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Crop Insurance Subsidies Could Provide Bumper Crop of Budget Savings

Wednesday, November 20, 2013

Looking for a way to save more than $60 billion?

Reducing subsidies to large farm businesses, crop insurance companies and their agents, and trimming their windfall profits could generate enormous savings, EWG has found.

EWG’s analysis, based on Congressional Budget Office estimates developed during House and Senate consideration of the farm bill, demonstrates that taxpayers could harvest significant savings if Congress voted to:

  • Reduce Crop Insurance Premium Subsidies to pre-2000 Levels. Legislation introduced by Sen. Jeff Flake (R-Ariz.) and Rep. John Duncan (R-Tenn.) would save taxpayers $40 billion over 10 years by gradually reducing average premium subsidies from 62 percent to 37 percent over five years.  A recent CBO study found that immediately reducing the premium subsidies to an average of 40 percent would save $22.1 billion over the next 10 years,  including $5 billion in the first two years.
  • End the Harvest Price Option. Farmers are allowed to purchase revenue insurance policies linked to the price of the crop at harvest – rather than the price the farmer expected to earn when he planted his crop in the spring. Eliminating this option would save taxpayers $8 billion over 10 years. Reps. Duncan and Henry Waxman (D-Calif.) filed an amendment to eliminate the option, but House leaders blocked a vote.
  • Subject Crop Insurance to Means Testing. Means testing is not applied to crop insurance subsidies, unlike traditional farm subsidies. As a result, some farmers receive more than $1 million a year in premium support and more than 10,000 each collect more than $100,000 a year. Means testing to require the largest 1 percent of farm businesses to pay more of their risk management costs, which has twice been approved by the Senate, would save nearly $1 billion over the next 10 years.
  • End Subsidies for Insurance Agents. Ending these subsidies would save taxpayers more than $11 billion over 10 years. A recent Congressional Budget Office study found that simply lowering the cap on agents’ subsidies from $1.3 billion to $915 million (9.25 percent of expected premiums) would save $5.2 billion.
  • Share Risk with Insurance Companies. Renegotiating the risk-sharing agreements between the crop insurance companies and USDA to lower their guaranteed rate of return could save taxpayers billions more. Currently, USDA guarantees the insurance companies – many of which are based in tax havens such as  Bermuda and Switzerland – a 14 percent rate of return. Since 2001, the companies have enjoyed $10.3 billion in underwriting gains – while taxpayers have suffered a net loss of $276 million.

Reducing subsidies to farmers, insurance agents and companies would still provide farmers with a robust safety net. Studies show that reducing crop insurance subsidies would not shrink the number of farm businesses that buy insurance but would instead encourage farmers to adjust their coverage levels. Moreover, cutting the subsidies would not increase the need for disaster payments. In fact, an EWG analysis found that crop insurance is more costly than the ad hoc disaster programs crop insurance was designed to replace.

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