Monday, January 31, 2011

Taxpayers may be at odds with 2012 Farm Bill spending

To paraphrase former Vice-President Al Gore, “the budget economics are settled.” And this time they really are.

Last Thursday the Congressional Budget Office (CBO) released its new ten-year federal budget baseline and the numbers are shockingly bad, showing an unprecedented $1.5 trillion deficit for this fiscal year – an increase of $95 billion over their last estimate – and the third consecutive year of trillion-dollar deficits.

The Heritage Foundation, a not-for-profit, donor-supported, conservative research organization, notes that the reality is likely far worse than the CBO figures indicate. Researcher Brian Riedl finds that the federal government will add $19.1 trillion in new debt between 2009 and 2021, a whopping $140,000 per household over 13 years. Annual budget deficits will never drop below $1 trillion, and the debt is now projected to reach 100 percent of the gross domestic product (GDP) by 2020.

Riedl also found that the trillion-dollar deficits are being wholly driven by rising government spending. While tax revenues will return to their historic norm of 18 percent of GDP by 2018, federal spending will jump to 26.4 percent of GDP, nearly seven percent higher than the historic norm, by 2021.

Our federal budget deficit, of course, is the difference between what the government spends (including interest paid on debt) and what it generates in revenues. Those revenues are almost entirely tax revenues.

Though the 111th Congress (2009-2010) never passed a budget, federal spending in 2010 was $6.037 trillion, or 6,037 thousand billion dollars. Federal revenues were $4.537 trillion, or 4,537 thousand billion dollars, leaving a 1.5 trillion dollar deficit. That’s one-and-a-half thousand billion dollars. Keep those numbers in mind and compare them to federal agricultural spending numbers as you read on.

Why should farmers and ranchers be concerned? Leaving aside the reasonable concerns most ag producers share with other business owners regarding the federal government’s unsupportable spending spree, those of us in the ag sector should understand that taxpayer pressure is likely to force changes in federal spending, including the 2012 Farm Bill, which will fund the US Department of Agriculture (USDA).

A study conducted jointly by economists from the Kansas City Federal Reserve Bank and Oklahoma State University supports the notion that real changes are likely to be made to federal ag spending beginning with the upcoming Farm Bill. A paper prepared for the study will be presented this weekend at the Southern Agricultural Economics Association annual meeting in Corpus Christi, Tex. To read the full text of the paper, visit

The study included a survey of 1,200 consumers and taxpayers from across the country, asking what the spending priorities of the 2012 Farm Bill should be. Respondents were asked to prioritize ag spending in six areas: rural development, food safety and inspection, natural resources and environment, food assistance programs, research and education, and farm support programs.

All of these areas receive federal dollars through the so-called Farm Bill, which when it becomes law usually bears a different name. The 2008 Farm Bill, for instance, is called the “Food, Conservation, and Energy Act of 2008.” Despite this, the roughly pentadal, or every-five-years, acts are almost universally referred to as the Farm Bill.

As a refresher, total spending for the 2008 Farm Bill was $57.6 billion annually for a total of $288 billion over five years. The entire $288 billion equals 0.047 percent of all federal spending in the single year 2010, or just under one-half of one percent. For comparison, 32 percent of federal spending went to Social Security and Medicare, 14 percent to defense, and 14 percent to education.

Of the $288 billion in Farm Bill spending, about 20 percent, or $57.6 billion, went to farm support payments, including federal crop insurance. The other 80 percent, roughly $230 billion, supported non-farm programs, including the five mentioned above. The lion’s share, 60 percent or about $138 billion, went to food assistance programs including the Supplemental Nutrition Assistance Program (SNAP, formerly called the food stamp program) and the Women, Infants and Children (WIC) program. The remaining $92 billion funded all other USDA activities, including conservation, food and animal inspection, education and research, among others.

The preface of the study paper notes that while 80 percent of those surveyed favor government subsidization of farmers, more than 80 percent of professional economists feel that farm subsidy payments should be eliminated. The preface also notes that President Obama wants to cut direct payments to “mega-farmers” with more than $500,000 annual sales revenue and reduce crop insurance payouts.

So how did the 1,200 U.S. taxpayers surveyed think new Farm Bill dollars should be divided? What do these non-farming/ranching citizens see as priorities when it comes to federal agricultural spending?

Respondents were asked which of the six primary USDA programs was most important. They were also asked to divide an imaginary $100 between the six programs in the spending ratio they believed proper for federal ag spending.

Food safety and inspection has probably been the biggest ag related topic covered by the major media in recent years, and unsurprisingly, 50.7 percent of those surveyed felt that it was the most important USDA program. In the current Farm Bill, food safety and inspection receives just over three percent of USDA dollars, about $90 million, or $3.14 per $100.

Just over 20 percent felt that food assistance programs were the most important. In the present Farm bill these programs receive $60.40 of each $100 in USDA spending.

Farm support programs were felt to be the third most important priority. Such programs currently receive $22.03 of every $100 spent by the USDA. Respondents felt this number was too high, however, and set their dollar figure at $15.82 per $100.

Respondents were found to be in favor of redirecting some farm support dollars into research, which they felt would benefit both farmers and consumers alike.

In summary, the researchers find that in “…looking at an overall distribution of funds, we can see people prefer a more equitable allocation of dollars. On average, respondents would like to see more dollars going to food safety and inspection, natural resources and environment, research and education, and rural development and less dollars going to food assistance and farm support.”

Congress is going to swim through a lot of red ink as they fumble through the budget process. There’s a good chance that whatever the 112th congress does, it will be historic. Possibly historically bad, possibly historically good. As farmers and ranchers, we make up far less than two percent of the population. We’ll be mostly bystanders.

But we don’t have to be completely silent. Use some of these numbers in your morning and afternoon coffee sessions. Send this article on to your congressional representatives. Write a letter to the editor or put something up on a blog. It might not make much difference, but you’ll have solid facts on your side.

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