Are Farm Subsidies Progressive?

March 31, 2011

An economist in the Department of Agricultural and Consumer Economics at the University of Illinois posted an interesting entry on the FarmDocDaily blog yesterday, claiming that farm subsidies flowing to the biggest farms is a sign of progressivity.

His reasoning goes something like this: because a progressive tax system is one in which the rich pay a higher proportion of their income in taxes than do the poor, and because a subsidy is essentially a negative tax, then a progressive subsidy system is one in which subsidies would flow more to farms where the subsidy is a higher proportion of their sales or assets. And, according to Mr. Kirwan, that’s what we see: subsidies make up 10 percent of sales for small farms and only 4 percent of sales for large farms. So far, so progressive.

But here’s the problem as I see it. Mr Kirwan takes a pretty narrow view of what progressive means (when I hear that term, by the way, I reach for my revolver, but we’ll let it slide for now). The question isn’t whether the subsidies are being distributed “progressively” among farmers – although the fact they are not is, I think, one of the valid critiques of U.S. farm policy.  The real question we should be asking ourselves is how subsidies are distributed among society, a society that Mr Kirwan claims to speak for when he says that the current income tax structure is “how we as a society have decided to measure the “fairness” of the tax system.”

Farmers are wealthier (second graph from the bottom) and earn higher incomes (fourth graph from the bottom) than the average U.S. household. Their average debt-to-asset ratio is about 12 percent (third graph from the bottom), very low relative to the average U.S. household. Those should be the relevant data for any progressivity test.

And all of this ignores the main critique of farm subsidies: that they are an example of special interest politics at its worst. I’ve yet to hear of a convincing argument as to why farmers deserve taxpayer- and consumer-funded special treatment compared with other small (or large, for that matter) businesses.

See this Cato essay for more information on why farm subsidies should be abolished.


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