The Corner

Farming Tax Dollars

The most recent version of the near $1 trillion farm bill is on the move again after being held up for a few months in the House at the end of last year. It has now passed out of the House and Senate agriculture committees. The Senate is supposed to take up the bill next week, and it could then be brought to the floor in June. So now is a good time to remind everyone of a few reasons why we should end all farm subsidies once and for all. 

First, in spite of the promises of fiscal responsibility and the claims that this bill will save taxpayers billions of dollars, the law will cost almost $1 trillion over ten years with roughly 20 percent in the form of farm subsidies for special interests and high-income farmers. Over at the Washington Guardian, Phillip Swarts explains:

It includes millions of dollars to peanut, cotton and milk producers, plus improved crop insurance to protect farmers, creating new fodder for critics who believe such direct aid to farmers keeps food prices artifically high at taxpayer expense.

Sen. Debbie Stabenow, D-Mich., the chairwoman of the Agriculture, Nutrition and Forestry Committee, said the bill will both help farmers and improve the economy ”Reforming agriculture programs will save taxpayers billions of dollars while helping Michigan farmers, ranchers and small businesses create jobs,” she said.

But the Congressional Budget Office said in March it believes the current farm bill will save considerably less money than first thought.  Last year, the CBO estimated that the Senate version of the bill could have reduced spending by $23.1 billion.  Now that number has been reduced to $13.1 billion.  Likewise, the House version was expected to save $35.1 billion, but that estimate has been rounded down to $26.6 billion.

Second, these savings – real or imaginary — will come at a great price to taxpayers since lawmakers would compensate farmers by expanding another unjustifiable farm-subsidy program: crop insurance. In my Reason column a few months ago, I wrote the following about the new program:

Like most businesses, farms buy insurance policies to protect from potential losses, such as poor yields or declining prices. Unlike most businesses, they can count on the government to pay about two thirds of the premiums, at a cost of $7 billion annually. The proposed “shallow-loss program” would send money to farmers in the event of small drops of revenue that are not typically covered by crop insurance.

Senate Agriculture Committee Chairwoman Debbie Stabenow (D-Mich.) claims that the extension would save taxpayers money, swapping $3 billion in new payments in exchange for eliminating $4 billion in direct payments. But the crop insurance scheme is likely to cost twice as much as estimated, according to a 2012 American Enterprise Institute study by the economists Vincent H. Smith, Barry K. Goodwin, and Bruce A Babcock. History tells us that it won’t be long before the program resembles the direct payments it was supposed to replace. That’s because, if implemented, these subsidies will kick in at relative low level of losses. Given that prices will surely come down from their current record levels, most farmers will wind up receiving a payment every year.

That’s likely to be expensive and like any other farm subsidy it is likely to cause enormous economic distortions. For one thing, the farm bill also hurts younger farmers through its impact on land values. As I wrote previously: 

Almost half of the country’s farmland is operated by someone other than its owner. Those renters—especially young farmers who generally have higher borrowing costs to start with—face increases in both the price of renting and the cost of buying. On the other hand, farmers near retirement age, who own land through inheritance or length of tenure, reap the benefits of higher land values induced by the subsidies. In 2010 some 90,000 direct payments went to wealthy investors and absentee land owners in more than 350 American cities, according to an EWG report.

“It’s no accident that the average age of farmers is nearing 60 years old,” a friend who runs a farm wrote in a recent email to me. “We’ve drastically increased barriers to entry through subsidy programs, at huge social and economic costs. If I’m a 30-year-old farmer, as my sons-in-law are, I should mightily resent the fact that the landowner whose land I need receives government subsidies while I’m forced to compete against those subsidies to secure enough land to have a viable farm business.”

And, of course, the farm bill hurts the poorest Americans because it continues to protect our domestic sugar industry at the expense of consumers. The USDA protects its producers against foreign competitors by imposing U.S. import quotas, and against low prices with a no-recourse loan program that serves as an effective price floor. As a result, as the University of Michigan economist Mark Perry reports, Americans have had to pay an average of twice the world price of sugar since 1982. That’s just one of many government interventions that have hurt the poorest Americans by increasing the price of food. The food-stamp program – an $80 billion initiative designed to help poor Americans offset the high price of buying food — is embedded in the very farm bill that keeps those prices so high. 

It is time to put an end to farm subsidies, all of them, once and for all. 

My Reason piece is here, and Phillie Swarts’s piece is here. AEI also has an entire website devoted to farm subsidies called ”American Boondoggle: Fixing the Farm Bill.” It contains very good information and a great video


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