Ag Subsidies Likely To Stay Fat As Congress Debates Farm Bill
Investors Business Daily, November 7, 2007

This farm bill season in Congress had been proceeding as usual, with big producers reaping a healthy harvest of subsidies and reformers getting nothing but small potatoes.

But Monday's veto threat from the White House, while not ensuring broad reform, is at least likely to force Congress to cut some calories out of a bill that weighs in at $288 billion — at a time when the farm economy is thriving.

"This bill increases trade-distorting support instead of lowering it, continues a defective safety net, contains little real reform, and uses tax increases and budget gimmicks to pay for priorities that deserve to be funded in an honest fashion," Acting Agriculture Secretary Chuck Conner said of the Senate bill being debated this week.

Conner said the Senate bill would raise taxes by $15 billion over five years, even as it continues to award subsidies to wealthy landowners.

The farm bill is up for its twice-a-decade reauthorization, covering a broad range of spending programs including food stamps, school lunches, conservation, rural development and renewable fuel mandates.

Fat Farm

Much of the debate will hinge on the roughly $26 billion that farmers are projected to receive in direct subsidies despite high crop prices.

The White House veto threat strengthened the hand of Sen. Charles Grassley, R-Iowa, and Sen. Byron Dorgan, D-N.D. The farm-state senators' amendment would cap annual direct payments at $250,000 a year, down from $360,000. This would save $1.15 billion over five years.

The Senate hadn't voted on that measure as of IBD's press time.

The administration wants more-sweeping reforms. It wants to end commodity supports for farmers with adjusted gross income of $200,000 vs. the current $2.5 million. And it wants to shift commodity supports away from payments that are based directly on production. So far, Congress has resisted substantial changes.

Reformers Decry Subsidies

Farm subsidies aren't awarded based on need, but based on what farms grow and how big they are. The result is overplanting, the dumping of exports at artificially low prices, and the undermining of poor farmers in Africa and other developing countries, argue environmental and anti-hunger groups.

These groups have called for a major farm bill overhaul, as have small-government conservatives and nutrition advocates who want to see more support for fruit and vegetable growers. Currently, 93% of direct subsidies go to just five crops: corn, wheat, cotton, soybeans and rice, an Environmental Working Group database shows. Two-thirds of farmers receive no subsidies, while large agribusinesses reap the benefits.

"In the name of saving family farms, taxpayers will actually be bankrolling their demise, both here in America and in some of the poorest nations in the world," EWG President Ken Cook said about the House-passed bill that saw only modest changes in Senate committee.

The present shape of the farm bill would deal a setback to hopes for a breakthrough in World Trade Organization talks aimed at lowering trade barriers, said John Frydenlund, director of food and agricultural policy at Citizens Against Government Waste.

"Both farm bills are just nothing more than thumbing their nose at the world community and thumbing their nose at the WTO process and the developing world," he said.

The U.S. and Europe want developing nations to cut barriers on industrial goods. But poor nations in turn want the U.S. and Europe to slash farm subsidies and tariffs.

Also this week, Sen. Richard Lugar, R-Ind., and Sen. Frank Lautenberg, D-N.J., will offer a far-reaching reform that would phase out most direct commodities subsidies and replace them with risk-management accounts. Under this proposal, which faces long odds, the government would provide matching deposits that could be used to buy crop insurance and cover losses in lean years.

If the president does wield his veto pen, the overriding issue may be taxes. The House bill raises $7 billion in tax revenue over 10 years by eliminating a loophole that lets U.S.-based subsidiaries of foreign firms pay lower tax bills.

That tax increase cost the bill almost all of its Republican supporters, making it unlikely the House could override a presidential veto.

The Senate bill's $15 billion revenue hike would come, in part, from what Heritage Foundation budget expert Brian Riedl calls "a major expansion of power" for the IRS.

The bill would give the IRS broader discretion to rule that a company had engaged in a transaction that lacked any other economic substance but to avoid taxes.

"Vetoing the farm bill fits right in with the fights over SCHIP and appropriations," Riedl said.

The administration blasted the Senate bill for budget gimmicks. It would push $10 billion in costs past the five-year window. It also would sunset expansions of food stamps and disaster assistance after five years. But Congress isn't likely to stop funding those programs.