06.27.11

Farmer Payments Face Budget Diet

With ethanol and defense spending on the table, crop subsidies may finally get the ax. In an exclusive interview with The Daily Beast's Eve Conant, Agriculture Secretary Tom Vilsack details plans to rope the once-sacred cow.

With Congress and the White House struggling to save every tax dollar possible to stave off a debt crisis this summer, Agriculture Secretary Tom Vilsack said he expects a once-sacred cow of political spending—government subsidy payments to American farmers—to face cuts.



But he told Newsweek and The Daily Beast he hopes to create a “safety net” to ease the blow for farmers who have counted on the aid for decades.



"I think, frankly, many farmers understand and appreciate that there has to be change,” Vilsack said in an interview Monday.



The mere fact that Vilsack, a former governor of farm-rich Iowa, is resigned to seeing the farm payment system change illustrates just how far the government-spending debate has shifted as the nation hurtles toward an August 2 deadline, when the U.S. could default on its debt.



To avoid the crisis, lawmakers and presidential aides must reach a deal to trim hundreds of billions of dollars in future spending and also raise the government’s borrowing limit. And that has put many once-untouchable programs on the chopping block, even including some surprising recent GOP suggestions to cut defense spending.

After weeks of deferring to Vice President Joe Biden, President Barack Obama got involved in the negotiations in recent days. On Monday, Obama discussed possible ideas with Senate Majority Leader Harry Reid and Senate Republican Leader Mitch McConnell.

According to OpenSecrets.org at the Center for Responsive Politics, Big Ag contributed some $10.4 million to federal candidates in 2008, and $9.3 million in 2010.



In the past, it would have been unthinkable for politicians—especially a  farm-state governor at the Agriculture Department—to discuss cutting farm subsidies the year before a presidential election, which traditionally kicks off in Iowa with that state’s caucuses.



But 2011 has posed new challenges—and the GOP contenders for the White House have begun to concede that even politically popular programs inevitably will face cuts.



The payments have become a staple of the American farm business, and powerful members of Congress have long sought to protect them, particularly from fiscal conservatives in the Republican Party.

Former Alaska Governor Sarah Palin, who visits Iowa on Tuesday, acknowledged recently that tax breaks for oil companies—which play a big role in her home state economy—need to be cut as part of spending reform.



And former Minnesota Governor Tim Pawlenty kicked off his presidential campaign with a bang, proposing in Iowa of all places that tax breaks for ethanol—the fuel created from corn—also needed to be cut. The Senate followed shortly after by voting to end the key ethanol subsidy. 



Every year, the U.S. government pays farmers between $5 billion and $6 billion in direct payments to subsidize their sales of products ranging from peanuts to cotton and corn. The payments have become a staple of the American farm business, and powerful members of Congress have long sought to protect them, particularly from fiscal conservatives in the Republican Party.



In better economic times, the farm payments have survived mostly intact.



But Vilsack acknowledged in the interview Monday that those subsidies are now on the table in negotiations to raise the debt ceiling. “It’s no secret that they’re talking about that, absolutely. And what they’re talking about I think is a change in the direct-payments system,” he said.

“

The Obama administration has been on record for two and half years that the direct-payment system has to be changed. And we finally have the rest of the country catching up to where the president was in 2009,” Vilsack said.



The key will be to be to create protections so that vulnerable farmers can withstand the cutbacks and not be driven out of business. Vilsack suggested payments could be rationed and targeted to the most needy farmers and that others could rely on other forms of help, such as crop insurance.

“

If you’re a farmer who owns land along the Missouri River and the [Army] Corps of Engineers makes a decision to let water out of a dam at a fairly rapid rate and it comes down the Missouri and it overflows the banks and wipes out your crop, what do you do?” he asked. “You have to have some kind of mechanism to help people.”



Who would be eligible?

“

The president suggested that there be limitations on who receives this, that the help should go to folks who need it the most. It doesn’t necessarily need to go to people who have off-farm income of a half a million dollars, they’re going to be able to probably weather the storm. Or folks who have fairly large operations who’ve diversified and have farm income that is substantially higher than what most Americans experience. They may not need the help, so you target it," he explained.

"

And you create for those other operations, those larger operations, a risk-management tool, crop insurance for example, that allows them to essentially purchase the coverage, purchase the protection. So there are going to be changes in the structure, there’s no question about that,”Vilsack said.



Robert Bixby, executive director of the Concord Coalition, a nonpartisan organization dedicated to examining federal budget deficits, says the need for change is long overdue.

“

In this time of heightened deficits, everything needs to get scrutiny. Farm subsidies have long been a target of deficit hawks and clearly they are on the table now, as they should be.” But he said other industries, such as oil and gas, needed to come under scrutiny as well. “I’d like to see the debate broadened into subsidies to all industries. This goes beyond farm subsidies, we need to look at the whole panoply.” 

Vilsack said he did not expect changes to result in political fallout in the Midwest, even with a presidential election looming, arguing that people in small towns and in the Midwest grow up with the value that “you gotta tighten the belt when times are tough.”



But he stressed that farmers shouldn’t be under attack. “There’s a lot of pressure on these people and it’s just not well understood by very many people in this country. We take the farmer for granted in this country.”