Washington Insider-- Friday

Vincent Smith, Farm Policy Critic

Here's a quick monitor of Washington farm and trade policy issues from DTN's well-placed observer.

Country May be Spared Debt Ceiling Fight This Year

An improving U.S. economy and an accompanying increase in anticipated revenues now appear to be combining to push back the date when the Treasury once again will be required to ask Congress to increase the federal debt ceiling. In addition, Treasury for the past two months has been employing a series of regularly used accounting moves intended to keep debt just below the $18.113 trillion ceiling. As a result, private analysts are now predicting that Treasury may be able to make it until December –– or even January 2016 –– before requesting a boost in the ceiling, a significant extension beyond earlier forecasts of a mid-October target.

Last week, Treasury reported that revenues collected in April totaled $471.8 billion, a nominal record for any month and up from $414.2 billion in April 2014. Individual income tax receipts were $929.6 billion for the fiscal year-to-date in April, up 12.9 percent compared to 2014. Individual income taxes are the government's biggest single source of revenues and the robust April numbers could bode well for quarterly income tax payments in June and September as well, observers note.

All of that is good news for those who hate debt and deficit spending. However, the downside is that the usually ugly debate about raising the debt ceiling could begin right around the December holidays, which tends to spoil the season for everyone. But perhaps a pre-Christmas fight would be preferable to an even nastier set-to early in 2016 as both political parties work to position themselves for the November elections.

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Senate Republicans Consider Changes to EPA Advisory Board

Republican Sen. John Boozman of Arkansas has introduced legislation that would amend a 1978 law to revise the process of selecting members of the Environmental Protection Agency's Science Advisory Board (SAB). Items up for revision include guidelines for participation in board advisory activities and terms of office. Proponents of the bill say the changes would thwart the political interference they say EPA exercises over the board. Opponents charge that "moneyed special interests" are behind the bill, because the legislation would impose requirements that would serve those special interests.

This is not the first attempt by Congress to amend the underlying legislation that established the SAB. In fact, a previous attempt made it all the way to the president's desk, but was vetoed. The president who did that was Ronald Reagan in 1982.

Terry Yosie, who managed the SAB under Reagan, said the current proposal reminds him of the bill Reagan vetoed in 1982. He said the Reagan-era bill also proposed to substitute quotas for scientific merit and proposed to add burdensome new requirements to EPA's board that would diminish its ability to focus on its core purpose of providing independent evaluation of the research and scientific basis of agency risk assessments, policies and standards. Apparently, the reasons President Reagan cited in his veto message in 1982 are not particularly compelling for members of today's Republican Party.

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Washington Insider: Vincent Smith, Farm Policy Critic

Vincent Smith is a professor of economics at Montana State who is now visiting scholar at the American Enterprise Institute. He is a deep-dyed critic of U.S. agricultural subsidies of nearly all kinds and thinks Congress and others severely underestimate the costs of the current programs. His arguments are endlessly detailed and thorough and deserve attention, although they are also extremely dense and unlikely to attract wide attention except from policy wonks.

Still, he asks important questions that may be inconvenient for most members of the ag policy leadership. He also seems bent on challenging the "brotherhood of land grant economists," and spends quite a lot of time asking about the, "real need for the farm income safety net subsidies farmers are getting." His answer may shock some observers.

Smith says repeatedly that the programs are skewed toward the largest producers, the top 15% of all farmers, who receive about 85% of all farm subsidy payments. These are much richer, on average, than other farmers — and the average of the rest of the public — and, have enjoyed record, or near-record, crop prices and profits recently. They also fail financially at only a fraction of the rate of businesses in every other major sector of the economy.

He also insists on questioning whether farming "deserves" such expensive and expansive national support. He finds farmers highly competent, well-educated business people who expect income volatility and are perfectly capable of managing their finances to cope without any help from the federal government. And, he argues, they "do not face substantially more severe price or financial risks than other sectors of the economy."

Smith then argues that, "by and large, society does not feel obligated to provide taxpayer-funded financial assistance to these businesses, so why treat the farm sector differently?"

He is especially critical of the federal crop insurance program under which "taxpayers fund over 60% of all indemnities received by farmers."

He argues that this is destructive "because the risks of crop revenue losses from poor crops or low crop prices are covered, farmers adopt more risky production and financial strategies, and … win if the risky decisions pay off and [are] supported by taxpayers if they don't."

Smith goes on to ruminate about two areas of farm bill spending that do provide very substantial benefits. One is public spending on agricultural research which, for the most part, complements and increases the returns to private sector R&D. The benefits from public agricultural R&D for the average U.S. household have been enormous, he says.

But, direct subsidies provide no such benefits, he says. There is no good economic or social policy rationale for giving farmers help with managing the day-to-day and year-to-year risks associated with price fluctuations.

So, he would limit support to coverage of catastrophic losses. These occur very rarely, but devastate farming operations when they do. These are not everyday price and production risks and are unique to the farm sector. "This is where government agriculture policy can play a role," he says.

It is technically feasible, and would be "relatively inexpensive," to develop permanent disaster aid programs that trigger reasonable payments where extreme weather has "genuinely devastated" operations. These would not be the ad hoc disaster aid programs of the 1980s that were driven by "political influence." Payments would be based on objective criteria established independently of any individual disaster event.

Smith thinks a blueprint for such a program already exists in the program for livestock forage production that pays farmers for about 60% of the estimated value of lost forage because of extreme drought, with payments triggered by the National Oceanographic and Atmospheric Administration (NOAA) drought index for a county. He sees such a program as far, far less expensive than the current array programs that mainly benefit wealthy farmers and landowners.

So, will Smith's views have an immediate effect on ag policy? Probably not since these positions are not new and have not shown any widespread traction in either the Congress or the land grants. They also are desperately unpopular among lobbyists and many congressional supporters of current farm policy.

We will see. The new programs seem to be significantly over budget, and amount to a considerable chunk of change and may attract attention for those reasons. There also is some resentment about the fact that the promised savings from the new policies seems unlikely to be anything like the one promised.

This could trigger a future debate few seem to want, but may be forced to face and which producers should watch carefully if it emerges, Washington Insider believes.


Want to keep up with events in Washington and elsewhere throughout the day? See DTN Top Stories, our frequently updated summary of news developments of interest to producers. You can find DTN Top Stories in DTN Ag News, which is on the Main Menu on classic DTN products and on the News and Analysis Menu of DTN's Professional and Producer products. DTN Top Stories is also on the home page and news home page of online.dtn.com. Subscribers of MyDTN.com should check out the U.S. Ag Policy, U.S. Farm Bill and DTN Ag News sections on their News Homepage.

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(GH/CZ)

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