President Obama, much like President Bush before him, has rightly said that a Doha deal will appeal to Congress and the country only if it includes significant additional concessions from other countries in job-producing market access for U.S. manufactured goods and services. The perfectly reasonable price we must pay for such market access is further cuts in our farm subsidies.
Why not make the cuts? We certainly have compelling budgetary reasons to do so. With a federal budget deficit of $1.3 trillion this year, and rising, the Cato Institute estimates we could save $290 billion over 10 years by abolishing agricultural subsidies.
Inertia is perhaps the most powerful force in government, and it is often fueled by selfish special interests bent on keeping outmoded and unneeded programs. Agricultural subsidies in the United States are antiquated artifacts of the New Deal. Created as emergency measures during the depths of the Great Depression, when the nation was awash with farm surpluses and in agony over plummeting farm prices, farm subsidies were improvisational acts of desperation that have become sanctified over time by special interests as permanent government giveaways.
Even back then there were doubts. In his classic account of the New Deal, historian William D. Leuchtenberg wrote that by the late 1930s the administration of President Franklin D. Roosevelt began to “fear it had created a Frankenstein monster” in agricultural subsidies. “Rural pressure groups called for larger and larger subsidies,” and, in 1939, Roosevelt lamented that “the silly Congress gave me three hundred million dollars more than I wanted for farm subsidies.”
Decades later, farm subsidies remain. In 2011, taxpayers will pay about $16 billion in aid to farmers through various programs, according to the nonpartisan Congressional Budget Office. Least defensible are the programs providing annual direct payments to farmers of corn, rice, soybean, cotton, and other crops. These direct payments will total $5 billion this year. The vast majority of this money goes to large corporate farms, and not to needy small farmers. Direct payments are handouts awarded simply for owning tillable land -- even if the owners do not plant on it. They are paid regardless of economic conditions.
Economic conditions down on the farm have rarely been better. With food prices soaring worldwide, the farm sector is booming. USDA projects net farm income in 2011 will be $94.7 billion, up almost 20 percent over last year and the second-best year for farm income since 1976. This is on top of last year, when net farm income rose 41 percent following the recession. The case for continuing agricultural subsidies has never been weaker.
President Obama’s deficit reduction commission recommended a net decrease of about $10 billion over ten years in agricultural subsidies. The President’s proposed budget would cut $2.5 billion in direct payments over ten years. The budget proposal offered by Republican Congressman Paul RyanPaul Davis RyanPaul Ryan researched narcissistic personality disorder after Trump win: book Paul Ryan says it's 'really clear' Biden won election: 'It was not rigged. It was not stolen' Democrats fret over Trump-district retirements ahead of midterms MORE of Wisconsin and approved by the House of Representatives would cut $30 billion from farm programs over the same period.
Congressman Ryan says, “We shouldn’t be giving corporate farms, these large companies, subsidies.” On this, he is right. Agricultural subsidies -- especially direct payments -- are counter-productive intrusions into the free market that waste taxpayer money, encourage environmental harm, and amount to expensive corporate welfare. There are reasons aplenty for Republicans and Democrats to come together in a bipartisan compromise to cut them.
One practical reason is this. Some of our agricultural subsidies are inconsistent with our treaty obligations as a member of the World Trade Organization. If we don’t cut them ourselves now -- and get something in return from other countries in the Doha round -- then those countries will likely sue us later over these subsidies in the WTO. When we lose in the WTO -- as we likely will -- we will have to cut the subsidies anyway, and get nothing in return, or suffer job-killing economic sanctions in other areas of trade if we don’t.
Why not grasp this chance to defeat at long last the “Frankenstein monster” of farm subsidies? Why not cut our farm subsidies substantially now -- and craft those cuts as a new offer in the Doha round? We can reduce our deficits while also creating more jobs by opening up more foreign markets to more exports of all kinds of U.S. goods and services.
James Bacchus is a former member of Congress and a former Chairman of the Appellate Body of the World Trade Organization. He chairs the global practice of Greenberg Traurig LLP.