Subsidized farmers: little house on the prairie or gone with the wind?

There seems to be some bizarre idea in the comments and email that the farm bill aims to preserve subsidies to farmers with revenue of more than $1 million. To be sure, I think the subsidies should be removed for everyone, but that would indeed be less surprising.

However, this confuses revenue and income. We are talking about Adjusted Gross Income aka "How much you made last year".

People earning more than $500,000 in adjusted gross income from non-farm sources would be ineligible for crop subsidies and land stewardship payments. Farmers with more than $950,000 a year in agricultural income would lose 10 percent of their direct payment for each $100,000 a year in income.

This is not going to affect struggling farmers, for the reasons outlined in Ag Weekly:

Ron Abbott, Idaho farm programs chief with the Farm Service Agency in Boise, expects the number of Idaho farmers affected will be low. He reviews forms and taxes regularly and is quite familiar with farmers’ adjusted gross income.

“With the numbers that we review, that AGI is a negative number. Gross income may be high, but that AGI is way down,” he said.

“It’s not uncommon, literally, if you generate $1 million, you’ll spend $900,000 to $950,000 generating that. Profit in farming is about 2 to 3 percent; it’s a very narrow margin. Their expenses are just outrageous,” he said.

That’s why he doesn’t expect many Gem State farmers will be affected by the lower cap.

Farms with $950,000 in Adjusted Gross Income are big, flourishing farms. I'm not sure whether my farming relatives ever saw $1 million in AGI in their long, long lives.

Farm subsidies overwhelmingly do not go to struggling farmers; they go to large, flourishing concerns. This is not surprising; corporate farmers have the resources to become extremely skilled at collecting the subsidies. They also, to be sure, provide most of our food, since farming has large capital costs that get bigger every year.

Comments

Yeesh.

Maybe it's time to re-think the whole "blogging with open, unmoderated comments" thing if you have to start writing posts explaining the difference between revenue and income to your commenters. That'd make my head explode.

Posted by Jeff | May 15, 2008 9:51 AM

Jeff,

to be fair, I'm not sure that commenters were confused about the difference between revenue and income; rather, they were confused about what this bill actually did.

Posted by John Thacker | May 15, 2008 10:59 AM

"Farm subsidies overwhelmingly do not go to struggling farmers; they go to large, flourishing concerns."

It's much, much worse than that. The crop subsidies have locked America's farm sector into a vicious cycle, and are accelerating the outcome that they were supposedly created to prevent--the takeover of American agriculture by large, corporate farm concerns, and the death of many of rural America's small towns.

The root of the problem is that the subsidies are mostly tied to the land. Thus, the value of the subsidies gets factored into the price of the land--to buy or rent--artificially raising land values. Because the margins in agriculture are usually thin, you need to have a pretty big land base in order to survive. But high land prices make expansion very expensive, making it tough for small to medium-size producers. The only ones who can really afford to grow are the big operators, who are gobbling up the land--and the subsidies that go with it. This dynamic is inoxerably driving small and medium-size farmers out of the business.

Subsidies also make it very hard for young farmers to get started. They can't afford to buy the land, and the rental rates are steep. With large farms getting larger and requiring fewer workers, and the barriers to entry being so high, fewer young people are going into farming. Did you know that 70% of all grain and cotton farms are operated by people 50 years of age or older? Or that the median age of all U.S. farmers is 55 (USDA 2002 Census of Agriculture)? The small towns that supported the farm economy are also dying. Large farms order all their inputs from the cities. They don't need local dealers for anything. Entire regions of the Midwest are emptying out.

It's true that the subsidies help keep some smaller to medium-size producers going, but it's a long-term losing proposition for the agriculture sector and the taxpayer.

Posted by Claudius | May 15, 2008 11:10 AM

The bill that passed yesterday, with overwhelming support of Democrats, and mixed support of Republicans, is so bad it can barely be described. Truly disgusting, and the next time Democrats start yammering about Republicans being in the pocket of the rich (which they often are, of course), this bill should be shoved in their faces.

Posted by Will Allen | May 15, 2008 11:21 AM

"Farm subsidies overwhelmingly do not go to struggling farmers" is true if you're thinking of the dollar amounts, not so true if you're thinking of numbers of payees. Payees=voters.

Posted by Bill Harshaw | May 15, 2008 12:00 PM

First of all, I don't support the subsidies. I'd prefer them to go away completely, but I must admit I don't like the way the argument for the limits is often phrased (take yesterday's WSJ "Who Wants to be a Millionaire?" editorial, for example). Maybe it's the only way conservatives can come up with to limit the total amount of subsidies, but I don't like it.

I think it plays into class warfare fears and panders to the liberal base. How is this different from a progressive income tax? It says to large farms (or wealthy individuals) that because you have so much money, you don't need more (or you can afford to give a little more).

Not only that, but the income limits seem to subsidize inefficiency. Is increased economies of scale the justification for not giving subsidies to large farmers? Why penalize them because they're big and good at what they do? I don't see it as a bad thing if small farmers can't compete. 100 years ago something like 40% of our workforce was on the farm; now it's closer to 3-4%. I'd say we're a lot better off as a country.

Again, I realize there isn't muh point in my arguments because I oppose subsidies to begin with. If Congress really feels subsidies are necessary, why not a "flat subsidy" that lowers the subsidy amounts and gives them to everyone, regardless of income? At the end of the day, it's all politics and politicians say what they need to say to get their policies through. I'd just rather not see conservatives play the populist, class warfare game.

Posted by MattHutch | May 15, 2008 12:30 PM

Megan,

Can we agree that this abomination of a bill is a much more significant economic issue than a temporary repeal of the Federal Excise Tax on gasoline?

If so, perhaps we can discuss the respective positions of the three presidential candidates on this issue?

Regards,
Neil

Posted by Neil S | May 15, 2008 2:41 PM

MattHutch - re: "How is this different from a progressive income tax?"

There is a difference between saying "you have a lot of income so we won't give you a handout", and saying "you have a lot of income so we are going to take a large chunk of it away from you".

Posted by Tim Fowler | May 15, 2008 7:46 PM

"There is a difference between saying "you have a lot of income so we won't give you a handout", and saying "you have a lot of income so we are going to take a large chunk of it away from you"."

I wish you'd explain this to Nancy Pelosi and other top Democrats. After all, if you start from the assumptions that the economy is a zero-sum game and that everything really belongs to the government to begin with, then the two are basically the same.

Meanwhile in the real world, where wealth has to be created, the two are very different.

Posted by Ann | May 16, 2008 1:06 AM

If you disagree with agricultural subsidies to any degree, you might want to frame your opposition around a few relevant facts:

First, after Hurricane Katrina, the price of a bushel of corn was less than $1.60 per bushel due to the disruption of Mississippi River barge traffic.

Second, North America has not had a significant drought event for over 19 years. This represents the outer edge of a cycle that has been seen in dryland farming throughout recorded American agricultural history and is the greatest current risk.

Third, unlike farm bills of the 20th century, the American farmer is not rewarded to hold grain reserves. As Senator Grassely is fond of saying, "we are nine meals away from a revolution".

Fourth, many Americans (key word - "many") have absolutely no understanding of how food is produced or even a shred of a idea on how to raise a garden or preserve foods. They are entirely dependent on farmers to remain solvent or capable to produce food. This was not the case until the last half of the twentieth century.

Just a few thoughts, anyway.

Posted by Gary Owen | May 16, 2008 9:34 AM

Tim,

There really isn't that much different. My point is that, like a progressive tax, with income limits, you end up discriminating between big and small farmers, between the wealthy and the not. This is one reason why conservatives support tax reform because the progressive tax punishes people's success. With income limits, you ultimately punish a farmer's success. If he goes out and buys a lot of land and invests in ultra-efficient machinery, why is he less deserving? Just like high marginal tax rates, doesn't this make him less likely to invest, because he knows that the extra income gained by the bigger farm or more efficient machine might be offset by the loss of a per-bushel or per-acre subsidy?

What's the point of a progressive income tax? Isn't it fairness? Maybe it doesn't work like this explicitly, but I believe there is a max amount of subsidies congress is willing to distribute. If you limit the amount the wealthy farmers get, it means more to the smaller guys. Why are the small farms more deserving? Do we need to protect the small farms from becoming extinct? I don't feel some romantic desire to preserve the family farm. I won't miss the family farm any more than I miss 1960's Ford. Sure they looked cool and all, but I'd rather have a cheaper, more comfortable, more fuel efficient, etc car of today. They may be of value to some, and think that's fine, but don't ask me to subsidize it for you.

Again, I don't like subsidies; I wish we'd get rid of them altogether. But if we're going to have them, I'd rather distribute them fairly (or in other words irrespective of income). If it means lowering per-unit subsidies to small farms, so be it. If we end up with a bunch of large corporate farms that can do things cheaper than their smaller brethren, then maybe people will feel better about ending subsidies entirely, given the current populist hatred of big business.

Posted by MattHutch | May 16, 2008 1:02 PM

There really isn't that much different.

We disagree quite strongly here. I see it as being massively different. The distinction between taking and not giving is a rather important one, and trying to portray not giving hand outs as being the same as taking from some people, or alternatively viewing tax cuts as a hand out, is very problematic.

With income limits, you ultimately punish a farmer's success.

I wouldn't call it a punishment, but I understand and agree with the point that you are creating a disincentive for success. One way to try to deal with it is to phase out such benefit decreases slowly, but while that lessens the problem, it doesn't do away with it completely.

Another way to deal with the issue is just not to have the benefits in the first place.

Again, I don't like subsidies; I wish we'd get rid of them altogether.

I'd like to see that as well.

Posted by Tim Fowler | May 19, 2008 4:57 PM