House Shouldn’t Use Disaster Aid Bill to Funnel More Handouts to Cotton Interests

The House’s disaster aid bill, at $81 billion, is nearly double the Trump administration’s request of $44 billion. These costs are not offset by spending cuts elsewhere.  So much for fiscal responsibility.

Contained within this bill is an expansion of already excessive handouts to the cotton industry.  Using the cover of a disaster bill to funnel more money to cronies at the expense of taxpayers is precisely the type of action that leads Americans to have such a low opinion of Congress.

Besides that, the provision has absolutely nothing to do with disasters.

Specifically, it would make cotton eligible for another farm handout scheme known as the Price Loss Coverage program, which primarily helps large farm businesses meet their financial bottom lines.

This subsidy expansion has been a desire of the cotton lobbyists and the “swamp” for over a year. To date, such a major policy change hasn’t become law.

Cotton growers already participate in the federal crop insurance program. This is a program in which taxpayers pay for 62 percent of the premium costs for participating farmers.

That apparently isn’t enough. So Congress created a special crop insurance program just for cotton called the Stacked Income Protection Plan, known as STAX. Taxpayers pay a whopping 80 percent of the premiums for the new cotton-only program, which covers minor losses for cotton growers.

It gets even worse. In recent years, taxpayers haven’t just subsidized American cotton growers. They also paid $300 million to the Brazilian cotton industry as part of a 2014 settlement agreement.

That agreement was struck in order to resolve a longstanding trade dispute with Brazil in response to past U.S. domestic cotton subsidies, which violated World Trade Organization rules. The $300 million payment is in addition to about $500 million the U.S. paid to Brazil from 2010 to 2013.

Lawmakers intentionally excluded cotton from the Price Loss Coverage program in the last farm bill because of trade-related concerns. By adding cotton to the program, Congress very well could be jeopardizing the settlement agreement and risk trade retaliation.

If the past is any indication, Congress would expect the U.S. to pay off Brazil with even more taxpayer dollars to maintain indefensible cotton subsidies.

A recent report  from the Congressional Research Service provides even more compelling information on just how generous Congress (using taxpayer money) is to the cotton industry.  From 2014-2016, cotton:

  • Was the fourth-largest recipient of farm program support.
  • Received the third-largest amount of farm program support by planted acre.
  • At a cost of $104.56 per acre was more than double the average amount per acre ($48.52) among program crops analyzed.

This proposed expansion of cotton subsidies is fiscal malpractice and completely thumbs its nose at American taxpayers.

Such a major, substantive change to farm policy is also completely inappropriate for a disaster aid bill, especially given the fact that lawmakers will debate the next farm bill in this upcoming year.

The House should immediately remove this additional cotton handout from the disaster aid bill.  It is shocking that lawmakers included it in the disaster aid bill in the first place.

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The ‘Reverse Robin Hood Effect’ of Farm Handouts

The federal government takes the hard-earned money of taxpayers and gives handouts to farm households that generally make a lot more money than they do.

This wealth transfer subsidizes the $15 billion “safety net” for agricultural producers, which ostensibly exists to help these businesses address agricultural risk.

The U.S. Department of Agriculture recently released a report that shed light on this reverse Robin Hood effect.

The numbers are staggering. According to the Agriculture Department, the median income for farm households that received commodity subsidies and crop insurance indemnities were both about $145,000 in 2015. That’s far more than double the median income of all U.S. households (about $56,000).

“In 1991, half of commodity-program payments went to farms operated by households with incomes over $60,717 (in constant 2015 dollars),” the USDA explained. “However, in 2015, half went to households with incomes over $146,126.”

There are similar trends when looking at the distribution of handouts in terms of the gross cash farm income of farming operations. For example, in 1991 and based on 2015 dollars, family farms with gross cash farm income greater than $500,000 received 25.5 percent of commodity payments. In 2015, they received 56.7 percent.

When compared with the past, these subsidies, far more than before, are going to the most prosperous farm households and farm businesses. Certainly, more production does come from larger operations than in the past, but this only explains the distribution of the subsidies. It does nothing to justify the scope or reasons for this massive wealth transfer.

The claim can’t even reasonably be made that the money has to be provided to help the agricultural sector with risk, because most agricultural production receives a small amount of subsidies. The reality is that almost all subsidies go to a small number of farm businesses, primarily the largest producers, who grow a small number of commodities.

There are, in effect, two farm safety nets in the United States. One safety net applies to most agricultural production. Based on a Congressional Research Service report, about 75 percent of agricultural production receives little in the way of subsidies. Further, any assistance that is provided generally helps farmers when they experience disasters and crop losses.

Then there’s the “crony safety net.” The Congressional Research Service points out that almost all of the farm program support (94 percent) goes to just six commodities (corn, wheat, soybeans, cotton, rice, and peanuts).

These six commodities account for just 28 percent of all agricultural production. In other words, almost all of the farm handouts are going to a small subset of agricultural producers for no logical reason.

It gets worse, though. The crony safety net isn’t focused on crop losses and disasters. Instead, it is primarily focused on helping these favored farm businesses with meeting revenue targets and making sure they don’t have to compete in the marketplace like other businesses—including most other farm businesses who also face agricultural risks.

If this weren’t bad enough, the crony safety net is duplicative, providing these farm businesses with more than one way to get taxpayer subsidies when they don’t make as much as they hoped.

Congress should put an end to this crony safety net. If there’s to be any safety net, it should at most provide assistance when there are major crop losses and disasters.

Such a system would minimize the reverse Robin Hood problem. The costs to taxpayers would be far less than they are today, and taxpayers wouldn’t be handing over their money just to help large farm businesses meet their financial bottom lines.

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Tax Legislation Must Repeal the Death Tax

Lawmakers are currently working out the differences between the House and Senate tax bills. On the estate tax—also known as the “death” tax—they should follow the House’s lead and fully repeal it.

As reflected in the text of both the House and Senate bills, there’s no disagreement between the House and Senate that the estate tax is bad policy.

Under current law, estates have to pay a 40 percent tax on any assets over $5.49 million per person (this amount is referred to as the “basic exclusion”). Both bills would double the amount of this basic exclusion.

The House bill though, unlike the Senate bill, would fully repeal the estate tax, albeit not until after 2024. The Senate bill wouldn’t repeal the federal estate tax at all. Maintaining this tax, as the Senate would do, would squander a rare opportunity to put an end to this unjust and damaging tax.

Using the force of government to tax the hard-earned assets of people who have died is also immoral. Even worse, the federal government is taxing the same income twice, once when the income-earners were alive and again after they have died. Some defend the status quo by claiming that few estates have to actually pay the estate tax. That may be true, but it isn’t a policy argument against the merits of the tax.

If there’s a bad policy, the solution is to get rid of the policy, not to impose a widely recognized bad policy on fewer Americans. Moreover, it ignores all of the individuals that incur costs trying to avoid the estate tax.

Those who point to the small number of estates paying the estate tax are inadvertently helping to support another criticism of the estate tax: This tax exists despite the fact that it generates little revenue for the federal government, about half of one percent of total federal revenue.

Then, of course, is the class warfare argument that repealing the estate tax would just help the rich. Even if true, how does that justify this specific tax? Should individuals who have built small businesses and family farms be punished for their hard work and success?

There needs to be some context as to who really does pay the estate taxes. For example, in the agricultural context, according to the U.S. Department of Agriculture, 57 percent of the family farms that owed estates taxes were small family farms (gross cash farm income of less than $350,000).

Of course, these estates do have significant wealth. But this shouldn’t be confused with significant income.

Much of the wealth of these farms, and most family farms, is tied up in land. This means that when heirs do have to pay estate taxes, there is often a need to sell off land (or other assets) to pay off the death tax.

In trying to grow the economy and increase jobs, having a policy that compels businesses to contract is obviously counterproductive.

The full negative impact of the estate tax, though, isn’t captured by who is paying the estate tax. It is fully captured by understanding how the tax impacts those who don’t pay it.

Imagine owning a small business and recognizing that if your assets exceed a specific level, a major tax could be triggered after you die. Your hope of passing on the fruits of your labor to your family could be severely hampered if you are too successful.

Such a tax is literally a disincentive to success.

The logical response is to take actions to avoid such a consequence. This might mean consuming your assets now as opposed to saving. It might mean deciding against growing a business, such as by investing in equipment or for that matter, investing in more people by creating jobs.

The estate tax distorts decision-making in a way that is counter to promoting economic prosperity, not just for the business owner but for the workers they would otherwise employ. If policymakers are going to “make American great again,” then they need to get rid of those policies that are the very antithesis of American principles.

Someone would be hard-pressed to find anything more un-American than the federal estate tax—a tax that rejects the idea of people building their American dream for themselves and for their families.

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