When the Washington Post published a story in 2007 about how dead farmers had received farm subsidies to the tune of over $1bn, most people were horrified (even “farm subsidy moderate” Rand Paul thought they should go!). Although the article made clear that “most estates are allowed to collect farm payments for up to two years after an owner’s death,” and that the payments weren’t necessarily fraudulent, outrage ensued.

But a follow-up investigation by the USDA has found that all but about $1 million of the payments were completely above board. From the Associated Press:

A 2007 report that the federal government had paid $1.1 billion in subsidies to dead farmers sparked an outcry and has been frequently cited by critics who considered the payments a blatant example of wasteful spending. But a follow-up that found no fraud and determined nearly all the subsidies paid on behalf of dead farmers in recent years were proper has received little attention.

According to the U.S. Department of Agriculture’s Farm Service Agency, just a little over $1 million out of the billions of dollars paid in subsidies in 2009 went to estates or business entities that weren’t entitled to them.

“Very little money is going to individuals who have not earned that money. Very little is being paid in error because a farmer has passed away,” FSA Administrator Jonathan Coppess told The Associated Press. [emphasis mine]

Don’t you just love how Mr Coppess uses the word “earned” there?

That’s the real scandal of farm subsidies, readers. Not that they are fraudulent (although that is of course an outrage), but that they are, for the most part, perfectly legal.

Almost half of America’s farmland is operated by someone other than the owner. Critics of farm subsidies often point to examples of famous wealthy landowners receiving handouts as a reason to end the federal government’s agriculture gravy train. Notable recipients have included Ted Turner, Larry Flynt, Charles Schwab, and numerous members of Congress.

While policymakers justify their support for farm subsidies in the name of “protecting farmers,” a new academic study describes how landowners are often the real winners. Farm subsidies get “capitalized” into the price of farm land, pushing up land prices. As a result, those farmers who lease land from landowners at the inflated prices end up having a substantial share of their subsidy benefits effectively canceled out.

From the paper:

In all, the results confirm that government payments exert a significant effect on land values. The (marginal) rates of capitalization suggest that in the current policy context, a dollar in benefits typically raises land values by $13-$30 per acre, with the response differing substantially across different types of policies. This response certainly suggests that agents expect these benefits to be sustained for some time. In terms of the implications for the distribution of farm program benefits, our results confirm that a substantial share of the benefits is captured by landowners.

The authors’ conclude that the rhetoric exhibited by supporters of farm subsidies doesn’t always match the reality:

Policy rhetoric often justifies Farm Bill expenditures with the argument that impoverished farmers are in need of governmental support to remain in business. This view is pervasive outside of Washington. For example, consider the annual “Farm Aid” events intended to draw attention to the plight of the American farmer. Our analysis challenges this view. We demonstrate that land owners capture substantial benefits from agricultural policy. This is particularly problematic given that in many cases land owners are distinct from the farmers whose plight we are told we should be concerned with.

See this Cato essay for more on agriculture subsidies.

In-coming House Speaker John Boehner’s endorsement of Rep. Jeff Flake (R-AZ) for a seat on the chamber’s appropriations committee means that it’s probably a done deal. Flake is one of the few policymakers who actually lives up to the fiscal conservative label. Thus, Flake’s appointment to a committee that many members think only exists to increase spending on special interests would be welcome news.

Boehner also endorsed a suggestion from Rep. Jeff Kingston (R-GA), who has mounted a dark-horse campaign to chair the appropriations committee, to create a subcommittee focused on investigating federal programs. Flake would chair this subcommittee, and according to a release on his website, he has already lined up worthy targets like Head Start and farm subsidies.

How much success will Flake have within the committee?

The New York Times quotes Flake as boldly saying, “It has been a favor factory for years, and now it is going to become a slaughterhouse.” At the same time, Flake acknowledged to Politico that putting a few anti-spenders on appropriations isn’t going to be enough:

Flake said the conservatives that Boehner wants to get on the committee will be “marginalized” if they’re scattered throughout the panel.

“It’s not enough just to have a few going on the committee,” he said. “They could be dispersed among the subcommittees that are forgotten.”

I recently warned the House Republican leadership against serving tea party voters re-heated meatloaf by allowing old-school spenders to dominate the committees. Getting Jeff Flake on appropriations is a step in the right direction, but his appointment can’t be a token gesture. Anti-spenders like Flake will need support from their leadership to succeed because they sure won’t be making friends with the big-spending old bulls.