The House voted down passage of the 2018 farm bill last week. The bill would have reauthorized farm programs and food stamps at a 10-year cost of $867 billion.
Democrats voted in a block against the bill because they opposed expanded work requirements for food stamps. A group of Republicans voted against it because they were frustrated with a lack of action on unrelated immigration legislation.
That the farm bill even got to the House floor shows how uninterested Republican leaders are in tackling rising budget deficits.
According to the Congressional Budget Office, the bill would not have saved any money — instead, it would have continued annual spending of about $20 billion on farm subsidies and $65 billion on food stamps. But with today’s strong economy, Congress should be trimming both farm and food subsidies.
The only conservative element in the House bill was a tightening of work requirements for food stamp recipients. But the savings from that reform would have been offset by higher spending on federal job training activities, and those activities have a poor track record.
Food stamps cost taxpayers $68 billion in 2017, or more than double the $33 billion cost in 2007 before the last recession began. But spending should not be so high given that we are in the ninth year of an economic expansion, and the unemployment rate is just 3.9 percent. Congress should focus on reducing food stamp costs to pre-recession levels.
As for farm subsidies, the House bill includes no substantial reforms, which is remarkably hypocritical. Republicans want to reform food stamps and other welfare programs by weaning recipients off the dole. They say that welfare should be a short-term safety net, not a long-term lifestyle.
Yet, the House bill keeps the agriculture subsidies flowing as an entrenched part of the farm lifestyle — a lifestyle, it should be noted, that is very prosperous. The average income of farm households was $117,918 in 2016, which was 42 percent higher than the $83,143 average of all U.S. households.
Furthermore, the bulk of subsidies go to the largest and wealthiest farmers. A recent study found that 60 percent of crop subsidies from the three main farm programs go to the largest 10 percent of farms. Over time, the high-end concentration of farm subsidies has increased, so reform is more needed than ever.
Other aspects of farm finances highlight the unfairness of federal handouts. For one thing, farm subsidies are not really subsidies to farmers, but subsidies to landowners. Farm subsidies inflate cropland prices because expected future subsidies are likely “capitalized,” just as stock prices on Wall Street capitalize expected future profits.
As a result, farm subsidies probably benefit landowners more than farmers, and those are often different people because half of U.S. cropland is rented. As subsidies have pushed up land prices, it has become harder for young farmers to break into the business.
Another factor overlooked in farm policy debates is that farm businesses pay very little income tax. If farmers paid a lot of tax, they might argue they were covering the costs of the subsidies they receive. But that is not the case.
About 87 percent of farm businesses are sole proprietorships and pay taxes under the individual income tax. The U.S. Department of Agriculture has found that these businesses “in the aggregate pay little in federal income tax on farm income.”
In most years, reported tax losses on farm businesses exceed reported profits in aggregate, and the resulting net losses are used to offset non-farm income. More than a dozen features of the tax code specially favor farm businesses, which allows them to often zero out their taxable income.
So when considering farm subsidies, policymakers should keep in mind that agriculture already receives fiscal advantages over other industries.
Republicans should go back to the drawing board on the farm bill. For farm subsidies, they should adopt the proposals in President Trump’s 2019 budget, which would save about $6 billion a year with cuts to insurance subsidies, cuts to aid for the wealthiest farmers and other reforms.
For food stamps, a good goal would be to tighten program eligibility to pre-recession levels. It makes no sense that 42 million people get benefits today — up from 26 million in 2007 — even though jobs are plentiful and incomes are rising.
Congress should also cut junk food purchases in the program, which currently cost $15 billion a year.
The defeat of the House GOP’s farm bill last week provides an opportunity to take a more reform-minded approach. Given the need to reduce budget deficits, Congress should pursue cuts to both farm subsidies and food stamps in a balanced manner.