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Fake savings: The 2013 House farm bill

Published on June 11, 2013, by in Farm Bill.

The House agriculture committee passed its version of the 2013 farm bill on May 15.  Like the Senate agriculture committee, the House agriculture committee is selling its bill as a bipartisan deficit-reduction measure that saves tax payer dollars on farm subsidy spending while introducing new programs to improve risk management for farmers.

As the bill heads to the House floor later this week, its claims deserve a closer look.

Like the Senate bill, the House bill does get one thing right: eliminating the Direct Payments program—a $5 billion annual giveaway to farmers just for being farmers. In the current era of tight budgets, such payouts are neither warranted nor possible.

Then come the budget gimmicks. Instead of counting the bill’s savings against the previous farm bill’s budget, the House committee members have included sequestration spending cuts in their savings estimates. This makes it appear as though the committee’s bill saves $600 million more per year than it really does. Strip that away, and the bill’s scored annual savings of $3.97 billion shrink to only $3.3 billion.

Then the gimmicks get worse. The House bill counts a proposed annual cut of $2.05 billion to nutrition programs as farm bill savings, allowing it to hide the fact that it lets farm-specific programs off easy. The House Budget Resolution, passed on March 14, called for $3.1 billion in annual cuts to farm programs alone. But after cutting Direct Payments, adding twin revenue protection programs, and stripping away sequestration savings, the House bill would save only $1.28 billion from farm programs. That’s almost $2 billion short of the House’s just-agreed-upon target—conveniently close to the $2.05 billion in nutrition cuts.

As reported in the AEI paper, “Field of Schemes Mark II: The Taxpayer and Economic Welfare Costs of Price Loss Coverage and Supplementary Insurance Coverage Programs,” authored by Bruce Babcock, Barry Goodwin, and myself, the PLC program would provide farmers raising major crops such as wheat, corn, peanuts, rice, barley, and soybeans with very substantial subsidies if crop prices move from their current record (or near record) levels towards relatively recent historical levels.  And the SCO is essentially a new heavily subsidized crop insurance option intended to ensure that farmers receive, at worst, about 90 percent of their average revenues. It is a program that no other business in America would expect the government to provide.

Using the assumption that crop prices will remain at or close to recent record highs, the Congressional Budget Office estimates that the PLC and SCO programs would cost $2.34 billion per year. Combine that with the $5 billion Direct Payments cuts, a few other items, the sequestration savings, and the nutrition program cuts, and the bill appears to save $3.97  billion annually overall. But if crop prices move back toward their long-run averages, PLC costs would balloon to as much as $18 billion or more annually. Under this scenario, the the House bill would cost $15 billion more per year than the previous farm bill if sequestration is not counted.

The data demonstrate that the House bill, with its crop insurance and PLC provisions, is essentially a bait and switch proposal. It exposes the taxpayer to substantial risk while, in combination with other federal subsidy programs, virtually guaranteeing that most farmers will always receive at least 90 percent of their expected farm incomes.

View the full size infographic. ►