May 21, 2008

May 21, 2008 | Commentary on Agriculture

An Unacceptable Farm Bill

With food prices soaring, it takes some gall to force Americans to pay billions of dollars to millionaire agribusinesses. Yet that's what the latest farm bill would do.

Since the last farm bill was enacted in 2002, the five crops that receive the lion's share of farm subsidies have also enjoyed massive price hikes: cotton (105 percent price hike), soybeans (164 percent), corn (169 percent), wheat (256 percent) and rice (281 percent). For consumers, these price hikes have caused financial pain domestically and near-riots abroad. For farmers, it's a sunnier story: total net farm income has leaped 56 percent in just two years, and helped bring the average farm household's income to a record $89,434, and its net worth to $838,875.

During this crop price boom, continuing to subsidize farmers makes as much sense as paying Apple to make another generation of iPods.

Yet instead of cutting, Congress's answer is to harvest even more farm subsidies. The latest version would increase payment rates for more than a dozen crops and increase conservation subsidies. Although the same farmers already receive massive annual subsidies, plus taxpayer-funded crop insurance, Congress would also layer a new permanent disaster aid program. Release of any disaster aid would require an emergency declaration, so expect Congress to declare an emergency any week that it rains -- or doesn't rain. 

 Farm subsidies have long been America's largest corporate welfare program. Rather than help small, struggling family farmers, the majority of subsidies go to commercial farmers, which report an average income of $200,000 and a net worth of nearly $2 million.

President Bush called on Congress to end farm subsidies for families earning more than $200,000 annually. Instead, Congress decided that married couples with less than $1.5 million in annual net farm income (after all business deductions have been taken) should be barred from one farm subsidy program -- but still allowed to collect from all the rest. This is what passes for reform in Congress.

And for the vast majority of farmers and agribusiness that remain eligible for farm subsidies, bigger checks await. Agribusinesses have long exploited loopholes to evade the $150,000 annual limit on marketing loan subsidies (which are more subsidies than loans), including dividing themselves into dozens of separate legal entities and collecting subsidies for each one.

Yet rather than better enforce this payment limit, the farm bill simply repeals it altogether. No longer would agribusinesses even need to hire attorneys and find loopholes in order to amass millions in taxpayer subsidies. This is the equivalent of "solving" tax evasion by legalizing it. Large commercial farms should expect to collect an even greater share of the subsidies.

Overall, the farm bill is officially listed as adding $10 billion in new spending over the decade. But that ignores the blatant gimmicks -- such as shifting costs just outside the 10-year window, and unrealistically assuming all increases will suddenly be repealed in four years -- that could add more than $10 billion to the cost. Congressional Democrats who loudly denounced budget deficits are now prepared to bypass their own anti-deficit rules for this bloated bill.

Thus, farm subsidies will continue costing taxpayers at least $25 billion annually. And for what purpose? Subsidies don't solve farmer poverty because they go to large, profitable agribusinesses. They don't preserve family farms because agribusinesses use their large subsidies to buy them out. They are no longer designed to stabilize crop prices. Nor do they promote cheap food, as ethanol policies are raising prices steeply. These programs lack any coherent rationale.

Instead, they cost billions in taxes and higher supermarket prices. They harm the environment by encouraging over-planting. By undermining America's trade negotiations, subsidies raise consumer prices and restrict U.S. exports. Cotton subsidies undercut impoverished African farmers desperately trying to make a living. They contribute to obesity and rising health care costs by subsidizing corn and soy (from which sugars and fats are derived) rather than healthier fruits and vegetables.

Farm subsidies don't produce food, but they do produce votes. Despite its economic incoherence, the farm agreement is overwhelmingly popular in a Congress that has mastered the art of distributing tax dollars to favored industries. Although President Bush has vowed to veto the farm bill, Congress has stubbornly vowed to override the veto.

Is it any wonder why Washington is so unpopular these days?

Brian M. Riedl is Grover M. Hermann Fellow in Federal Budgetary Affairs in the Thomas A. Roe Institute for Economic Policy Studies at The Heritage Foundation.

About the Author

Brian M. Riedl Grover Hermann Fellow in Federal Budgetary Affairs
Thomas A. Roe Institute for Economic Policy Studies

First appeared in the Washington Times