Farms and the Federal Deficit

• The periodic process of reauthorizing the farm bill has collided with the debate over the federal debt limit as Congress has negotiated with the Biden administration over ways to reduce the federal deficit.
• In this context, modifying Title I commodity programs and crop insurance subsidies should be considered as one way to reduce government spending, because in their current form, they involve significant transfer or welfare payments to the largest farms even when farm profits are high.
• If the aim is to cut federal spending while doing no harm, then eliminating those programs—programs that neither improve food security, nor reduce poverty, nor benefit the environment—is a safe place to start.

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Introduction

A recent Washington Post editorial took an unequivocal, evidence-based critical stance on the value of and need for the portfolio of “farm safety-net” subsidy programs in the current farm bill. The title says it all: “Want Fiscal Responsibility? Stop Paying Wealthy Farmers.”¹ The evidence it presents is relatively straightforward: American agriculture is extraordinarily productive and as profitable as ever, yet even in good years, when farm incomes are at near-record levels, as is the case today,² the federal government doles out billions of dollars in agricultural subsidies through direct commodity payments, subsidized crop insurance premiums, and a slew of smaller programs.

These arguments stand in stark contrast to the House Agriculture Committee’s 2023 letter to the Budget Committee, which states that the farm bill as a whole, and in particular its commodity and crop insurance programs, “undergird the food and agricultural sectors, which in 2022 accounted for direct, indirect, and induced output from 43 million jobs, $2.3 trillion in wages, $718 billion in tax revenues, $183 billion in exports, and $7.4 trillion in economic activity.” The letter goes on to “challenge any Member of Congress to identify other legislation that can take credit for a similar return on investment of federal support.”³

So which is it? Can commodity payments and crop insurance subsidies take credit for inducing $718 billion in tax revenues and undergirding 28 percent of US gross domestic product (GDP), a return that—true to the claims of the House Agriculture Committee—would be unequaled by any other federal investment? Or are these programs a waste of government money, simply lining the pockets of an industry that could readily support itself? This would be especially egregious, given the recent existential debate over the federal debt limit.

A quick hint as to why the House Agriculture Committee’s claims are likely to be the economic analog of pure science fiction: In 2021, the US farm sector produced less than 1 percent of all economic output ($165 billion) and only employed just over 1 percent of the US workforce (2.6 million full- and part-time jobs).⁴

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Notes

1. Editorial Board, “Want Fiscal Responsibility? Stop Paying Wealthy Farmers.,” Washington Post, May 4, 2023, https://www.washingtonpost.com/opinions/2023/05/05/congress-farm-bill-subsidies-debt.
2. Eric J. Belasco and Joseph W. Glauber, “The Financial Health of the US Farm Sector,” American Enterprise Institute, October 4, 2022, https://www.aei.org/research-products/report/the-financial-health-of-the-us-farm-sector.
3. House Committee on Agriculture, “Budget Views and Estimates Letter,” March 9, 2023, https://agriculture.house.gov/uploadedfiles/committee_on_agriculture_budget_views_and_estimates_letter_fy2024.pdf.
4. The US Department of Agriculture Economic Research Service reports much larger numbers for the impact of the US agricultural sector on the US economy by including the contribution to gross domestic product and employment of other sectors, such as the food and beverage and textiles sectors, that use some of the outputs of the farm sector as a few of the inputs they use in producing bread, armchair coverings, and whiskey. But this approach vastly overstates the sector’s actual contributions to economic activity. For example, a substantial share of US agricultural output is exported, and many domestically produced food products use agricultural commodities imported from other countries. For example, many fast food outlets use imported hamburger from countries such as Australia. See US Department of Agriculture, Economic Research Service, “Agriculture and Its Related Industries Provide 10.5 Percent of U.S. Employment,” January 6, 2023, https://www.ers.usda.gov/data-products/chart-gallery/gallery/chart-detail/?chartId=58282.