A bipartisan group of senators and congressmen including House Democratic Whip Steny Hoyer, Congressman Mike Simpson (R-ID) and Senators Mark Warner (D-VA) and Saxby Chambliss (R-GA) has asked you “to put forward a big, balanced plan.” To put together such a plan, you ought to look to farm programs, which can and should contribute much more significantly to the effort than the $18 billion over 10 years in cuts to farm subsidies being offered by the agriculture committees. In fact, the country could save $100 billion or more over 10 years by reducing farm subsidies without endangering struggling farmers or affecting food production.
Farming is not the high-risk business portrayed by its lobbyists. On average, farmer households are six times wealthier and enjoy 20 percent higher incomes than the average American family. Each year, only about 1 in every 200 farms closes its gates because of foreclosure or bankruptcy while 1 in 7 businesses on Main Street has to shut its doors. Taxpayers have gone from providing safety nets for poor farmers to providing cushions for the well-to-do.
Consider crop insurance. Crop insurance is meant to act like homeowners or auto insurance, reimbursing policy owners who suffer an unexpected loss. But you and I buy our policies with our own money, while farmers typically get up to 60 percent of their premiums funded by the taxpayers — i.e., by you and me. In addition, the federal government subsidizes the agricultural insurance companies who sell these policies for their overhead costs. Taxpayers are subsidizing both ends of these deals to the tune of $8 billion a year. Today the insurance companies sell fewer policies than a decade ago, but earn three times more revenue. This is neither efficient nor fair.
The list goes on:
- In 2008, Congress created the SURE program to protect farmers who suffer from natural disasters. A good idea in theory — most Americans want to help people who are hurt by hurricanes or floods. But the SURE definition of disaster is so broad that every year the overwhelming majority of farmers become eligible and can collect for all sorts of losses that have nothing to do with genuine disasters. For example, if any county is declared a disaster area, farmers from counties next to that county are also eligible to receive payments. As a result, farmers in most counties in the country have been able to collect “disaster” payments and taxpayers have footed the bill to the tune of as much as $2 billion per year.
- The federal government pays farmers and owners of farm land over $5 billion a year in “direct payments” simply for owning or using land eligible to receive farm subsidies in 1983-85. In effect, the government provides large gifts to mostly very well-off farmers and landowners just because they exist.
- The taxpayer-financed subsidy of Brazilian cotton farmers is one of the most absurd examples of an American farm policy boondoggle. For decades, the U.S. government has subsidized inefficient American cotton farmers to the tune of hundreds of millions of dollars each year. Brazil sued the United States under the 1994 World Trade Agreement, arguing that the cotton program violated our international treaty obligations. Instead of ending the offending subsidies when the WTO court ruled in Brazil’s favor, the U.S. now gives $145 million each year to the Brazilian cotton industry as compensation for the economic damage caused by our cotton program. So we now rob Peter to pay both Paul and Paulo.
It would be one thing if farm subsidies did go to poor farmers down on their luck. But they don’t. Most of the subsidies go to farmers and landowners making hundreds of thousands of dollars per year with net worths counted in the millions. It would be a tragic mistake if the super committee, as has been suggested in the press, insulates wealthy farmers from the effects of immediate subsidy cuts by adopting new subsidy programs modeled on the ACRE program. These programs could cost the taxpayer much more over the next decade than the current programs they would replace, and would unfairly tax working Americans to support well-to-do farmers’ record high incomes.
President Obama and Rep. Paul Ryan have called for cuts to crop insurance programs, and many groups are calling for reducing or eliminating direct payments. That is not enough. Adopting our recommendations would save between $100 and $110 billion over 10 years. Adding the savings from reduced interest payments would add even more.
Every dollar found in programs like agriculture subsidies is a dollar you don’t need to cut from Social Security and Medicare. The choice is yours: You can cut programs that largely go to the wealthiest families in the 1.7 percent of Americans who operate our nation’s farms, or you can cut programs that benefit all Americans, rich and poor alike.
Vincent Smith and Henry Olsen
Vincent Smith is a professor of agricultural economics at Montana State University. He is the co-director of the American Enterprise Institute’s American Boondoggle farm policy project. Henry Olsen is a vice president at the American Enterprise Institute. The detailed recommendations can be found at www.aei.org/americanboondoggle.