U.S. farm subsidies are often villified because a “disproportionate share of the benefits” go to large farms. In some sense, this shouldn’t be surprising; farm subsidies are designed to pay farms for their productivity. Farmers receive a subsidy for each bushel (or pound, depending on the commodity) they produce. Produce more bushels, get more subsidies. Even more productive land receives higher subsidies (through Direct and Counter Cyclical Payments).

The real problem here is the standard of “fairness.” Subsidies are a negative tax, but when we talk about taxes we don’t complain that they are “unfair” because the wealthiest 5% of Americans pay 59% of all tax revenue (in 2008). You don’t hear, “we should reduce taxes on the rich because they pay a disproportionate share of total tax revenue.” Even if you did hear someone say that, you wouldn’t take them seriously. That’s not how we as a society have decided to measure the “fairness” of the tax system.

Instead we use words like “progressive” or “regressive” to indicate whether the rich are paying a higher share of their own income than the poor. A progressive tax system like ours requires the rich to pay a higher share of their income than the poor.

So, are farm subsidies progressive or regressive? Before we can answer that, we need to establish a standard by which to measure subsidies’ progressivity. We could use farmer income, which is the same standard we use when talking about taxes. But remember, farm subsidies are essentially paid to businesses (the critics won’t let you forget that), and businesses seem to have all sorts of accounting tricks to inflate or deflate their income.

A more consistent approach would be to use business revenue or assets as the yardstick by which to measure the fairness of farm subsidies. Under this approach, a “fair” subsidy would be higher, relative to their sales or assets, for small farms than large farms. Intuitively, this type of subsidy gives small farms an opportunity to leverage the subsidies and become bigger and minimizes large farms’ ability to use the subsidy to grow.

Ironically, U.S. farm subsidies are progressive under this standard, and have been for some time. Below is a graph taken from a report by the Government Accountability Office (GAO) in 1984. Subsidies are 10% of sales for small farms but only 4% of sales for large farms.

More recent data paint a similar picture. Using the 2002 Census of Agriculture, I calculated subsidies as a proportion of farm sales

And, using the Census of Agriculture from 1987 – 2002, here is the progressivity of farm subsidies relative to a farm’s total assets

More about these graphs and the distribution of farm subsidies can be found here.

(NB: the lines dipping below zero are an artifact of the estimation technique (loess); no one in the data had negative subsidies)

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