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Obama Wants To Cut $14 Billion In Excess Crop Insurance Subsidies

Wednesday, March 5, 2014


By Craig Cox, Senior Vice President for Agriculture and Natural Resources and Mary Ellen Kustin, Legislative/Policy Analyst

President Obama and Environmental Working Group agree: to reduce wasteful spending, Congress should cut back on egregiously high crop insurance subsidies.

Taxpayers currently subsidize an average of 62 percent of crop insurance premiums. The U.S. Department of Agriculture’s Risk Management Agency reports that subsidizing premiums cost taxpayers $7.3 billion last year and $49.4 billion since 2003. Shaving a few percentage points off these generous premium subsidies would save billions of dollars while retaining an ample safety net for farmers.

On top of premium subsidies, taxpayers pay private insurance companies to sell and service federal insurance policies. Taxpayers also pick up most of the payouts when bad weather strikes. As a result, the private companies enjoy an unusually high rate of return. Trimming federal subsidies to crop insurance companies would reduce their profits to levels more in line with industry standards and save more billions.

Happily, this is exactly what the President is proposing to do in his federal budget for fiscal year 2015 released yesterday.  His proposal to reform crop insurance subsidies would save taxpayers $14.2 billion over the next 10 years.

The President proposes to trim premium subsidies by 3 percent, which would save $3.8 billion over 10 years. Shaving an additional 4 percent from the most generous types of policies that dramatically drive up the cost of the crop insurance program would save another $6.3 billion. As the budget states, these proposals would “reduce federal subsidies for disproportionately subsidized plans that benefit wealthy corporate farmers.”

Bringing crop insurance company profits down to a more reasonable level would save another $4.2 billion.

That’s $14.2 billion in actual savings—unlike the supposed “savings” promised by the 2014 farm bill.

The farm bill cut direct and countercyclical farm subsidies – but reinvested those savings in new subsidy programs with price floors set at artificially high levels and add-ons to crop insurance that increase the likelihood that actual spending would far exceed the levels estimated by the Congressional Budget Office.

By contrast, real savings would come from reducing premium subsidies on the most heavily subsidized insurance policies and by cutting back crop insurance companies’ windfall profits.

As more money flows into federally-supported crop insurance, the program is doing far more than providing the world’s strongest safety net under farmers. Reforming it as the President’s budget suggests would keep a solid floor under producers who face disaster.  At the same time, these reforms would save billions of dollars that could be used in programs that promote healthy land, water, and food. 

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