American farmers are sophisticated businesspeople who efficiently produce agricultural commodities for the United States and the world.
So why does Washington treat them as if they are incapable of running their businesses?
Lawmakers like to say they provide a “safety net” for farmers. What they’ve actually created is a massive wealth-transfer scheme that gives billions of dollars each year to a small number of agricultural producers — usually the largest ones — growing a small number of commodities.
From 2014 to 2016, 94% of farm program support went to just six commodities: corn, cotton, peanuts, rice, soybeans, and wheat. Most of this money simply insulates the beneficiaries from the ordinary risk of running a business; little actually goes to farmers in need because of some disaster.
The reality is that most farmers receive little in the way of taxpayer assistance, and those who do get federal handouts typically are not small, struggling farmers. The money goes primarily to farm households with far greater income and wealth than nonfarming households. And the U.S. Department of Agriculture reports that these subsidies are increasingly going to higher-income farm households.
Put simply, agricultural subsidies are the poster child for cronyism.
It is, therefore, encouraging that the Trump administration has used its budgets to propose reforms to the out-of-control agricultural subsidy system. Its new fiscal 2021 budget continues these efforts.
Let’s look at just three of the proposed reforms.
First, there’s a reform to crop insurance subsidies. When farmers “purchase” federal crop insurance, Taxpayers pay, on average, nearly two-thirds (62%) of the premiums. The budget would reduce the taxpayer burden to 48%, leaving farmers to pay about half of the actual cost of their crop insurance.
The Government Accountability Office has recommended this reform, and the Congressional Budget Office listed reducing premium subsidies as one of its options to reduce the deficit. In fact, the Congressional Budget Office option would be more ambitious, lowering the subsidy to 40%.
This reform has significant support for two very good reasons: it could save a lot of money ($21 billion over 10 years, according to the budget), and it would have little impact on farmers participating in the crop insurance program. The Congressional Budget Office found that reducing premium subsidies to 47% would reduce the number of insured acres by just 0.5%, to 298.5 million acres, and that only 1.5% of insured acres would have lower coverage levels.
A second proposed reform would limit the subsidies going to producers with an adjusted gross income of over $500,000. As the budget explains: “It is hard to justify to taxpayers why the government should provide assistance to farmers with incomes over half a million dollars. Doing so undermines the credibility and purpose of farm programs.”
This reform, too, would have little impact within the farming community. The budget notes that “in 2013 (a year of record-high farm income), only 2.1% of farmers had AGIs in excess of this amount.”
A third reform would reduce the excessive amount of money that insurance companies receive through the federal crop insurance program. As the budget explains, the proposed reform would provide “a reasonable rate of return for the industry.”
These are very modest reforms. Of course, like clockwork, legislators on the agriculture committees have already rejected them. That, of course, raises the question: Exactly who will benefit if these common-sense reforms are blocked? Such obstructionism is clearly not in the interests of taxpayers stuck with paying for unnecessary subsidies. Even the vast majority of family farms don’t gain a thing from blocking these reforms.
The Trump administration should be commended for showing the way with their proposed reforms. It will now take incredible leadership to make these reforms happen, but they are reforms worth fighting for.
⦁ Daren Bakst is The Heritage Foundation’s senior research fellow in agriculture policy. Gabriella Beaumont-Smith is a policy analyst specializing in macroeconomics at the think tank’s Center for Data Analysis.
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