A few weeks ago, I linked to a post on Barrett Kirwan’s blog about whether farm subsidies were progressive. Barrett says they are:
“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.”
The Cato Institute’s Sallie James disagrees:
“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 US 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 and earn higher incomes than the average US household. Their average debt-to-asset ratio is about 12 percent, very low relative to the average US 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.”
I am generally in agreement with Sallie James, as I have previously discussed. I especially like her last paragraph, both for the reason she discusses and because farm subsidies in the US and other industrialized countries are a slap in the face of developing countries. As a development economist, that we have been encouraging those countries to open themselves up to international trade while consistently screwing them over along their sole comparative advantage does not sit well with me.
(HT: Matt Yglesias.)