Monday, September 19, 2011

President Obama's Deficit Reduction Plan Eliminates Federal Subsidies For Farmers

Five-part plan for agriculture/rural cuts and changes proposed, because "Taxpayers continue to foot the bill" for farmers who "are experiencing record yields and prices," the Administration says...
"Farmers represent the best of the American dream," President Obama declared on Friday. But this morning in the Rose Garden, the President revealed that farmers who have been living that dream with the help of federal agriculture subsidies will be out of luck under his new deficit proposal, which provides $2 trillion in changes to entitlement programs and tax increases over the next decade. Thanks to a booming Ag economy, Direct Payments to farmers are "no longer defensible" and will be eliminated, saving the Government $3 billion annually, according to the Administration. The President's plan also reduces subsidies to crop insurance companies; better targets agriculture conservation assistance; extends mandatory disaster assistance; and targets Medicare support for rural providers (all fully explained below). These measures will reduce the deficit by $33 billion, the Administration says. (Above: The President during his remarks)

"We reform agricultural subsidies--subsidies that a lot of times pay large farms for crops that they don't grow," President Obama said during his remarks. "We have to cut what we can’t afford to pay for what really matters."

The plan "pays for the President’s jobs bill and produces net savings of more than $3 trillion over the next decade, on top of the roughly $1 trillion in spending cuts that the President already signed into law in the Budget Control Act – for a total savings of more than $4 trillion over the next decade," the White House notes.

The President said that changing agriculture payments and other entitlements is crucial to balancing the budget and growing the economy; the plan, he said, "makes additional spending cuts that need to happen if we’re to solve this problem."

The President previously proposed capping agriculture subsidies in 2009, which was never enacted due to outrage from farm-state lawmakers and interest groups. Most recently, Mr. Obama discussed the need for capping ag subsidies during his Rural Economic Forum in August, in Iowa. Farmers who also happen to be millionaires will be subject to the President's proposed "Buffett Rule," a tax increase for those who earn more than seven figures annually, a crucial part of his plan to raise revenue. The President didn't offer details of the new rule, named for billionaire financier Warren Buffett, nor did Treasury Secretary Tim Geithner during a follow-up briefing with reporters. Download the President's full plan [PDF].

UPDATE, 5:30 PM: The GOP response to the agriculture proposals IS HERE.

1. Eliminating Direct Payments to farmers
Eliminating Direct Payments to farmers will save the government $3 billion annually, the Administration says, and calls these payments "no longer defensible" thanks to recent boom years in the agriculture sector, which includes a net farm income forecast that is 31 percent higher than the 2010 level.

"Taxpayers continue to foot the bill" for farmers who "are experiencing record yields and prices," the Administration notes in the plan.

Direct payments provide producers with fixed annual income support payments for having historically planted crops that were supported by Government programs, regardless of whether the farmer is currently producing those crops—or producing any crop. Direct payments do not vary with prices, yields, or producers’ farm incomes. More than 50 percent of direct payments go to farmers who earn $100,000 or more annually, the Administration notes, and among other problems, these payments make it difficult for new farmers to purchase land.

"In a period of severe fiscal restraint, these payments are no longer defensible," the Administration says.

The Administration defends eliminating direct payments to farmers by noting that "Farm income has been high and continues to increase, with net farm income forecast to be $103.6 billion in 2011, up $24.5 billion (31 percent) from the 2010 forecast—the highest infla- tion-adjusted value for net farm income recorded in more than 35 years. The top five earnings years for the past three decades have occurred since 2004, attesting to the profitability of farming this decade."

2. Reduce subsidies to crop insurance companies
Noting that "crop insurance is a foundation of our farm safety net," the Administration proposes "streamlining" administrative costs and changing the way crop insurance rates are calculated in order to save money. The Administration says that crop insurance is "highly subsidized" and costs the Government approximately $8 billion a year to run: $2.3 billion per year for the private insurance companies to administer and underwrite the program and $5.7 billion per year in premium subsidies to the farmers.

The President's proposal includes a four-pronged plan to trim this, with three points aimed at insurance companies, and one aimed at producers.

1. Lowering ROI: Crop insurance companies’ rate of return on investments should be reduced from 14 percent to 12 percent in order to save $2 billion over 10 years, according to the plan.

2. 2006 Cap level: Noting that the current cap on administrative expenses is based on 2010 premiums, which were among the highest ever, the Administration proposes a cap based on 2006 premiums.

"The Administration, therefore, proposes setting the cap at $0.9 billion adjusted annually for inflation, which would save $3.7 billion over 10 years."

3. More accurate pricing for CAT policies: The Administration proposes to price the premium for catastrophic (CAT) coverage policies more accurately, which will "slightly lower the reimbursement to crop insurance companies."

"The premium for CAT coverage is fully subsidized for the farmer, so the farmer is not im- pacted by the change. This change will save $600 million over 10 years."

4. Changing insurance subsidies for Producers: "Today, producers only pay 40 percent of the cost of their crop insurance premium on average, with the Government paying for the remainder," the Administration notes, and proposes to "shave two basis points off any coverage premium subsidy levels that are currently offered above 50 percent. This would save $2 billion over 10 years. Farmers who have premium subsidies of 50 percent or less would not be affected.

3. Better targeting for agricultural conservation assistance
The Administration proposes to slash conservation funding by $2 billion over 10 years by better targeting funding to the most cost-effective and environmentally beneficial programs and practices.

While noting that private sector conservation efforts need to be supported, the Administration says that the 500 percent increase in funding since the 2002 Farm Security and Rural Investments Act has "led to difficulties in program administration and redundancies among our agricultural conservation programs." High crop prices have strengthened market opportunities for farmers, as well as decreased the need for government to fund conservation initiatives.

"Even under this proposal, conservation assistance is projected to grow by $60 billion over the next decade," the Administration notes.

4. Target Medicare support for rural providers
The plan notes:

"Given the importance of Medicare to rural seniors, the program provides special payments to rural hospitals and doctors. Some of these payments, however, are not justified and threaten to undermine those that are. The proposal would better target Medicare’s Critical Access Hospital program and eliminate the new special add-on payments to providers in some, but not all, rural States – saving $6 billion over the next decade from the $60 billion Medicare is expected to spend on supplemental payments to rural providers."

5. Extend mandatory disaster assistance
To be eligible for federal farm disaster aid for crop losses related to weather, insects, or other catastrophes, farmers will be required to purchase crop insurance. The full text of this component:

"The Administration strongly supports disaster assistance programs that protect farmers in their time of greatest need. The Food, Conservation, and Energy Act of 2008 provided producers with mandatory disaster assistance programs for the 2008 to 2011 crops. To strengthen the safety net, the Administration proposes to extend these programs, or similar types of disaster assistance that are of a similar cost, for the 2012 to 2016 crops.

The programs provide financial assistance to producers when they suffer actual losses in farm revenue, loss of livestock or the ability to graze their livestock, loss of trees in an orchard, and other losses due to diseases or adverse weather. To be eligible for the programs, farmers must purchase crop insurance. The Supplemental Revenue Assistance Program provides whole farm revenue coverage to farmers at a revenue level that is essentially 15 percent higher than their crop insurance guarantee. Payments are limited so that the guaranteed level cannot exceed 90 percent of expected farm income in the absence of a natural disaster."

The President's Rose Garden remarks:

*Photo by Pete Souza/White House

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