With pressure in the Senate to pass the Farm Bill this week (they approved cloture this morning) and showmanship killing any consideration of further amendments, things aren’t looking good for reformers. This leaves taxpayers on the hook for an expanded crop insurance program with incredibly few taxpayer protections built in.
The Senate lauds this as progress, claiming $24 billion in savings over ten years. But a simple breakdown makes it clear that these supposed savings will never be realized. Luckily, the American Enterprise Institute has a great infographic presenting the numbers as they are likely to look over the next ten years. Instead of finding $24.4 billion in savings, the AEI graphic shows $31.2 billion of increased spending, which they rightly term a “bait-and-switch” for the taxpayer.
So where do these costs come from? The answer is the Agriculture Risk Coverage provision, a proposed “shallow loss” program that would make up the difference for revenue not covered by crop insurance. The program works with crop insurance to guarantee revenues, basically ensuring farmers 89 percent of their average revenue over the last five years. So if prices fall or your yield decreases, ARC will smooth over the difference.
Beyond the obvious problem of this Soviet-style scheme where the government steps in to remove risk for a favored industry, the numbers just don’t add up the way the Senate would have you believe. The revenue targets are incredibly high, as farmers have experienced record-high market prices for the last several years. To a regular observer, this would indicate that payments are likely to occur, as “record-high” prices don’t tend to last. But for those scoring the bill, no such costs are factored in. The score assumes contemporary prices will last, and without payouts, the program is cheap. However, if prices fall back to historical averages, the program would cost $3.2 billion each year.
But if we assume prices will last, why enact the program at all? Or, if we think prices will vary but stay relatively high, why not cap the payouts available under the program to limit taxpayer liability? This would make too much sense. The truth is, those crafting the bill know that prices will fall, as do those lobbying for the program. However, rather than be honest about the incredible level of protection we’re giving to certain farmers, they use false assumptions to hide the program’s realities.
I’m sure many homeowners wish housing prices hadn’t fallen, and I’m sure many other industries wish that the government would step in and reduce the risk of declining revenue. But we all know that this isn’t the government’s job. As Congress examines the proper role of government supports in agriculture, let’s hope they learn this lesson too.
This post originally appeared on RStreet.org