The Corner

The Crony Highway Bill That Keeps on Giving

The more we look into the recently passed highway bill, the worse it looks. It’s expensive, paid for with gimmicks, and while it bails out the highway trust fund it also guarantees that future, bigger bailouts will be required. It was also shamelessly used to carry a host of terrible policies like the renewal of the crony Ex-Im Bank or Amtrak subsidies. Heritage’s Michael Sargent lists a few of these items:

  • Amtrak. Despite Amtrak’s abysmal fiscal and business record, Section 11101 includes five years of spending authority totaling $8.05 billion (subject to discretionary appropriation) for Amtrak, including $1.45 billion for fiscal year 2016—a 4 percent increase over current levels.
  • Capital Investment Grants. Section 3016 extends $2.3 billion in spending authority (subject to discretionary appropriation) for the wasteful Capital Investment Grants (New Starts) program for each of the bill’s five years.
  • Export-Import Bank. Inexcusably, Congress is using the must-pass nature of FAST to reauthorize the Export–Import Bank even though the bank has nothing to do with the domestic surface transportation system.
  • TIFIA. The TIFIA program, meant to provide credit assistance to projects of national or regional significance, is further weakened in Section 2001 by lowering its project eligibility minimum to local projects with just $10 million in total costs.

Here is an interesting question for you: Did you know that the highway bill was also a vehicle for farm subsidies? That’s right. The Bipartisan Budget Agreement signed into law at the end of October included a $300 million cut in federal government payments to the insurance companies that sell and service federally subsidized crop insurance policies. That’s right we are subsidizing these insurances companies too! Anyway, it was accounted for as a $3 billion savings over ten years.

Well, the highway bill got rid of the Department of Agriculture’s crop insurance savings after the insurance lobby, the farm lobby, and farm-state lawmakers threw a major temper tantrum to get it back. The claim was that without this subsidy, federal crop insurance would become such an unprofitable line of business that no one would provide insurance.

Over at AEI, economist Vincent H. Smith explains why this is just fear mongering:

For example, the companies currently expect to receive about $2.4 billion in annual revenues if the subsidy reduction is not implemented versus about $2.1 billion a year if it is. In the 2000s — as a recent analysis by Dr. Eric Belasco and myself (both AEI visiting  scholars and professors at Montana State University) showed — in terms of today’s dollars those companies were willing to manage about the same number of policies and essentially the same amount of crops for about $1.1 billion dollars.  So even with the subsidy reduction, the companies would receive about twice as much revenue for providing the government and farmers with roughly the same services they offered in 2004 and 2005.

A new study by Professor Bruce Babcock is being released by the Environmental Working Group today. That data-based study indicates that the annual $300 million reduction in revenues paid to the insurance companies would result in the companies cutting payments to the independent insurance agents who actually sell crop insurance policies to farmers by close to the same amount.  However, on average, since about 2005 those agents’ incomes have increased at an annual rate of about nine percent per year and even with a ten percent cut in their share of the largesse created for the crop insurance industry by the federal program, most of the agents would still continue to serve their farm clients.

Lawmakers caving to special-interest groups is not new. They always do. But this particular transfer of taxpayers’ hard earned cash should also be put in perspective. It happens on top of the subsidy payments made to 1.7 million farmers as a product of the 2014 farm bill — subsidies that will be $1 billion higher this year than anticipated. Bloomberg has a good piece on this: 

The Congressional Budget Office predicted in March that the new subsidy system would cost $4.02b in 2015 and peak at $7.25b in 2016. Instead, government support is expected to reach $5b this year, in part because a glut in commodities is keeping prices low — which means payouts are high. “The estimates were overly optimistic,” says Vincent Smith, a professor of agricultural economics at Montana State University in Bozeman. “Some farmers will receive hundreds of thousands of dollars.”

The whole thing is great, albeit infuriating. It shows the difference by country of subsidies paid to farmers depending on the crop.

As I said last week, it really is time to get rid of all farm subsidies.

Veronique de Rugy is a senior research fellow at the Mercatus Center at George Mason University.

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