Economics, Taxes and Spending

A chance for leadership on the farm bill

Image Credit: Shutterstock

Image Credit: Shutterstock

The House of Representatives has shown considerable wisdom in voting down the House Agricultural Committee’s proposed farm bill.  The bill included an array of new economically wasteful price supports and crop insurance farm subsidy programs that could easily have been budget busters. It would have continued to transfer taxpayer funds to wealthy and very wealthy farmers and landowners, and would have created the potential for more trade disputes with other countries.

Now Congress has the opportunity to seriously rethink and make economically meaningful reforms to farm programs, including substantively reducing and eliminating wasteful and inequitable policies like the Direct Payments program and unrestricted crop insurance subsidies. It now has the opportunity to do this without inventing new policies that could have even more serious adverse economic effects.

There is a straightforward way for the House to move forward on a farm bill that involves genuine reform and yields real budget savings, rather than cosmetic accounting gimmicks. First, separate nutrition programs from farm subsidy programs, giving them their own bill and their own debate.

Next, accept the fact that the farm sector is perhaps the most financially successful sector in the U.S. economy, and therefore the sector least in need of direct subsidies or any kind of subsidy program.

Finally, accept the reality that no new subsidy programs are needed. The programs in the current bill would have exposed taxpayers to open-ended obligations—all to keep every farm’s income within a few percentage points of its recent five-year average revenues.  No wonder seven House Committee chairmen voted against the House Bill, as they almost surely would have voted against the Senate version of a 2013 Farm Bill, which has many of the same problems.

Then make three sensible changes to current farm programs:

  1. End the Direct Payments program and the related Average Crop Revenue program (ACRE), for a real annual savings of five billion dollars.
  2. Reduce Cadillac crop insurance subsidies from 60 percent of the actuarially fair premium rate to 40 percent, rolling such subsidies back to 1999 levels. This would save $4 billion each year according to the Congressional Budget Office, while also retaining a very generous farm specific financial safety net subsidy.
  3. Reform food aid policy. Do the right thing and adopt the Royce-Engel amendment, which would allow up to 45 percent of the emergency disaster food aid budget to be used to source food for such aid regionally and locally. With the same amount of funding, the amendment would save millions of additional lives by putting efficient markets to work.

These changes would yield three key outcomes:

  1. $9 billion a year in savings–$90 billion over ten years–while farm policies would become less wasteful and less economically inefficient.  There would be a real contribution to deficit reduction with effectively no measurable adverse effects on the financial viability of the farm sector.
  2. Millions of lives saved in the world’s poorest countries. Emergency food aid funds would be used more efficiently to help more of the world’s neediest families–demonstrating the common decency that has historically characterized the best in American generosity.
  3. Bipartisan support. The farm bill could comfortably be moved forward on an overwhelmingly bipartisan vote.
  4. Real leadership. From the perspective of the House, a fourth positive would be passage of a Farm Bill that provides the Senate Agricultural Committee with the real leadership it needs on farm policy issues.

One last thing: the House could get rid of the requirement that, if current legislation expires, price supports for major commodities like corn, wheat and milk rise in real terms to the levels established sixty four years ago in the 1949 farm bill. That would end the farm bill legislative nonsense associated with “dairy cliffs” and the possibility of $14 price supports for wheat (almost twice the current near-record prices farmers have been getting from the market for the past six years).

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