THOUGH THE bipartisan budget agreement now moving its way to President Obama’s desk was an acceptable and necessary alternative to the across-the-board cuts or debt default that might otherwise have occurred, it was hardly a model of fiscal rectitude. The bill’s true 10-year cost, taking interest into account, is $154 billion, according to an analysis by the Committee for a Responsible Federal Budget; of that, only about half ($77 billion) is offset with “hard” savings, such as asset sales and structural program reforms, while $14 billion in pension “smoothing” and other budgetary gimmicks make up the rest of the “pay-fors.”
And now comes news that Republicans and Democrats in Congress are already ganging up against one of the bill’s real reforms: a trim of $3 billion over 10 years to subsidized crop insurance for agriculture. This exceedingly modest savings would not be achieved by a direct increase in the subsidized premiums farmers pay; rather, it would reduce the underwriting gains (monies left after payments to cover losses) of insurance companies, from 14.5 percent of premiums paid to 8.9 percent.
This reduction in federally guaranteed revenue to these firms — which include subsidiaries of such financial behemoths as Wells Fargo and ACE Group — represents just 25 percent of the savings President Obama called for in his 2016 budget proposal. But even that was too much for rural lawmakers of both parties in both chambers, who have now prevailed upon their leaders to undo the reform during the drafting of bills that will convert the budget deal into actual appropriations later this fall.
Their policy argument, such as it is, is that crop insurance composes a key part of the rural safety net and that providers will exit the market unless the government ensures them a high return. Furthermore, they argue, agriculture already did its bit for deficit reduction in the 2014 farm bill, which supposedly achieved projected 10-year savings of $23 billion over previous policies. But the Congressional Budget Office has since revised that estimate sharply downward. As for losing insurance providers, that fear, too, is overblown. As Eric J. Belasco and Vincent H. Smith of the American Enterprise Institute point out, the number of firms offering coverage has fluctuated between 13 and 19 over the past two decades, even in years when underwriting gains weren’t much different from what they would be under the budget bill. Therefore, the current roster of 17 providers could easily withstand the departure of a few especially subsidy-hungry members, if it comes to that.
The Republican leadership’s swift reneging on this attempted reduction of corporate welfare is a sad comment on Senate Majority Leader Mitch McConnell’s (R-Ky.) commitment to spending reform and an inauspicious sign regarding the new speakership of Paul Ryan (R-Wis.) in the House. The only saving grace is that congressional leaders have pledged that any rollback of crop insurance reform must be offset by savings elsewhere. We’ll be watching closely to see whether those offsets come in the form of “hard” savings — or more gimmicks. The former could partially redeem this insult to fiscal discipline; the latter would compound it.