It’s never too late to harvest savings for taxpayers. On this episode of Budget Watchdog AF, we dig deep and root out the egregious taxpayer subsidies being sent to foreign insurers and large mega-farms.

Transcript

Announcer:

Welcome to Budget Watchdog All Federal, the podcast dedicated to making sense of the budget, spending, and tax issues facing the nation. Cut through the partisan rhetoric and talking points with the facts about what’s being talked about, bandied about and pushed in Washington. Brought to you by Taxpayers For Common Sense. And now the host of Budget Watchdog AF TCS President Steve Ellis.

Steve Ellis:

Welcome to All American Taxpayers Seeking Common Sense. You’ve made it to the right place. For over 25 years, TCS that’s Taxpayers for Common Sense, has served as an independent nonpartisan budget watchdog group based in Washington DC. We believe in fiscal policy for America that is based on facts. We believe in transparency and accountability because no matter where you are in the political spectrum, no one wants to see their tax dollars wasted. As we approach the end of the year, it’s never too late to harvest much needed savings for taxpayers. What fertile ground might yield this cash crop? Why crop insurance subsidies of course. Now, don’t say bah humbug too quickly. The agriculture sector is experiencing a three-year level of profitability, not seen since the post-war boom of the late 1940s. And it’s not just farmers cashing in. Here to help us dig deep and root out the egregious taxpayer subsidies being sent to foreign insurers and large mega farms is Mr. Agriculture himself, Josh Sewell and the TCS Oracle of Omaha, Sheila Korth, senior policy analyst. Welcome back to the podcast, Sheila and Josh.

Josh Sewell:

Hey, happy to be here.

Sheila Korth:

Great to be here. Thanks, Steve.

Steve Ellis:

All right. It’s the end of the year. We’re entering the season of giving. So as a gift for me, I brought you here to talk the farm bill.

Josh Sewell:

Thanks, Steve. You know you don’t have to wait until Christmas. It’s always farm bill season.

Steve Ellis:

True. But there’s some actual newsworthy hooks for bringing up the farm bill right now, aren’t there?

Josh Sewell:

Yes. So in the last couple of weeks, the USDA has released their year-end estimate of farm income, which we all look forward to every year. And the Government Accountability Office just released a bombshell report on federal crop insurance.

Steve Ellis:

All right, that doesn’t tell me which way things are swinging. How is farm country? Is it in a crisis? Are things wonderful?

Josh Sewell:

Well, it depends on your definition of crisis apparently. Some ag special interest definitely see a crisis. So a few numbers here. Net farm income in 2023 is projected to be $151 billion. So as a reminder, that’s net, which means income after deducting costs, depreciation, even things like imputed rent and labor, that means what you would’ve to pay yourself if you were hiring it out basically. Now that’s a 20% drop from 2022s $189 billion. So yeah, sound the alarm in farm country. Right, Sheila?

Sheila Korth:

Not in my crop circles. Yes, profits are expected to be down this year, but they were at a record level last year, and farm income this year is expected to be the fifth highest that it’s ever been, even adjusting for inflation.

Josh Sewell:

Yeah. So we do want to be clear that we’ve been doing this a long enough that we know it’s not a good year for everyone. National numbers don’t tell the story for every individual farmer. There are 2 million farm operations. We get it. Not everyone’s doing great, but by and large, and for the majority of folks, it’s just not a farm crisis. That’s what the numbers say.

Sheila Korth:

Right. I just looked up farm bankruptcies in the state of Nebraska where I live that are announced by the Nebraska Farm Bureau and there were only eight. So a very low level. And if you look historically, it’s one of the lowest levels ever. And USDA is saying the same thing. The U.S. Department of Agriculture is saying the same thing at the national level that generally farmers are doing really well. And farmers that I talked to here in the Midwest say that when input prices for things like fertilizer went up, they just stopped using as much of them because they were expensive. So they use less fertilizer. That not only saved them money, but it also can have added benefits like improving water quality when that fertilizer is not running into waterways and into the water that people are drinking. So farmers adjust as they need to when the farm economy shifts. And we can see that in the numbers that have been released recently.

Steve Ellis:

So eight bankruptcies. You just think about how many small businesses went bankrupt in Nebraska, and I’m sure it’s a much larger number than that. And so it’s really not a crisis like some are saying on Capitol Hill.

Sheila Korth:

That’s right. Yeah. There’s not a large scale crisis. Nothing like what we saw in the 1980s when there were a lot of farm families that went out of business. A lot of my friends’ parents had to get out of farming and they had to get off farm jobs and now they’re involved in other jobs. But generally farmers, if you ask them, they’re not asking for more subsidies right now. Even if they did suffer like three years of drought, for instance, like we’ve experienced here in Nebraska recently, they have found ways to adjust to the farm economy and to those challenges. And a lot of smaller farmers, or even middle-sized farmers who are growing diversified crops, they’re finding ways to shift those crops or bring in livestock or do something differently to make money.

We saw a lot of that during the COVID-19 pandemic where they had to adjust in real time. And a lot of farmers still were able to make money despite challenges. So I think there’s a disconnect when you’re talking about what we’re hearing in Washington DC, which is input prices are so high, farmers aren’t doing well, they need more subsidies when in fact farmers here in the Midwest are not saying that.

Steve Ellis:

Yeah, it seems to me, Sheila, that we hear this from the trade associations, but not really from the farmers here in Washington and the lobbyists and some of the members of Congress calling for more subsidies, but there is a robust safety net, or should I say a subsidy trampoline. Josh, you mentioned the report earlier in the podcast. The Government Accountability Office, the nonpartisan investigative arm of Congress released a detailed report on the highly subsidized Federal Crop Insurance program we’ve been discussing. It turns out this program, which costs $17 billion in 2022, sent egregious taxpayer subsidies to private insurers and large mega farms. Why are lawmakers so lost? Why are these advocacy organizations so lost when it comes to this costly issue?

Josh Sewell:

It’s a great question. Yeah. $17 billion last year, record costs in crop insurance and remember record profits in farm country. But this report really was shocking even for someone who is well seasoned when it comes to crop insurance.

Steve Ellis:

Well-seasoned, experienced, maybe obsessed.

Sheila Korth:

A point of order here. Can I see a show of hands for anyone on this call who included crop insurance in their wedding vows?

Steve Ellis:

You got to do it, Josh. I’m not going to lie to our audience. Dear Budget Watchdog AF faithful, let the record show that Josh did in fact raise his hands.

Josh Sewell:

Hey, I mean, crop insurance is the foundation of our farm safety net and apparently the foundation of a prosperous and fertile marriage.

Steve Ellis:

All right, let’s remind folks of what exactly where we’re talking about what we mentioned crop insurance, because it’s not like the insurance that most people are familiar with, right?

Josh Sewell:

No, that’s absolutely correct. So crop insurance, it’s a tool where farm operations or farmers, we call them farm operations, can buy insurance policies that ensure they make a certain amount of money. Most of those policies actually cover anticipated revenue. It’s about 75% of them, not simply a loss of crops. So it’s revenue insurance.

Steve Ellis:

All right. What else makes it not like home, car, or health insurance that our listeners are familiar with?

Josh Sewell:

Well, it is extremely subsidized. So on average, farmers pay only 38% of the cost of premiums. So that means taxpayers are covering 62% of the cost of those premiums. That’s the first part. Second, we, you and I actually pay crop insurance companies to sell the policies and process claims. That subsidy alone cost $2.2 billion last year. And third, we actually guarantee those companies a high rate of return, also known as profits. And we do this by letting them shift the riskiest policies that they sell onto the government while they as a company retain the less risky ones.

Steve Ellis:

So there’s no flow of crop insurance out there, there’s no mayhem, there’s no Jake from State Farm. All right. So what did we learn in this new report from the GAO?

Josh Sewell:

Yeah, it’s a big report with a lot of information in it, but for me, the truly, and I mean this, truly shocking part is that the GAO found last year, just 1% of the policies in the program received 22% of the premium subsidies. We knew it was consolidated, we knew it was top-heavy, but one getting 22% of premium subsidies. I didn’t know it was that bad. And that top 1%, those folks received on average $464,000 to buy the insurance. And in fact, one dairy out in the West, somewhere in the West got six and a half million and a Southern nursery somewhere down in the south, $7.7 million. And I say somewhere because even the GAO can’t tell us exactly where, because one of the things about crop insurance, you’re not allowed to know what someone gets. You can’t get their name, you can’t get their address, unlike most other farm programs.

Steve Ellis:

Help me with this Josh, though then if you’re getting $7.7 million in subsidies just to buy insurance, you’ve got to be growing tens of millions of dollars worth of crops, maybe even hundreds of millions of dollars worth. Why are we helping a farm like that?

Josh Sewell:

Well, crop insurance is the only program that lacks limits on participation. It’s the only safety net program I’ve worked on that is anything like this. Other farm programs, commodity programs in title one, ad hoc disaster programs that come out every year, nutrition assistance programs, flood insurance, another one of our favorites, most tax credits, Medicaid, you name it. When your income is over a certain amount, you can’t participate. Or if you have too many assets, you no longer qualify in most programs. And once you’re in those programs, you have typically annual limits on your benefits or maybe time limits on how long you can get benefits in those programs. And finally, hey, work requirements are attached to most safety net programs. If you don’t work or volunteer, you can’t get SNAP, you can’t get other assistance for many classes of people. Crop insurance has exactly none of those strings, not a one.

Steve Ellis:

Right. I mean, you can get basically unlimited purchase subsidies and you can get unlimited payouts from this program. I mean, that’s a good gig if you can get it, huh?

Josh Sewell:

Yeah, it is. And because the policies are ensuring revenue, the subsidies are based on the value. So the bigger, the more production you have, the more value you have, the more subsidies you get. But the truth is only about 20% of farmers have crop insurance, at least subsidized crop insurance. It’s not even working for most farmers. And that’s using USDA numbers. That’s not something we did on our own. But the other big winner, which I think is really important that comes out in this report is the companies. So nearly one out of every $3 that we pay into the crop insurance program goes to the companies, not farmers, it’s companies.

Steve Ellis:

So you’ve got a really inefficient program that doesn’t even benefit most farmers. Wow. But Josh, it’s not just the companies that are getting rich, it’s the agents that are selling these policies, right?

Josh Sewell:

Yeah. And that’s something we should be clear about. So most of that $2.2 billion we spent in what’s called administrative and operations, A&O subsidies last year, and are projected to spend that much in perpetuity, goes to agent commissions. So that is the companies are paying that folks to sell the crop insurance. But the weird thing about crop insurance is there’s not competition amongst the companies. Every company sells the same policies. This is a highly regulated industry, not even at the state level, at the federal level, where you have to get permission from the USDA to participate in this program as a company, and that you are required to sell these same policies. You can’t innovate on your own and come up with something on your own. If you sell as a company, every other company has the opportunity to sell it. So the real competition is getting the agents, because they’re basically free agents. They have a book of business that comes in, and then they can get some massive subsidies and some massive commissions, and then the companies take those folks and try to get their underwriting subsidies.

Steve Ellis:

Sheila, something else you want to add on this?

Sheila Korth:

Sure. I just wanted to provide a bit of context from what the Government Accountability Office found as far as how huge these subsidies are. So the GAO found that there were two instances last year where individual agents received more than $3 million to write just one policy. So over $3 million in just one year to write an insurance policy. I’m not an insurance agent, but that seems like a lot of money to me. And the GAO also found that that’s more than 6,000 times more than most of the other agents were receiving to write those policies. So the average amount that an agent received to write a crop insurance policy was about $500. And so some of these agents are getting an enormous amount of taxpayer subsidies.

Josh Sewell:

I think I could tell you at least two other people who included crop insurance in their wedding vows.

Steve Ellis:

Yes, yes. Probably have a prenup too. So yeah, I wonder if they’re giving them gold pens to write these policies. I mean, something’s got to be undergirding this. All right. So now we’ve documented how screwed up the program is and how it doesn’t benefit a lot of farmers, but it does line the pockets of some companies and some individuals and some agents. But I’m assuming the GAO also has some recommendations. It wasn’t just all doom and gloom. They had some things that they were suggesting for Congress to do to reign in on these out of control subsidies. What were some of those recommendations Sheila?

Sheila Korth:

The Government Accountability Office report had a couple different recommendations, but just to note that they’ve also had other recommendations in previous years in previous reports. So the ones that they came out with most recently are one, that Congress should get rid of a prohibition that’s in the farm bill that states that taxpayers can’t actually realize any savings if the government tries to reduce the amount of subsidies that the crop insurance companies would receive. So if the government and the companies were to come together and say, you know what? I think we can reduce some of those subsidies, taxpayers wouldn’t actually be able to receive any of those savings. So that’s one big problem because that means that we’re not going to reduce our debt or have savings to use on anything else. The second recommendation from the report was that, hey, maybe we should reduce some of these subsidies, which are unlimited for millionaires.

So people earning more than $900,000 each year, maybe we should reduce those subsidies. So that’s another one of the recommendations. Congressman Blumenauer, a democrat from Oregon, said it really well last week, said that millionaires don’t need taxpayer subsidies to buy crop insurance. So we couldn’t agree more. Farmers have told me directly that they think that we could actually reduce subsidies and base them on how many acres farmers are farming or a lot of other common sense measures. Another one of the recommendations that GAO had in past reports was capping the amount of subsidies that a farmer could receive at $40,000 each year. So we can leave it there. There’s actually a lot of other reforms that have been introduced too and mentioned by a lot of folks, including things that presidents Trump and Obama agreed on, as Josh has mentioned before. So there’s plenty of ways out there to reduce the taxpayer costs of this program and to improve it greatly.

Steve Ellis:

Well, this is one case Budget Watchdog AF Faithful. The common joke about the most frequent title of a GAO report is whatever the subject is, progress made, challenges remain. Well, this is one instance where I really do hope that actually we can see a report title from GAO, an update that says crop insurance progress made, challenges remain because gosh knows there’s a lot of room for progress. All right, Josh, what impact does the impending farm bill have on all of this?

Josh Sewell:

Well, the farm bill is the vehicle that is most logical to make changes to crop insurance. And it is, and we joke about it, but crop insurance is an important part of the safety net. It has become the most expensive, and while 80% of farmers don’t receive benefit, 20% do, and they get a lot of assistance from it. So it’s probably arguably the most important part of the safety net and could become a bigger tool in the toolbox to help more producers. And as Sheila mentioned, there’s some very low hanging fruit. We’re having a tough time getting folks to agree to things in Washington right now, but everyone seems to be, almost everyone seems to agree that we have to reign in spending, we have to find ways of getting savings, and we have to be more efficient with the investments we make.

And so this is an easy place to do it in comparison to some others. And so we’re at a point now, you just want to cut some subsidies to millionaires. We have $34 trillion in debt. Take some of the savings that we get from these programs. And while we’d love to pay down our debt, maybe you use half of it to pay down the debt and the other half of it you can use to make the safety net better for that 80% who doesn’t have much, if anything, from the federal government when it comes to having a safety net.

Steve Ellis:

Well Josh, you said everyone, or at least most everyone seems to agree. So it seems like everything is a politically polarizing issue and not too many are bipartisan. So where does reforming crop insurance subsidies fit in that spectrum?

Josh Sewell:

Well, it’s both polarizing and bipartisan. I mean, reform has always been bipartisan in ag writ large and crop insurance specifically. And it still is. I mean, Sheila mentioned Mr. Blumenauer, but we have Republicans and Democrats who are throwing around ideas. One of the biggest reformers in this space, I mean, Chip Roy has talked about making crop assurance reform, and he’s clearly not ideologically aligned with Mr. Blumenauer. And Chip Roy is a Republican Freedom Caucus member from Texas, one of the folks who voted to depose the last speaker.

And so there’s a broad ideological spectrum in here, and I think, well, frankly, people are just weary of “Harming farmers” with reform. They’re weary of doing that and then being branded as that’s what’s happening when you’re reforming crop insurance. But this report really shows that you’re not going to harm farmers by reforming a program where one in $3 doesn’t even go to farmers. And where much of the funding goes to millionaires, and again, I can’t say it enough, you’re excluding 80% of farm operations from crop insurance. And so we’re not asking to eliminate crop insurance. We just want to make some reforms to make it cost-effective, transparent, responsive to need and accountable.

Steve Ellis:

Yeah, I mean, you mentioned some of the lawmakers pushing for reforms. Longtime reformers, Senator Grassley, Chuck Grassley from Iowa, which is a noted anti agriculture state, and so clearly it is bad for farmers.

Josh Sewell:

Absolutely. I mean, it’s a great, interesting coalition of the willing when it comes to reforming crop insurance and other farm subsidies.

Steve Ellis:

And I’m sorry, Sheila, I know I shouldn’t bring up the I word, Iowa on a podcast with you, with your Nebraska sensibilities, but so Sheila, then kind of taking the next step, because we’re all about being hopeful in this holiday season, if Congress does enact these reforms that the GAO recommended, what would be the impact?

Sheila Korth:

Well, there would be some good outcomes for farmers, taxpayers, and many others. But going back to Iowa, I have to jump in there real quick. We unfortunately lost to them, Nebraska did at the end of our season, so. We’re no longer a part of the Big 12 anymore. So there’s that. But as my daughter told me, I think this morning or yesterday, we have a long way to go when it comes to improving our football team, not our volleyball team. Getting back to crop insurance though, I’ve talked to farmers and we actually had two of them on our podcast earlier this year in a podcast called Farm Bill Field Trip. So if listeners want to go back and listen to that, they can.

But in that podcast, Scott Kincaid, a farmer in Northeast Nebraska, actually said that he thinks farmers would be better off with no crop insurance subsidies at all. He thinks that this would help beginning farmers like his own son, Skiles Kincaid, that it would eliminate the millions of dollars going to some of the biggest farms who are then able to buy up land away from beginning farmers in places like Nebraska and elsewhere throughout the country. And he also talked about ways that subsidies actually hurt the environment and the land. And so I think we’d actually see, well, I know we’d actually see benefits to wildlife habitat, our land, our soil, and our water if we eliminated some of these egregious subsidies. And that’s according to studies here from the University of Nebraska-Lincoln, and even the US Department of Agriculture’s Economic Research Service.

Josh Sewell:

So crop insurance reform, the seed to harvest bipartisan reform in Washington. That’s our mantra for 2024.

Steve Ellis:

And save tens and billions of dollars for taxpayers.

Josh Sewell:

Even better.

Steve Ellis:

TCS director of research and policy, Josh Sewell and senior policy analysts, Sheila Korth. Thank you both for getting your hands dirty and being on the podcast today.

Sheila Korth:

Happy to, Steve.

Josh Sewell:

Always happy to do this.

Steve Ellis:

Well, there you have it podcast listeners. When it comes to federally subsidized crop insurance, you don’t make a claim, you make a killing. This is the frequency market on your dial, subscribe and share and know this, Taxpayers for Common Sense has your back America. We read the bills, monitor the earmarks, and highlight those wasteful programs that poorly spend our money and shift long-term risk to taxpayers. We’ll be back with a new episode soon. I hope you’ll meet us right here to learn more.