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Coalition: White House Budget Crop Insurance Reforms Offer Big Savings

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Dear Member of Congress,

On behalf of the undersigned organizations, we urge Congress to follow the president’s lead in supporting strong, sensible reforms to crop insurance and commodity support programs in the 2018 federal budget.

Our current farm support system distorts agriculture markets and puts taxpayers at risk. Through taxpayer-subsidized crop insurance, Agriculture Risk Coverage (ARC) and Price Loss Coverage (PLC) programs, commodity farmers are insulated from normal business risk while taxpayers are on the hook during years of bad harvests and bumper crops. These programs go far beyond the concept of a safety net by protecting farm operations of all sizes against even minor dips in revenue. They’re also a massive wealth transfer, where the majority of subsidies flow to the largest agricultural producers from taxpayers who generally have far lower income and wealth than these producers.

The White House budget proposes a number of reforms that would begin to address these issues and put our farm-support programs on a path toward becoming more accountable to taxpayers. First, it proposes instituting a means test at an Adjusted Gross Income (AGI) of $500,000 so that the wealthiest producers are not eligible to receive crop insurance premium subsidies or commodity support payments. It also limits each farmer or entity to $40,000 in crop insurance subsidies. Since 80 percent of farms receive $5,000 or less in crop insurance premium subsidies, this payment limit would affect very few farms while ensuring taxpayer dollars are not being used to boost the incomes of the largest and wealthiest operations. A 2012 report from the independent Government Accountability Office found that such a limit would have impacted only 3.9 percent of farms had it been applied in 2011. In addition, the president’s budget takes aim at the most extravagant federal crop insurance product, the harvest price option (HPO). Known as the “Cadillac” coverage option, HPO policies allow farmers to collect insurance payouts for lost revenue either at the market price projected at planting or the price at harvest, whichever is higher. It’s the crop insurance equivalent of your auto insurer surprising you with a new Cadillac Escalade after you’ve totaled your Toyota Corolla. This can result in farm revenues exceeding the owners’ expectations when the crop was planted, all on the taxpayer dime.

Together, these reforms would save taxpayers $38 billion over 10 years and would help direct federal funds toward those farms most in need of assistance. While we would like to see more stringent restrictions and the elimination of subsidies for revenue-based policies altogether, these reforms offer a good first step toward putting a scope around our farm-support programs.

We commend the president for targeting the rampant cronyism and waste in our crop insurance and commodity-support programs and call on Congress to support meaningful reforms in the next farm bill.

Sincerely,

R Street Institute
Campaign for Liberty
Coalition to Reduce Spending
FreedomWorks
National Taxpayers Union
Taxpayers for Common Sense