Thursday, December 4, 2014

Homework on Subsidies

Federal aid and entitlement programs consume the lion’s share of the federal budget
It should alarm every American, regardless of political affiliation, that their elected representatives directly control less than one-third of the annual federal budget
One way to cut the budget is to begin eliminating programs that no longer serve the public’s interest; and now serve as little more than wealth transfer payments to particular industries
How much does it cost to run a country? Each year federal, state and local governments confiscate more than $5.7 trillion from the economy, based on 2013 figures. Of that number, $1.1 trillion is eaten by local governments; state governments take in $1.6 trillion, and the federal government consumes more than $3 trillion. And still runs a deficit of hundreds of billions each year.
Part of the problem is that We the People have developed quite a voracious appetite for OPM – other people’s money. Federal aid and entitlement programs consume the lion’s share of the budget; this is called “mandatory spending” and it amounts to around 65 percent of the budget every year (and that will only grow, thanks to the most recent expansion of Medicaid under Obamacare). “Discretionary spending” is that which is subject to the annual congressional appropriations process; it amounts to about 29 percent of the annual federal budget, according to National Priorities, a non-partisan watchdog group that monitors federal spending. Interest on the federal debt – 6 percent currently – takes up the rest of the money.
Now, two things should jump out at you immediately. First, it should alarm every American, regardless of political affiliation, that their elected representatives directly control less than one-third of the annual federal budget. In addition, Americans should understand that this same phenomenon is occurring on the state and local levels, too – mandatory spending on pensions, health care and other benefits, as well, meaning that even locally elected representatives don’t have as much control over local spending as you might think.
Second, the fact that there is so much mandatory spending means there is little room to cut the budget – which, in turn, means there is little room to cut deficit spending. So, as deficit spending rises, so, too, will the interest on that debt, which means over time our elected representatives will have even less influence over spending priorities, since payment on the federal debt should be considered mandatory as well (since the country realistically cannot default on its debt). That means in sum, mandatory spending amounts to nearly three-quarters of all annual spending; the only way to really stop the bleeding red ink, then, is to eliminate all discretionary spending – a category that includes the military, by the way.
Obviously that isn’t possible. And in order to reform mandatory spending, there must be political reforms - namely, the American people will have to agree on reforms that reduce government obligations (like Medicare, Social Security, etc. – and good luck with that).
But there is a way to cut the budget by billions each year. One, tighten up on the waste. As outgoing U.S. Sen. Tom Coburn, R-Oklahoma, demonstrated each year with his Wastebook, the U.S. government flitters away tens of billions a year in wasteful, unproductive spending.
Another way is to begin eliminating programs that a) no longer serve the public’s interest; and b) now serve as little more than wealth transfer payments to particular industries. Like farming.
According to Isaac Orr, a research fellow for energy and environment policy at The Heartland Institute, U.S. taxpayers are on the hook for more than $9 billion for so-called “crop insurance” payments, as part of a Dust Bowl-era policy that was supposed to protect the nation’s food growers from losses. As Orr points out, the program has only expanded since:
Originally designed to help farmers in the wake of the drought that coincided with the Great Depression, federal crop insurance was little utilized until 1980, when the government began paying approximately one-third of farmers’ premiums. Enrollment ballooned further after 2000 when Congress amended the policy to pay for 68 percent (on average) of crop insurance premiums.
He goes onto note that crop insurance and other agricultural subsidies are no longer merely safety nets designed to mitigate disaster; they have become “income-support mechanisms” for thousands of farmers against both price and production:
Between 2003 and 2007, federal crop insurance costs averaged $3.4 billion per year, but between 2008 and 2012, factors such as drought and high crop prices caused the costs of the crop insurance program to increase to an average of $8.4 billion per year. In 2012 alone, the program cost taxpayers $14.1 billion.
Orr says a number of federal agricultural policies contain “harvest price options,” which, in 2012 alone, paid out record-high prices to farmers for corn they did not even grow. Such pricing options serve as encouragement for farmers to plant their crops on poor-to-marginal land because they know they will be guaranteed a payout no matter what level of production they achieve. If you open the taxpayer’s wallet to farmers, in other words, they will line up to help themselves.
Encouraging farmers to over-insure and plow up land that is not well-suited for crops harms other segments of the agriculture industry, says Bill Bullard, CEO of the Ranchers-Cattlemen Action Legal Fund for the United Stockgrowers of America. “One of the contributing factors to the alarming decline in U.S. cattle numbers, which are now at the lowest levels since the ’50s, is that good pastureland has been plowed up to become only marginal cropland that is only profitable because of government subsidies,” he said.
Orr says a recent analysis by the Government Accountability Office found that even modest reforms to the program could save taxpayers plenty.
“For example, by reducing premium subsidies by just 5 percent, the federal government would have potentially saved more than $400 million in 2012, and nearly $2 billion if it had reduced these subsidies by 20 percent,” Orr wrote, citing the GAO study.
But is there any political will to do this? Certainly lawmakers from farm states will lobby hard to retain the subsidies, and there is no indication anyone in D.C. is really in a budget-cutting mood anyway (unless you’re Barack Obama and the department targeted for cuts is the Defense Department – the one constitutional obligation of the federal government).
What are YOUR thoughts on farm subsidies – good for the country and taxpayers or just another of many unnecessary drags on the budget? What is YOUR solution to the issue – Cut it completely, cut it a little, or not at all? INFORM THE DEBATE below!
Comments
How much more grazing land would be available if states would assert their ownership over federal lands and sell some to be put to productive use. Subsidies do amount to “trickle-up” redistribution of wealth.  Subsidies should end for all industries, but not for farming, until the Mexican border is secured.  The farmers on the border need their subsidy to keep “hired guns” as ranch-hands these days.
Norb Leahy, Dunwoody GA Tea Party Leader
 

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