U.S. tax deal averts 'dairy cliff'

WASHINGTON -- A deal approved by the Senate early Tuesday to avoid the automatic tax hikes of the "fiscal cliff" includes measures to avert the "dairy cliff" -- a steep increase in milk prices. The House passed the Senate-approved deal late Tuesday night.

The tax agreement contains a nine-month fix for expiring farm subsidy programs by extending a 2008 farm law. That gives lawmakers time to come up with a new replacement.

If the measure had not been passed by the House, the farm law would have expired and dairy subsidies would have reverted to 1949 levels, meaning retail milk prices would have doubled to about $7 per gallon in coming weeks or months.

Lawmakers have so far failed to finalize a $500-billion, five-year farm bill to replace the 2008 law, which authorizes spending on food stamps and crop subsidies. They had agreed to eliminate $5 billion in annual direct payments to grain, cotton and soybean growers.

The extension of the 2008 law would buy time for Congress to complete a new bill and still would allow for another round of direct payments.

However, three dozen programs in the law have no money left, including disaster relief and biofuel development as well as a soil conservation program and some rural economic development and agricultural research programs.

Agriculture Committee chairman Frank Lucas on Sunday backed a short-term extension of the farm law. -- Reuters,

with Bloomberg News