up dummy corporations and family trusts, the GAO officials said. But they qualified that such restructuring represented the extremes and not the norm.

Deficiency payments are made on a “per-person” basis and thus a farmer who brings in his son as a partner can double the amount of the payment without any increase in production.

In the past, federal price supports have at times in effect set the U.S. market price of such commodities as wheat, corn, soybeans, cotton and rice. These supports were lowered under the 1985 legislation to reduce the market price and thus make U.S. farm goods more competitive abroad.

Meanwhile, Congress established “target prices” above the market rate to help offset the cost to the family farmer of more competitive prices. Deficiency payments represent the difference between the market price and the target price.

Only deficiency payments were considered by the GAO and not so-called marketing loans, also established in 1985 to boost exports of cotton, rice and honey. They also have resulted in multimillion-dollar payments to some major farming operations but are exempt from the $50,000 limit.

The Reagan Administration is urging legislation to redefine the word “person” and render impossible the practice of expanding total payments by expanding the number of “persons” working the land.

Despite calls for loophole-closing, however, skepticism remains among Administration officials about prospects for the measure this year. But lawmakers said the panel should proceed on the issue.

Constituents Displeased

“I think we’ve just put our heads in the sand and let it go,” Rep. Harold Volkmer (D-Mo.) said. “But I think it’s time now to kind of belly up to the bar.”

Some lawmakers stressed that their own farm constituents take a dim view of “the Mississippi Christmas Tree,” a jocular term being used on Capitol Hill to describe a drastically restructured farm.

“The Mississippi Christmas Tree looks like a new defense by the Chicago Bears,” Rep. Pat Roberts (R-Kan.) said. “My constituents are mad as hell about it.”

The GAO report said the “cumulative effect of these voluntary farm reorganizations for . . . three crop years was to increase government costs by about $328 billion.” It said new producers are still being added and will be through 1989.