For a long time now, federal farm subsidies have rewarded farmers for producing far more than they can profitably sell. Removing the subsidies would precipitate a painful downward adjustment for the nine percent of farming operations that receive roughly 54 percent of the payments, but sustaining them year after year exacerbates the costs of overproduction: the gross inefficiencies, the environmental degradation, and, of course, the redistribution of billions of tax dollars to farm families whose incomes are well above the national average.
The benefits of farm subsidies are concentrated in the hands of just a few farmers, who accordingly have an incentive to organize and lobby Congress. The costs, by contrast, are widely distributed. This political calculus means that there are powerful forces behind the status quo. With the current farm bill set to expire, the farm lobby has already won over the House of Representatives, which passed a new farm bill back in July. Barring any surprises, the Senate Agriculture Committee will follow suit today.
As introduced, the Senate bill barely differs from the House bill. One minor distinction is that the Senate bill would cut off payments to any farmer who makes over $750,000 a year. This is admittedly stricter than the House bill’s $1 million cutoff, but it’s still a far cry from the Bush administration’s proposed cutoff of $200,000. The Senate bill would also allow farmers to opt in to a revenue-based program in lieu of traditional, price-based subsidies.
Apart from these insignificant changes, the Senate proposal does nothing but extend the 2002 farm bill, which was the most expensive piece of farm legislation in American history. It does nothing to solve the problem of relentless overproduction. The more U.S. farmers produce under the current system, the more subsidies they receive. For this reason, they frequently spend their government payments on more land, more seed, and more equipment, churning out enormous surpluses.
These surpluses depress world prices, and have led the World Trade Organization to rebuke the U.S. Rightly so: Our farm programs are not consistent with our commitment to the free and open trading system that benefits all nations. Large farm-subsidy programs in the U.S. and other rich countries have opened an apparently unbridgeable divide between the developed and the developing world in the current round of multilateral trade talks.
Although a majority of Senate Agriculture Committee members support the status quo, two senators have introduced a reform bill in the full Senate. They are Richard Lugar (R., Ind.) and Frank Lautenberg (D., N.J.), and their bill is the Farm, Ranch, Equity, Stewardship and Health (FRESH) Act. It would cut $20 billion from the traditional subsidy program, redistribute about $16 billion of that into nutrition and conservation programs, and put about $3 billion toward deficit reduction.
The FRESH Act would achieve these savings by phasing out direct payments, a particularly egregious subsidy that farmers receive whether they grow anything or not. Between now and 2014, these payments would be gradually reduced to zero. Every year between now and then, a portion of each farmer’s annual payment would go into a tax-free savings account to help him manage risk. The bill would also replace costly ad hoc disaster payments with a federally funded crop-insurance program that would kick in when nationwide farm revenues dropped by 15 percent or more.
The political realities of farm subsidies tend to doom such reform efforts, and with farm income at record highs — and concentrated in so few hands — this year promises to be no different. But that isn’t an excuse for inaction. Republicans could make an issue of this — if they could summon the will to stand up to their own farm constituencies. The Democrats claim to be the party of the common man. Why then should a Democrat-controlled Congress pass a farm bill that bilks taxpayers everywhere for the benefit of a wealthy few?