Each year the American government pays $5 billion in subsidies, known as “direct payments,” to rice, feed, cotton, and soybean farmers. As the economic downturn continues and Washington’s budget troubles intensify, those payments have become harder to justify, especially since farmers have weathered the weak economy especially well: The U.S. Department of Agriculture estimated that net farm income in 2011 was the second highest on record.
So in October top legislators on the House and Senate agricultural committees proposed eliminating many of the subsidies, saving $23 billion during the next decade. Just one catch: The plan would replace the old subsidies with a new one that could cost at least as much.
As Congress reduced the amount spent on direct payments, it would change a subsidy known as the Average Crop Revenue Election (ACRE) program. The new formula would modify a 2008 program designed to allow farmers to take additional subsidies for most of their crops by giving farmers more taxpayer money anytime per-acre revenues for certain crops fell below recent averages in their states.
But as farm revenues boom, the prices of many crops covered by ACRE are breaking records. As Montana State University agricultural economist Vincent Smith explained in a blog post for the American Enterprise Institute, that means “taxpayers would pay already wealthy farmers to maintain record profits—at a time when millions of Americans are jobless and not making a profit at all.” And when prices went down, the payments would go even higher. “Add it up,” Smith noted, and “over ten years, there would be no cuts from ag subsidies at all, just a switch in how they are received.”