A Safety Net for All Americans

July 15, 2007

By: Jeff Nunley

Recently, one of my neighbors in town was complaining about our U.S. farm program. He made the statement that he wished the government would subsidize his income, like it did for farmers. My response was that our farm program did subsidize his income. How? By keeping food costs low. This frees up income that can be spent on other things.

Most people won’t do the math. Farm subsidies amount to about 0.3% of the federal budget. That means if you’re paying $5,000 per year in federal income taxes (payroll taxes don’t count), the portion of your tax bill to provide food security for this country would be about $15. The return on investment of that fifteen dollars is pretty good.

You get a cheap, safe, and affordable food supply.

We keep a domestic agriculture sector (so we don’t have to commit military troops in other countries to ensure our food supply, like we do with oil).

We provide an underpinning for our entire agriculture sector which represents 20% of our GDP.

We contribute to the balance of foreign trade. Agriculture exports are a significant factor in lowering our trade deficit. This helps support the value of our currency, which increases our consumers’ buying power for imported goods and improves our standard of living.

Since most payments are capitalized into the value of land, we support rural, urban, and school taxing entities that rely on ad valorem taxes for funding. Figure out what school districts and other taxing entities would lose if row crop farm land went out of production and back into pasture. To fill that hole, the increase in your property taxes would probably cost more than three-tenths of 1% of your federal income taxes.

Food prices in the U.S. are very stable and have been declining gradually over time. When I was in college in the mid 1980’s, Americans spent about 17% of their disposable income on food. Today that number is around 9.5%. This is even more impressive when you consider we buy more expensive ready-to-eat products now than we did 20 years ago. According to Farm Bureau, Americans work about 5 weeks to pay for their annual food expenses. In France it would take more than 9 weeks, in Japan more than 13 weeks and in Mexico more than 17 weeks. I don’t know about you, but an additional four weeks of work to buy groceries is more than three-tenths of 1% of my federal income taxes.

Stable food prices stabilize the entire economy. Without a farm program, food prices would still probably average around 10%. However, because food prices would be much more volatile from one year to the next, it would be difficult for consumers to know exactly how much to budget. One year, food costs might be 25% of disposable income and the next they could be 5%. In the years when food costs were high, consumers would curtail other spending to ensure they meet their primary need of food. The entire economy would feel the shocks of volatile food prices. People at the lowest end of the economic ladder would suffer most from sudden spikes in food prices.

Right now, people at the lowest end of the economic ladder get the most benefit from our farm programs. Low income families pay little or no income tax, but they still get the benefit of cheap, abundant food. In addition, nutrition programs (which far exceed farm program spending in the farm bill) provide additional support to low income families.

Farm program payments are not welfare. Our program is designed to provide a safety net to keep farmers in business when prices are low so that our economy can reap all the benefits listed above. The stability offered by the farm program safety-net allows producers to make long-term plans and investments in new technology that improve productivity and efficiency. This ultimately benefits consumers.

Farmers take huge risks each year for a relatively small return. In our area, an average family farmer will have at least $500,000 in cash expenses invested in his crop. On average, his cash return (including all government payments) will be around 15% or less. From that, he has to pay his living expenses, income taxes, health insurance, save for retirement, and replace worn-out equipment. On average, he also has a greater than 25% chance that his cash income for the year (including all government payments) will be less than zero.

By design, our program provides more support when prices are low and less support when prices are high. This is why we refer to our farm program as a “safety net”. Over the life of the current farm bill, program spending was actually over $25 billion less than projected because commodity prices were higher than projected. It’s probably the only federal program to come in under budget.

To be honest, I can’t believe we, as taxpayers, get by so cheap in providing a safety net that keeps farmers in business, secures our nation’s food supply and returns so many benefits for our economy.

About the Author: Jeff Nunley is the executive director of South Texas Cotton and Grain Association