As the House Agriculture Committee considers the House version of the 2012 Farm Bill today, AEI scholar and Farm Bill expert Vincent Smith has written a new piece on the Bill and its Price Loss Coverage Program. He writes that the House version of the Farm Bill that includes the Price Loss Coverage Program will likely cost the taxpayers over 5 times the CBO's estimate, turning the bill into a serious budget and trade relations disaster:
- The CBO has estimated that the subsidies in this bill will add $3 billion to the budget annually. But this is based on current record high prices of supported commodities such as corn, wheat, and soybeans. If these crops dropped from their record highs to their 15 year average prices, the Price Loss Coverage Program would end up costing the taxpayers about $16.5 billion per year -- more than twice the $6 to $7 billion estimate for the recently passed Senate version.
- The farmers don't need the support anyways. Farmers are enjoying record market prices and record profits. They have almost no debt (average debt-to-asset ratio is less than nine percent). They are ideally placed to manage price and production risks by themselves. Furthermore, eighty percent of the subsidies go to households of multi-millionaires with annual taxable incomes in the hundreds of thousands of dollars.
- Annual crop subsidy payments of $16.5 billion a year -- coupled with an additional $7 to $10 billion in crop insurance -- would clearly violate the United States' World Trade Organization commitments and create enormous trade relations problems.
Vincent H. Smith is a professor of economics at Montana State University and a visiting scholar at the American Enterprise Institute. He can be reached at firstname.lastname@example.org or through his research assistant brad.wassink@aeilorg or 202.862.7197.
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