Uncapped Entitlement is Bad for Agriculture and Holding up the New Farm Bill
January 12th, 2014
As Congress heads into the home stretch of finalizing the long-awaited passage of a new 5-year farm bill, the issue of payment limit reform for farm commodity subsidy programs remains up in the air, holding up the completion of the House-Senate conference proceedings.
At first blush, you wouldn’t think this could be the case. After all, both the House and the Senate-passed farm bills include identical payment limit reforms. Both bills adopt identical dollar limits on subsidies per farm per year, and both bills close egregious loopholes in the “actively engaged in farming” rules that have allowed mega farms to collect unlimited subsidies. Under normal congressional rules, provisions included in both bills are not subject to conference negotiations.
But bipartisan, bicameral support for reform and inclusion of identical provisions in the two bills now being melded into the final farm bill has not proven sufficient to settle the matter. A small but dedicated group of legislators, answering to a small but dedicated group of the country’s largest and wealthiest farmland owners, want to save the loopholes and thereby continue an open-ended entitlement to unlimited subsidies.
The loopholes – which make a mockery of the statutory per farm payment limits – are the key point in the showdown. With the loopholes intact, the actual dollar payment limits are all but irrelevant, since they are relatively easy to sidestep. Hence the currently raging debate is centered on the actively engaged in farming rules, the rules which determine whether the dollar limits are real or just window dressing.
Congress has included payment caps in all farm bills going back to the early 1970s, for good reason. An unlimited subsidy regime is bad policy and antithetical to the normal meaning of the term safety net. It encourages overproduction and environmental degradation as well as consolidation. It puts family farms at a government-induced competitive disadvantage with mega farms and shuts beginning farmers out of the land market, reducing economic opportunity for a new generation of Americans. And it wastes precious taxpayers’ dollars.
Yet the policy no longer matches the reality and payments flow without effective limits to rich landowners and absentee investors provided they can hire a competent lawyer and accountant. The backers of the status quo foster cynicism about government by perpetuating a big lie – the payment limits that Congress includes in every farm bill but that are now widely understood to be completely ineffective due to the loopholes.
How It Works
A U.S. Government Accountability Office report released last October found that mega farms use the lack of measurable subsidy eligibility standards to assign additional payments to individuals and entities with little or no involvement in a farming operation, thereby collecting many multiple times the nominal payment limitation.
The most common abuse is on farms where no one collects a payment as the actual farmer, but instead a large number of individuals and corporations receive payments as farm managers. Since general partnerships are allowed to receive a full payment up to the limit for each eligible member, these partnerships are frequently set up to receive payments for management only. Almost half of all farm program payments made to business entities in 2012 went to such artificially-constructed general partnership farms designed to maximize subsidies.
In Indiana, for example, a general partnership with 11 partners (comprised of 7 corporations and 4 individuals) received $376,610 in payments in 2012 without a single member claiming a significant contribution of personal labor. The same was true of an operation in Louisiana that received $651,910 in 2012 based solely on 16 limited liability corporations being declared eligible based on management alone, with no one qualifying as a working farmer. The GAO has brought these and many other examples to lawmakers’ attention in multiple reports to Congress over the years.
A Reform Compromise
The remedy proposed in both the House and Senate-passed farm bills is not, however, the one prescribed by the GAO and incorporated into earlier legislation passed in the Senate during debate on previous farm bills. That approach would subject qualifying as a farm manager to a measurable test, just as is currently the case for the vast majority of farmers who qualify for payments as the working farmer.
Instead, the reform introduced by Senators Chuck Grassley (R-IA) and Tim Johnson (D-SD) and Representative Jeff Fortenberry (R-NE) is an attempt at compromise with opponents of payment limits. The reform included in both the House and Senate farm bills would allow all farms to receive payments for one farm manager – regardless of the circumstances or the specific amount of management provided – in addition to any and all working farmers who operate the farm and qualify for payments under the normal rules.
Despite the compromise to provide for an additional manager and hence a full additional payment, reform opponents remain dug in and seemingly intent on risking passage of a new farm bill for the sake of retaining what it effectively an uncapped entitlement for wealthy farmland owners and passive investors. That a few of those reform opponents have also been in the forefront of efforts to cut food stamp benefits for low-income families has not gone unnoticed by other Members of Congress.
Without good arguments to oppose reform other than a deep-seated ideological conviction that the farm commodity entitlement, unlike all other government entitlement programs, should have no limits, reform opponents lodge all sorts of spurious claims about reform. They claim, for instance, that the reform tries to define who is and is not a farmer, though the reform leaves existing rules for farmers intact and changes only the vague farm manager rules that lead to abuse.
At times they have also claimed the reform would discriminate against farm spouses or beginning farmers, whereas the reform leaves existing spouse rules intact and begins to create a less unlevel the playing field for beginning farmers.
Opponents have also claimed the reform would encourage land owners to switch their tenants from share rent to cash rent, yet the reform leaves the existing exemption from actively engaged in farming rules in place for crop share landlords whereas cash rent landlords are ineligible for payments under existing rules and under the new reform.
When all other arguments fail, opponents of reform resort to the notion that modern farming requires 5 or 10 or 20 additional managers in order to function. While that certainly could be debated, there is actually no reason to have the debate. If a farm wants to have a dozen managers that is a business decision the landowner is free to make. They just should not expect the American taxpayer to therefore provide them with 12 payments.
Time to Act
There was never a good reason for that kind of government-sanctioned waste and abuse, and in today’s budget climate it is time to say enough is enough, as the full House and Senate have already voted to do, saving an estimated $170 million in the process. The farm bill conferees should respect the will of both bodies, accept the bipartisan reform, wrap up its other remaining work, and get a final bill enacted without further delay.