New farm bill subsidy could cost more than existing program, study warns

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AEI economists Vince Smith, Bruce Babcock and Barry Goodwin are warning that CBO is assuming current high commodity prices and that if prices take a sudden downturn, the taxpayer will be on the book.

CBO says the Stabenow-Roberts program would cost $2.6 billion per year. But the new study says that if crop prices return to average prices in the last decade, the costs could balloon to as much as $7.5 billion per year, depending on how farmers opt to use the system. Farmers can choose a per-farm baseline or a per-county baseline.

“Essentially, shallow-loss programs (including and perhaps especially the SR proposal) create a new entitlement situation for farmers that could cost taxpayers much more than the Direct Payments Program they would supplant,” the report states.

“Shallow-loss programs based on farm yields substantially increase the incentives for risky behavior because they further reduce the amount of hazard farmers face. Thus, from any rational policy perspective, farm-based shallow- loss programs are a bad idea,” it adds. “Although county-based shallow-loss programs do not have all the moral hazard problems associated with farm-based programs, they are likely to be extremely costly if commodity prices decline and will distort production decisions if they are based on planted acres.”