The president sent a $4.4 trillion deficit-reduction plan to Congress. According to a White House fact sheet, the total reductions include $1.2 trillion in cuts to discretionary spending already enacted; $580 billion in cuts from mandatory programs; $1.1 trillion from troop withdrawals; $1.5 trillion from tax reform; and $430 billion in interest savings.
The proposal, which includes $33 billion in savings from agriculture subsidies, noted 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 inflation-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. The administration remains committed to a strong safety net for farmers, one that protects them from revenue losses that result from low yields or price declines, and strong crop insurance programs. But there are programs and places where funding is unnecessary or too generous.”
The administration is proposing to:
(I.) Eliminate direct payments. The administration noted, “The direct payment program provides producers 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, for that matter. Direct payments do not vary with prices, yields, or producers’ farm incomes. As a result, taxpayers continue to foot the bill for these payments to farmers who are experiencing record yields and prices; more than 50 percent of direct payments go to farmers with more than $100,000 in income. Economists have shown that direct payments have priced young Americans out of renting or owning the land needed to enter into farming. In a period of severe fiscal restraint, these payments are no longer defensible, and eliminating them would save the government roughly $3 billion per year.”
(II.) Reduce subsidies to crop insurance companies. The administration noted, “Currently 83 percent of eligible program crop acres are enrolled in the program. However, the program continues to be 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. In 2010, the U.S. Department of Agriculture (USDA) and the crop insurance companies agreed to changes that saved $6 billion over 10 years from administrative expense reimbursement and underwriting gains while also improving service to underserved states. A USDA commissioned study found that when compared to other private companies, crop insurance companies’ rate of return on investment (ROI) should be around 12 percent, but that it is currently expected to be 14 percent.”
(a) The administration is proposing to lower the crop insurance companies’ ROI to meet the 12 percent target, saving $2 billion over 10 years.
(b) The current cap on administrative expenses is based on the 2010 premiums, which were among the highest ever. A more appropriate level for the cap would be 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.
(c) The administration proposes to price more accurately the premium for catastrophic (CAT) coverage policies, which will slightly lower the reimbursement to crop insurance companies. This change will save $600 million over 10 years.
(d) The administration proposes changes in premium 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 Congress increased the subsidy for most insurance coverage by more than 50 percent at the time to encourage greater participation. Today, participation rates are 83 percent on average, and the rationale for high subsidy rates has weakened. The proposal would shave two basis points off any coverage premium subsidy levels that are currently offered above 50 percent, saving $2 billion over 10 years. Farmers who have premium subsidies of 50 percent or less would not be affected.
(III.) Better target agricultural conservation assistance. The administration noted, “The administration is very supportive of programs that create incentives for private lands conservation and has made great strides in leveraging these resources with those of other Federal agencies towards greater landscape-scale conservation; however, the dramatic increase in funding (roughly 500 percent since enactment of the Farm Security and Rural Investments Act of 2002) has led to difficulties in program administration and redundancies among our agricultural conservation programs. At the same time, high crop prices have both strengthened market opportunities to expand agricultural production on the nation’s farmlands and decreased producer demand for certain agricultural conservation programs. To reduce the deficit, the administration proposes to reduce conservation funding by $2 billion over 10 years by better targeting conservation funding to the most cost-effective and environmentally beneficial programs and practices.”