Tuesday, March 27, 2007

Agricultural Subsidies & Congress

The Wall Street Journal ($$) has interesting commentary today concerning agricultural subsidies.
Congress is preparing to rewrite farm policy this year, which means the farm lobby will try to tap taxpayers for another $18 billion or so per year to subsidize agribusiness. Some things in politics can't be changed. But is it asking too much for Congress at least to cut off subsidies to the richest Americans, many of whom don't even farm for a living?
The point of the commentary is to discuss a proposal by the President to cap farm subsidy payment eligibility at $200,000 annual adjusted gross income (AGI). Currently the cap is at $2.5 million AGI. You can probably tell from the quote above that the WSJ supports the reduced cap, and the WSJ seems not really to support agricultural subsidies at all. Of course, I don't support agricultural subsidies, because as any Econ 101 student learns agricultural subsidies are bad economic policy.

But, what is really interesting about the commentary are some of the numbers presented.
. . . . In 2004, 276 Washington, D.C. "farmers" filed an IRS "Schedule F" -- for taxpayers who actively participate in their farms -- and 80 of them reported AGI of more than $200,000. If you've been to the District of Columbia lately, you've probably noticed it isn't overrun with corn fields. The D.C. 80 almost certainly do something else as their main occupation, and we'd like to know how many of them also cadge farm payments on the side. Who are these mystery farmers anyway?
Yes, indeed, who are these DC farmers? Let's see, there are what, 435 members of Congress? Many of these are certainly from farm states. There are sure to be at least a few agricultural subsidy lobbyists. And, then, there are all the political appointees to the Executive Branch agencies, and certainly at least a few of these are involved in the agricultural subsidies programs of our government. I have to guess that at least a few of these DC farmers are active participants in the political process that chooses the agricultural subsidy programs.

Okay, let's forget the DC farmers for a minute. I wonder how many "farmers" around the country with AGI of $200,000 or more receive farm subsidies?
All in all, some 38,000 "farmers" who reported AGI of more than $200,000 in 2004 received more than $400 million in federal farm subsidies, or about 5% of all farm program payments that year. . . .
Unfortunately, the WSJ commentary points out that the proposed change in cap value is "controversial":
With all the political and media chatter about "inequality" these days, you'd think this welfare for the rich would cause a stir. But this is Washington, where corporate welfare is a bipartisan industry. The lower AGI subsidy cap has turned out to be the most controversial Bush farm proposal and is running into stiff opposition on Capitol Hill.

"I'm not sure that Congress is going to go along with that whole concept of the $200,000 AGI. At least I'm not supportive of it," declared Missouri Republican Jo Ann Emerson at a recent hearing. Arkansas Democrat Blanche Lincoln, who runs the subsidy subcommittee in the Senate, also opposes reducing farm welfare for the rich.

The National Cotton Council has been especially vocal, with Chairman John Pucheu declaring that "means testing continues to be bad policy." He added that "The Administration's proposal greatly expands the intent of Congress, which imposed a $2.5 million AGI means test in the current farm bill aimed primarily at eligibility of those with substantial non-farm income." So $200,000 isn't substantial?
That is an interesting question, at least I think it is in view of my AGI.

Well, back to the topic of the DC farmers. It turns out that at least one of the DC farmers is Iowa Senator Charles Grassley.
By the way, one gentleman farmer who's doing the right thing is Iowa Senator Chuck Grassley. According the Des Moines Register, Mr. Grassley reported net income of $25,177 from his 800-acre family farm in 2005 and received about $34,000 in farm subsidies that year. But at least he's supporting the subsidy means test.
I'm glad to read that Senator Grassley supports the new cap. But, again, I find the interesting tidbit of information in the numbers shown here. For this DC farmer, the government subsidy payments received are greater than the net income reported from the farm which is the object of the subsidy payments. Actually, I think the government subsidy payments are just about 35% greater than the net income reported from the farm. Now that is an interesting business. The numbers also suggest that government has chosen a very interesting public policy for agriculture. I suppose, when you think about all these numbers, what we have in here is a pretty good illustration of why economists tend to think agricutural subsidies are such bad economic policy.

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