Friday, June 08, 2012

Big Farm Raked in Record Profits of Almost $100B in 2011, But They Harvested $20B from Taxpayers' Pockets, Isn't It Time To End This Crony Capitalism?

According to the USDA, the net income from U.S. farms set a new record last year of almost $100 billion on record cash receipts of $363 billion.  The record-high farm income last year was 24% above income in 2010.  The USDA is also reporting that the total value of farm real estate (and total farm equity) exceeded $2 trillion last year for the first time, and increased by 6% from the previous year.  Even with record-level income, revenues and farm land values, U.S. farmers also "harvested" more than $21 billion in subsidies last year from the pockets of U.S. taxpayers, including more than $10 billion in direct government taxpayer payments according to the USDA.  Next year, the USDA is forecasting another "bumper crop" of taxpayer money for wealthy U.S. farmers, who are scheduled to harvest almost $22 billion from the pockets of Americans in 2012.       

Whenever oil prices and "Big Oil" profits are high, politicians call for imposing "windfall profits taxes" and ending oil subsidies (even though oil companies don't actually get any direct government payments from taxpayers and generally only get the same tax deductions and cost recovery allowances that are available to all U.S. manufacturers), so maybe it's time for equal treatment of Big Farm.  Well, that's not likely to happen, is it?  

Farmers have been a protected political class going back to when farm subsidies started during the Great Depression, and they will apparently continue to be the recipients of crony capitalism and generous corporate welfare payments extracted coercively from the pockets of taxpayers, no matter how wealthy and profitable they become.   

Mercatus Center economist Veronique de Rugy argues in today's Washington Examiner that it's time to end Depression-era farm subsidies, here are the opening and closing paragraphs:

"Cronyism is the practice by which government officials provide preferential treatment (such as loans, subsidies or regulatory preferences) to handpicked firms or industries. It is a bipartisan practice, as we may once again find out if lawmakers reauthorize most of the farm bill currently moving through Congress. There is no justification for extending our current regime of agricultural subsidies -- a clear example of cronyism.

But this cronyism isn't good for taxpayers. Nor is it good, in the long run, for the industry it supports. Congress must put an end to farm subsidies and all other preferential treatments that farmers have been receiving for years."

34 Comments:

At 6/08/2012 9:56 AM, Blogger morganovich said...

is it time to end this? absolutely.

i fear it will never happen though.

this is a huge wealth transfer and subsidy, not just to farmers but across classes.

you subsidize food by taxing the rich to pay farmers and keep prices low for the poor.

the exception to this, of course, are the "pay not to plant" programs that are really absurd and could not be any more anti consumer if they tried.

 
At 6/08/2012 9:56 AM, OpenID ntk said...

payments extracted coercively from the pockets of other taxpayers

As profitable business, I imagine they're probably net taxpayers. So it stands to reason that they're only "extracting" their own taxes.

 
At 6/08/2012 10:04 AM, Blogger Jon Murphy said...

So it stands to reason that they're only "extracting" their own taxes.

So my taxes aren't going to corn and cow subsidies? Tax dollars aren't being diverted from better uses and moved into Ag? That's a relief. Here I was thinking that, as a taxpayer, I was funding Ag and perpetuating global hunger, but they just keep all their money.

I must apologize. I am in a sarcastic mood today and the above was certainly not my best work.

 
At 6/08/2012 10:30 AM, Blogger Buddy R Pacifico said...

What is (what's) the #1 U.S. export to China?

Soybeans, by a wide margin.

What is the #3 most subsidised U.S. crop?

Yep, soybeans.

 
At 6/08/2012 10:37 AM, Blogger Hermes said...

Not to completely minimize your point, but I feel there are many more programs that deserve a haircut before this one. I've attached 2011's Federal Budget Proposal to give an idea. http://www.nytimes.com/interactive/2010/02/01/us/budget.html

 
At 6/08/2012 10:50 AM, Blogger Larry G said...

hmmm...we can finish off public sector unions...no prob ....but not farm subsidies?

WTF?

 
At 6/08/2012 10:58 AM, Blogger Ken said...

ntk,

So it stands to reason that they're only "extracting" their own taxes.

Ha! Good to see economic ignorance isn't abating anytime soon. Mark, your job is secure for the foreseeable future.

 
At 6/08/2012 11:26 AM, Blogger morganovich said...

ntk-

"So it stands to reason that they're only "extracting" their own taxes."

you grasp of math here seems flawed.

if you get $100 in subsidy and pay 35% tax, they you still pocket $75.

hey, if you want to offer to sell me dollars for 35 cents, i'll take as many as you have.

 
At 6/08/2012 12:23 PM, Blogger bart said...

Farmers aren't exactly hurting either, net profit has averaged over 20% since the 30s, per the USDA.

 
At 6/08/2012 12:23 PM, Blogger bart said...

http://www.nowandfutures.com/images/govt_payments_to_farm_income.png

 
At 6/08/2012 12:24 PM, Blogger Jon Murphy said...

hmmm...we can finish off public sector unions...no prob ....but not farm subsidies?

I am thinking it would be a lot more difficult to remove Ag subsidies. Unlike unions, which are very much visible, Ag really isn't. For the vast majority of Americans, food is something we don't need to think about. Only about 2% of Americans work on farms. One never hears of "farm strikes", and even when there are shortages, most of us don't feel it. Conversely, I think we've all been affected by strikes of one kind or another. Unions are more visible, therefore easier to tackle, politically.

Another reason is funds. Unions tend (but not always) to favor Democrats. Thus, when a Republican is elected, he needs to worry less about campaign contributions. Ag crosses many states, many political areas. Both Republicans and Democrats from the Farm Belt are heavily influenced by Ag.

This is just what I think.

 
At 6/08/2012 12:36 PM, Blogger morganovich said...

jon-

there is also this weirdly durable image of the poor struggling dustbowl farmer trying to get by. it's a pice of americana that just will not seem to go away despite the reality of robot combines guided by satellite and massive big business farms sucking up subsidies at the federal trough.

somehow this "grapes of wrath" thinking pervades the discussion of farms. i blame steinbeck.

 
At 6/08/2012 12:44 PM, Blogger Jon Murphy said...

Morgnovich-

That is a legitimate point, but isn't a similar vision perpetuated of the factory worker? A man covered in grease who works 12 hours a day. Can't make a decent wage, his job is going overseas so we need unions to save him.

I guess my question is, does the dustbowl image play on the public more-so than the un-unionized slave image?

 
At 6/08/2012 12:46 PM, Blogger juandos said...

"So my taxes aren't going to corn and cow subsidies?"...

Probably not jon murphy...

Several many months ago Professor Mark came out with a map of people who were getting ag subsidies (not the same that are going to the farm factories?) and some of those recipients weren't living on farms or anywhere near them...

 
At 6/08/2012 1:44 PM, Blogger Jon Murphy said...

Probably not jon murphy...

Curses! Here I thought I was supporting Big Ag, but all my tax dollars are doing is buying some hipster's non-fat mocha chai latte

 
At 6/08/2012 1:45 PM, Blogger Paul said...

We simply need to elect more Tea Party conservatives, they helped end the ethanol tax credit, and the Senate's pork-laden 2012 farm bill is now in the crosshairs..

 
At 6/08/2012 1:50 PM, Blogger Finanças Inteligentes said...

is it time to end this? yes..

 
At 6/08/2012 3:44 PM, Blogger Jon Murphy said...

Just to back up from our usual rhetoric:

What are the benefits (besides preferential treatment) to Ag subsidies? I know corn subsidies were meant to support ethanol production, but what else?

 
At 6/08/2012 3:55 PM, Blogger juandos said...

"... but all my tax dollars are doing is buying some hipster's non-fat mocha chai latte"...

Sounds almost criminal doesn't it jon murphy?

Well here's a bright sport for you jm, think of how some of your extorted tax dollars are financing the fairy tale factory called the CBO...

 
At 6/08/2012 5:38 PM, OpenID ntk said...

So my taxes aren't going to corn and cow subsidies?

Well, no, they aren't: their own tax dollars are going to their own subsidies if they're net taxpayers, which they probably are.

My point is that:

1) subsidies are effectively a discriminatory tax rebate, lowering their effective tax rate compared to other companies; and

2) Rebates also impair microeconomic efficiency by diverting capital to where it otherwise wouldn't have gone.

These are the two arguments we should be using.


Ha! Good to see economic ignorance isn't abating anytime soon.

Evidently you don't know what a net taxpayer is. (I'm not accustomed to being patronised by morons.)


if you get $100 in subsidy and pay 35% tax, they you still pocket $75.

Er:

1) How do you get from $100 in subsidy and 35% tax to $75?
2) Do you pay taxes on subsidies? What are you drivelling on about?
3) At any rate, my point is that if you pay tax, and get a a subsidy equal to less than the tax paid, then you're still a net taxpayer.


hmmm...we can finish off public sector unions...no prob ....but not farm subsidies?

Public sectors workers are not net taxpayers, companies normally are. So dealing with public sector workers takes precedence.

 
At 6/08/2012 6:20 PM, Blogger arbitrage789 said...

As long as we've got a Senate (with 2 senators per state) and as long as we pick Presidents on a state-by-state, "winner-take-all" basis, farmers will continue to enjoy political influence beyond their numbers.

Agricultural price supports are a waste of money, of course, but as wasted money goes, it is barely a blip on the radar screen in comparison to much more egregious government waste.

 
At 6/08/2012 9:10 PM, Blogger Benjamin said...

GOP socialism
See ethanol
The rural welfare empire thrives

 
At 6/08/2012 11:24 PM, Blogger Hydra said...

According to the USDA, the net income from U.S. farms set a new record last year of almost $100 billion on record cash receipts of $363 billion.

================================

According to the farm census, the average farm income in a five county area near me was, on average a negative of $2000.

5% of the farms make 90% of the profit and take in almost all the subsidy money.

Hey, if you like the top 1% and you think income inequality is a good thing, because all that wealth makes everyone better off, we should encourage MORE farm disparity, not reduce it by effectively increasing the Big Farm tax burden.

 
At 6/08/2012 11:31 PM, Blogger Hydra said...

you subsidize food by taxing the rich to pay farmers

===============================

Umm, who do you think Big Farm is?

It is a hand full of rich guys. really rich guys.

It is not a bunch of poor slobs walking behind a pair of mules that are being "paid" by farm support programs.

Besides, if government is so hoplessly inept, and all subsidies are bad and counterproductive, how is it that government is able to succeed in producing low prices for farm goods?

Cmon, morganovich, you can do better than that.

Furthermore, if you can find a program that will pay me not to plant, and fill out the paperwork for me, I will split the money with you.

 
At 6/08/2012 11:40 PM, Blogger Hydra said...

Do you pay taxes on subsidies?

Yes. if you can get the subsidy.




But, if you are big enough to get the subsidy, the subsidy is probably a small part of your total income, and you may very well pay more in total tax than you get in subsidy.

ntk is correct, the subsidies are effectively a tax ebate. And they often go to farm OWNERS, who have other jobs and live nowhere near the farm.

Where USDA comes up with 20% profit, I'm not sure. I don't know many businesses that make that kind of profit routinely, let alone farms.

 
At 6/08/2012 11:45 PM, Blogger Hydra said...

100 billion sounds like big money, until you calculate the ROI. And a lot of that investment is in taxable property.

You think all those folks working for Deere, Agco, and CNH (not to mention the many imports) building and selling farm equipment are part of the rural welfare economy?

 
At 6/09/2012 2:48 AM, Blogger Ron H. said...

Jon M: "I must apologize. I am in a sarcastic mood today and the above was certainly not my best work."

Actually That was GREAT work. Keep it up. :)

 
At 6/09/2012 10:04 AM, Blogger juandos said...

"Besides, if government is so hoplessly inept, and all subsidies are bad and counterproductive, how is it that government is able to succeed in producing low prices for farm goods?"...

Ha! Ha! Ha! Ha! Ha!

Good one hydra!

 
At 6/09/2012 2:08 PM, Blogger polskababe said...

Sen. Tom Coburn wrote a report called Subsidies of the Rich and Famous wherein he stated that the US government provides millionaires in this country with subsidies totaling $30 billion. Some of those receiving subsidies include Jon Bon Jovi who only pays $100 in property taxes on his property since he grows "bees" and receives subsidies to grow them. Even Bruce Springsteen receives subsidies because he leases land to an organic farmer.

 
At 6/09/2012 7:16 PM, OpenID thefarmerslife said...

Hi, everyone. I'm a farmer. Mostly corn and soybeans actually. I am ready for direct payments to go, and I've heard a lot of other farmers say they are too. I think direct payments will get cut if they actually get around to finishing this farm bill. It's almost funny at the end of the year if I'm looking to spend more money to lower my tax bill, that my income would've been lower if I didn't get a direct payment. The thing that sticks will be crop insurance subsidies.

Can crop insurance be feasible w/o the supplements? I'm not smart enough to know that, but the political side of my brain would like a real free market to work.

Yes I do pay taxes on any direct payments I get. Between income taxes and property taxes I do pay a great deal more than I receive. To the average taxpayer this may be splitting hairs, but I don't get a reimbursement for what I pay into crop insurance. I can tell the gov't portion is double what I pay. Basically the insurance provider is paid partially by me and partially by Washington. I don't "see" the federal money in my bank account, although it does affect the amount I owe will is still pretty significant. Tens of thousands of dollars on our 2300 acres. Then you can buy hail insurance on your own. That's a separate policy.

It is certainly time for reform. The only thing that may have been left out of the post is that farm income has been so high the last few years because prices, particularly corn and soy, have been very high due to worldwide demand and a couple years of average at best nationwide yields.

 
At 6/09/2012 7:59 PM, Blogger Hydra said...

Thank you farmerslife. Good to hear from someone who knows something a out the subject.

2300 acres, wow, how many people work there? I do 10% of that (part time), but that kind of acreage boggles the mind.

Not to mention the budget, at what, $4800 an acre?

 
At 6/09/2012 8:44 PM, OpenID thefarmerslife said...

Hydra,
Our farm is owned and operated by my father, grandfather, and myself. We have one full time employee. The vast majority of farms are family owned although some can be very large. If you click on my screen name you can see my blog all about our farm.

Average sale price for land in Indiana right now is $4500/acre. That's low for our area of the state though.

 
At 6/09/2012 8:51 PM, OpenID thefarmerslife said...

I should also add that some reports define a farm as starting at $1000 in sales. That puts our farm in the top 6% as farm as gross farm sales. So you can see it doesn't take a whole lot to be relatively big on those terms. On that basis, if corn is $7/bu every 1000 bushel load we haul is seven farms' worth. And we've hauled 100,000 bushels of last year's corn so far. Plus soybeans, popcorn, and wheat on top of that. We aren't small, but we aren't huge either.

 
At 6/10/2012 12:10 AM, Blogger Mike Haley said...

Thefarmerslife gave a great overview of some of the information regarding subsidies.  I would like to add that the current draft of the farm bill is looking to cut over 23 billion in farm subsidies over the next ten years.  As a farmer I am happy to see ag one of the few areas working hard to make cuts ht will hopefully help balance the nations budget one day.

I shared a few more thoughts about the farm bill and how it needs to be a win win for all in this blog post http://ow.ly/1NvjVG 

 

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