It's Time to Reform Farm Subsidies

June 19, 2013

American taxpayers currently spend more than $20 billion per year on farm subsidies, the vast majority of which flows to the largest and wealthiest farming operations. The upcoming farm bill provides Congress the opportunity to eliminate the programs that simply transfer money from less wealthy taxpayers to wealthier farm households, says Vincent H. Smith, co-director of the American Enterprise Institutes agricultural policy initiative.

  • The federal government spends approximately $100 billion per year on farm bill programs.
  • Of this, $23 billion (nearly 20 percent) goes to farm subsidy programs, including: $17.5 billion to the largest 15-20 percent of farm operations; of this, $14 billion is paid to the largest 10 percent.
  • $2.5 billion goes to private agricultural insurance companies.

Since the 1960s, successive farm bills have funded subsidies going mainly to farm households that are much wealthier and enjoy much higher incomes than the average American household. The U.S. General Accounting Office reported that in 2011 more than 50 farms received over $500,000 in crop insurance premiums. Many of these farms also obtained additional benefits from other subsidy programs, such as the Direct Payments program.

A recurring justification for these subsidies is that farmers need a safety net because farming is such a risky business. This claim is inaccurate.

  • The annual failure rate for farms is 0.5 percent. The annual business failure rate, at 7 percent, is 14 times greater.
  • The average debt-to-asset ratio in farming is currently 10 percent and has not exceeded 15 percent since the late 1990s.
  • This indicates that farmers generally face very little financial risk, and as a result, even less-efficient farming operations are able to survive.

House Republicans, Senate Democrats and the Obama administration have all proposed reducing farm subsidies by more than $3 billion per year. This study considers the potential outcome of a required cut in this range, as well as potential outcomes should Congress be required to make higher levels of cuts.

Source: Vincent H. Smith, "The 2013 Farm Bill: Limiting Waste by Limiting Farm-Subsidy Budgets," Mercatus Center, June 17, 2013.

 

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