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In a bid to boost defense spending, President Donald Trump’s administration has proposed drastically cutting assistance to developing countries, according to a budget report released in April by Foreign Policy. Instead of cutting back on aid that saves many lives around the world and helps maintain the United States’ critically important role in global leadership, the Trump administration should consider trimming or eliminating wasteful domestic farm subsidy programs. These programs either waste resources or provide resources to wealthy groups who have no need for subsidies. Trimming or eliminating these programs would save the U.S. government as much as $50 billion in the next five years.
As public outcries continue over proposals that would cut foreign aid by a third and merge the U.S. State Department with the U.S. Agency for International Development, the current public discussion omits another potential source of support: the billions of dollars spent on agricultural subsidies. Many of these subsidies have greatly expanded over the years but do not reach the neediest farmers, going instead mostly to the richest farm business conglomerates.
Three programs – the federal crop insurance program, the conservation stewardship program and farm safety net programs – should be revamped or revoked in the 2018 Farm Bill.
The federal crop insurance program is the first candidate for reform. According to the Congressional Budget Office, the program costs tax payers about $8.5 billion a year, of which $2.5 billion goes to the private sector crop insurance industry which administers the program. Replacing the insurance program with a more economically efficient disaster aid program would reduce administrative costs to only 5 percent of the resources now given to insurance companies. Savings from such a reform would amount to between $4 and $5 billion annually, approximately $23 billion over a five-year period.
In addition to the savings, the disaster aid program would serve a bigger group of farmers growing a wider variety of crops. Not only would the program include traditionally heavily subsidized crops like corn and cotton, but also fruits and vegetables, crops that have historically received few farm program benefits. The program could also be highly targeted to account for losses in small geographic areas. These reforms would serve farmers who receive little governmental protection for their crops even in the case of significant losses.
The Conservation Stewardship Program also deserves to be discontinued. According to economists who have examined the issue, the program largely pays farmers to continue using pollution emissions control and conservation practices that have already been adopted. While the stewardship program provides very few environmental benefits, it costs taxpayers around $1.6 billion a year – and terminating it would save approximately $8 billion over five years.
Finally, spending on farm safety net programs – Price Loss Coverage and Agricultural Risk Coverage – should also be capped. Introduced in the 2014 Farm Bill, these two initiatives are effectively welfare programs for relatively wealthy farm households and businesses. In 2015, measuring by sales, the top 20 percent of farms received 82 percent of both programs’ subsidy payments. The top 1 percent received 20 percent of all payments.
These two programs have turned out to be much more expensive than originally planned. In 2014, the Congressional Budget Office estimated that both programs would cost taxpayers about $3.6 billion a year. By 2016, the cost was over $6 billion, and the CBO estimates that the two programs are likely to cost taxpayers $8 billion in 2017 and over $9 billion in 2018. Placing an annual cap of $3.6 billion – CBO’s originally 2014 estimate – on both programs outlays would save around $3.5 billion annually and $17.5 billion over five years.
There is no real economic efficiency argument for having Conservation Stewardship, Price Loss Coverage, Agricultural Risk Coverage and federally subsidized crop insurance programs. In fact, the crop insurance program, distorts crop production and land use practices, has adverse environmental consequences and generally wastes resources. Nor is there any fairness or poverty alleviation justification for subsidy payments under those programs. On the contrary, they simply transfer tax revenues to the wealthiest agricultural operations, and not to small struggling farm households.
According to the Environmental Working Group, a nonpartisan research organization, farms in the bottom 80 percent receive 11 percent of total government payments. By comparison, farmers in the top 15 percent receive 83 percent of total agricultural payments. On average, each of the farms in the top one percent – a group that includes 50 members of the Forbes 400 list of the richest Americans – received $1.6 million in government subsidies between 1995 and 2014.
Many farm programs could be terminated or modified in ways that would create budget savings with almost no effect on American farming. As a start, repealing and replacing the crop insurance program with a more rational disaster aid program, ending an ineffective conservation program and capping two farm subsidy giveaway programs, would allow the new administration to secure $50 billion in budget savings over the next five years with no discernible effect on U.S. agriculture or the food distribution system.
These changes would have no measurable impacts on jobs for rural working families, about 94 percent of whom have employment that is not linked to work on the farm. These nonfarm families are the rural voters who overwhelmingly voted for Trump in the key swing states of Florida, Ohio, Pennsylvania, Wisconsin and Michigan. Their interests would be served best by bolstering America’s defenses and infrastructure, not by continuing wasteful subsidies that largely serve the richest Americans and corporate interests.
Vincent H. Smith is the director of the Agricultural Studies Program at the American Enterprise Institute, where he is also a visiting scholar. He is also professor of economics at Montana State University. Ryan Nabil is a global macroeconomy and agricultural policy researcher at the American Enterprise Institute.
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