Finding common ground in the "fiscal cliff" negotiations will be hard for Republicans and Democrats. But there's one place they should be able to agree: farm subsidies.
Today's farm subsidies mainly make the rich richer and protect them from the economic risks that average Americans face every day. Over 80 percent of farm-targeted subsidy dollars are paid to the small number of large farms whose owners have, on average, more than $1 million in net worth and earn more than $120,000 a year. And the majority of that money goes to the very largest farms, whose families are many more times wealthier still.
Why raise revenue from the wealthiest Americans through higher taxes, only to give the money right back through farm subsidies they don't really need?
Congress and President Obama can easily obtain $100 billion in budget savings over ten years through common-sense cuts to Farm Bill subsidies that mainly benefit extremely wealthy farmers and landowners. Such cuts will do no harm to the food supply or to food prices, because agricultural commodity prices have been at record levels for the past five years and show no signs of moderating. Today's farm subsidies perversely work to keep food prices high rather than lower them, and record-high prices will give farmers every incentive to continue to produce as much as they can.
First, Congress should end the Direct Payments program, which sends farmers checks just for owning farmland. This would save $50 billion over ten years ($5 billion a year). Congress can also end the ACRE program, which bails out farmers who suffer very modest reductions in their incomes from the current record levels.
Second, make the federal crop insurance program less of a boondoggle. Currently, the government pays farmers to buy insurance policies to protect them in case of disaster and also pays the insurance companies to sell farmers the policies. This costs about $10 billion a year, of which roughly $3 billion goes to insurance companies for selling profitable policies. We could save at least $2.5 billion by simply requiring farmers to pay 50 percent of their own premiums (they currently pay only 40 percent) and reducing annual subsidies to crop insurance companies by about $1 billion. That would generate an additional $25 billion in savings over the next ten years.
Third, end the various price support programs for major crops like cotton, wheat, corn and milk, which cost about $1 billion dollars annually and, in the case of cotton, have caused the United States substantial difficulties in our trade relations with other countries. All of those commodities are already covered by some form of crop insurance subsidy. That would generate an additional $10 billion in savings for the federal budget and likely reduce the prices families pay for cotton products and milk.
Fourth, rationalize conservation programs that pay farmers to use "conserving" practices they already use. Savings would amount to about $15 billion over ten years.
Some members of the House and Senate Agricultural Committees would have Congress believe that the farm sector, through the current congressional farm bill proposals, has already sacrificed generously. But the $23 billion those committees have offered to cut is a "smoke and mirrors" offer. For example, the committees would end the Direct Payments program, but then reallocate the savings to other farm programs that are potentially even more expensive. Nor would they end or restrict the crop insurance and conservation boondoggles that funnel extra income to people who are already doing quite well.
So there you have it: $100 billion in farm subsidy savings, simply by adopting a policy that only those who really need a safety net should get one. The farm sector has enjoyed unprecedentedly high prices and record incomes over the past five years. It neither needs nor deserves the massive handouts it currently gets.
Vince Smith is a professor of agricultural economics at Montana State University and director of the American Enterprise Institute's "American Boondoggle" farm policy project. Henry Olsen is a vice president at AEI. Learn more at americanboondoggle.com.