Red Ink Page 6
FEEDING THE FARMERS—AND THE KIDS
Although retirement and health care are among the very biggest federal programs, about 17 cents of every federal tax dollar goes to a wide range of other benefits, from veterans’ benefits to farm subsidies. These diverse financial arrangements have one thing in common: at the end of the pipeline is some American who is getting a check or a promise. Most are convinced they deserve the money.
The federal government has been sending checks to farmers, in good times and bad, for eighty years. This began with a disastrous drop in farm prices in the late 1920s and the 1930s that prompted Herbert Hoover and Franklin Roosevelt to use government muscle and taxpayer money to boost farm prices—a supposedly temporary measure. The political appeal was obvious: more than 20 percent of the labor force at that time worked on farms and more than 40 percent of Americans lived in a rural area. Eighty years later, fewer than 2 percent of Americans make their living on the farm, and not even one in six lives in a rural area. Yet big farms have considerable clout and those “temporary” farm subsidies live on, accounting for about $15 billion in federal spending annually. About a third of the money comes in “direct payments,” no-strings-attached checks that the government sends farmers.
Like many other benefit programs, farm subsidies are hard to unravel—a maze of payments, loans, and insurance that bewilders everyone except those who benefit from them, those who attack them, and those in Congress who craft them. Farm bills also include a unique mechanism that forces Congress to act: if it doesn’t pass the bills that arise every four or five years on time, or extend the last one temporarily, the clock is turned back and government payments to farms are based on the unusually high crop prices of 1910 and 1914, adjusted for all the inflation that’s occurred since then. Not surprisingly, the farm bill is one that Congress always finishes on time, or at least extends temporarily.
Despite their political support, these subsidies have occasionally come under fire. “When Republicans seized Congress in 1994, promising a revolutionary age of fiscal conservatism and free-market capitalism,” Time magazine’s Michael Grunwald wrote, “they vowed to gut command-and-coddle farm policies that they compared to Soviet communism. They wanted the government to treat agriculture like any other business, and they said they’d offer farmers a deal … farmers could plant what they wanted, but no more subsidies.”
To that end, the 1996 Freedom to Farm Act severed some long-standing links between the subsidies farmers receive, the crops they grow, and the prices they get for them. For what was supposed be a five-year transition, the bill offered farmers $5 billion a year in direct payments.
The revolution didn’t last but the new “temporary” payouts did. Sixteen years later, about $5 billion in direct-payment checks are still being written annually even as the farm economy booms. These payments are based on an arcane formula tied to what was grown on the land years ago, no matter what crops—if any—are grown on the land now. Because the payment rights transfer with these specific plots, real estate prices are boosted—even on land that has never been cultivated by the current owners. Journalist Dan Morgan calls the payments “an entitlement tied to ownership of land—a construct that some would associate more with 19th-century Prussia than 21st-century America.” Half of the direct payments go to farmers with incomes above $100,000.
An example: the first congressional district in western Kansas has received more money in direct payments over the years than any other, $250 million in 2010, most of that to wheat, corn, and sorghum growers. As is true nationally, most of the money goes to a small set of big farmers: half of the money went to 5,000 of the district’s 675,000 residents, according to a database cultivated by the Environmental Working Group. The top ten farms got more than $200,000 apiece. Obama’s latest budget proposes to eliminate direct payments altogether, describing them as “no longer defensible.” Even Tim Huelskamp, a Tea Party Republican and fifth-generation farmer who represents the district, isn’t defending direct payments any longer. “Everybody needs to share,” Huelskamp told a few dozen townsfolk gathered at the Graham County Courthouse recently. “If you’re a farmer like me, you’re going to expect less. Something’s going to go away. The direct payments are going to go away.”
But even if they do, the farmers in Huelskamp’s district aren’t worried about being cut off entirely. Many figure what they lose in direct payments they’ll make up in increased federal subsidies for crop insurance, which covers losses caused by drought, floods, pests, and low market prices or yields. The government pays private insurers to run the program and pays about 60 percent of premium cost. The annual tab to the taxpayer: $10 billion, and growing.
At the other end of this subsidized-production tunnel are those who get government help to buy food. In one 2012 Republican presidential debate, Newt Gingrich derided Barack Obama as “the food-stamp president” and asserted, “More people have been put on food stamps by Barack Obama than any president in American history.” Echoing the charge, Mitt Romney said that Obama “wants us to become an entitlement society where the people in this country feel they’re all entitled to something from government, and where government takes from some to give to others.”
Actually, even before Obama was elected, the government had expanded the program, offering food stamps to more people and making benefits more generous. Then the terrible economy pushed the income of additional Americans down to levels that qualified them for help. The 2009 Obama-backed stimulus made even more people eligible (more unemployed adults without kids, for instance), increased benefits, and gave states money to spread the word about the benefits. But what Gingrich didn’t mention was that as of December 2011, fewer people had been added to the food stamp rolls in the first three years of Obama’s presidency (14.5 million) than in the expansion of the program during George W. Bush’s two terms (14.7 million).
Still, Gingrich was shining a spotlight on a big target. At the end of 2011, more than 46 million Americans were using food stamps, one in every seven people. (The stamps have now been replaced by a debit card good for an average of $285 a month per household for food, but not cigarettes or alcohol.)
Like so much of today’s federal safety net, the origins of the food stamp program date to the Great Depression, eight decades ago. And like so many federal benefit programs, its longevity reflects the interests both of the people who benefit (the hungry) and of the industry (farming) that provides it. The administrator of the 1939 precursor to today’s food stamps, Milo Perkins, put it clearly: “We got a picture of a gorge, with farm surpluses on one cliff and undernourished city folks with outstretched hands on the other. We set out to find a practical way to build a bridge across the chasm.”
When food surpluses evaporated during World War II, the program died. After several unsuccessful attempts, the program was revived in 1964, partly due to the efforts of farm-state legislators George McGovern, Democrat of South Dakota, and Bob Dole, Republican of Kansas. Since then, Congress has tweaked the program repeatedly. In 1973, it allowed Alaskans to use food stamps to buy hunting and fishing equipment, though not guns or ammunition. Since the 1960s, as the New York Times put it, “the food stamp program has swung between seasons of bipartisan support and conservative attack.” The farm lobby generally embraced it, while Ronald Reagan derided it and Bill Clinton’s 1996 welfare reform bill tightened eligibility. A 2008 farm bill, which George Bush unsuccessfully vetoed for other reasons, made food stamps easier to get. As welfare recipients were pushed to go to work, the program was recast—at least until Gingrich’s diatribe—not as “welfare,” but as a way to aid those working at wages so low they’re below or not far above the official poverty line.
Advocates for the poor say the expanding program has made severe hunger in America rare. Paul Ryan, the House Republican point man on budgets, sees the expansion as just another example of “relentless and unsustainable growth” in federal benefits that should be reversed. The program cost the government $78 billio
n in 2011, about 40 percent more than the cost of the entire Department of Homeland Security, from the Coast Guard to antiterrorist intelligence agents stationed abroad.
As the economy heals and more people get jobs, the number of Americans on food stamps will fall, but the program is likely to remain a flash point as the need to reduce deficits puts benefits of all sorts under scrutiny. Ryan has proposed turning administration of the program over to the states, capping federal spending so that states aren’t encouraged to recruit beneficiaries for a program that Washington finances, and imposing time limits and work requirements on those who get food stamps, much like those attached to welfare. Farm-state Republicans are distinctly unenthusiastic, though. And cutting spending on a program used by so many to put food on the table will never be popular.
SOCIAL SECURITY: PONZI SCHEME OR LIFESAVER?
Social Security, about one-fifth of all federal spending, is perhaps the most popular part of the federal budget. In polls, more than 80 percent of Americans say the seventy-five-year-old program has been good for the country. Hardly anything else has such widespread support. In contrast to the recent close, partisan votes on major legislation, the original Social Security bill was passed in 1935 with substantial and bipartisan majorities in the House (272–33) and the Senate (77–6).
But Social Security is also one of the most misunderstood parts of the federal budget. “You cannot keep the status quo in place and call it anything other than a Ponzi scheme,” Texas governor Rick Perry said in one Republican presidential debate in 2011. Underneath the harsh words was this point: the system depended on a large pool of younger workers to pay the benefits of those who joined the Social Security system in earlier years. Although many Americans believe that they are or will someday get back what they paid into Social Security, that’s not how the program really works. Rather, today’s payroll taxes go to pay benefits to today’s retirees, whose benefits are linked by a complex formula to the wages they earned as workers. For a long time, there was more money coming in than going out, and this surplus was turned over to the Treasury. The Treasury spent the money and gave the famous Social Security Trust Fund IOUs, in the form of U.S. Treasury bonds, that essentially represent the commitments of future taxpayers to come up with the money needed to pay benefits.
That would have worked well if not for the baby boomers, the huge generation born between 1946 and 1964 that has begun to retire. The basic problem is actuarial: there won’t be enough money coming into Social Security at current tax levels to pay benefits that have been promised, particularly once the baby boomers stop paying tax into the system and start claiming benefits. The number of taxpaying workers for every Social Security beneficiary has gone from 5.1 in 1960 to 2.9 today, and is projected to fall to 2.1 by 2029. In 2010, for the first time since the early 1980s, Social Security spent more in benefits than it collected in taxes, relying on the interest on its holdings of Treasury bonds to fill the gap. That math will hold for a while, but somewhere around 2036, the trust fund will be empty: if nothing is done before then, incoming tax revenues will cover only about 75 percent of the promised benefits.
Changes to Social Security are politically delicate because the program touches so many people. Nearly 55 million people, one out of every six Americans, were receiving Social Security benefits at the end of 2011, many more female than male because women live longer. Most who draw benefits are retired workers, but about 30 percent are disabled or are children, spouses, or, in a small number of cases, parents of workers who died. The average benefit for a retiree is $1,228.60 a month, or $14,750 a year. Those who had lower wages get less and those who had higher wages get more. Warren Buffett gets a Social Security check. But nearly half of Americans sixty-five or older would be below the poverty line if not for Social Security, and a quarter of the elderly get 90 percent of their income from the program.
One of them is Martha Soderberg, age seventy-three, who lives in Middlebury, Vermont, relying almost entirely on the $947.60 she gets each month from Social Security. Soderberg, widowed forty years ago and divorced from her second husband, worked about a decade as a nursery school teacher and then ran an inn with her second husband, who got the property in their divorce. She never thought much about saving for retirement, she says. She does own her house—the mortgage paid off with money she inherited from her mother—and has about $25,000 in mutual funds that her first husband left her. But other than that, her only income is the Social Security checks she has been getting since she turned sixty-two, and a little money she makes on the side selling handmade sweaters and doll clothes.
Soderberg isn’t a complainer. “I feel like I’m getting by,” she says. But that’s only because of Social Security. What would she do without it? “One would presume that my two boys or my three sisters would keep me from going to the poorhouse,” she answers. She obviously is no fan of cutting Social Security benefits for today’s retirees—nor is anyone who proposes money-saving changes to Social Security talking about touching the already-retired—but she does read the newspaper headlines with more than a little frustration: “I do wish the government could do a better job of minding their accounts. We poor people have to.”
HOW MANY AIRCRAFT CARRIERS IS ENOUGH?
By any yardstick, the Pentagon budget is huge. Last year’s was equal to the value of all the goods and services produced in the economy of Indonesia, the fourth most populous country on Earth. The $700 billion total was 30 percent higher, adjusted for inflation, than the Cold War peak hit during Ronald Reagan’s presidency. About $150 billon of that went for Iraq and Afghanistan, a sum that will wane as the troops come home. But even the rest of the defense budget—the peacetime budget known to insiders as “the base”—is higher than at any time since World War II. The central question now is how much the defense budget should be cut.
Leon Panetta was eager to cut the defense budget to reduce the deficit when he was chairman of the House Budget Committee and White House budget director. As defense secretary, he’s not quite as enthusiastic. To meet congressionally set spending caps, the Obama administration did propose a base defense budget for fiscal 2013 that is smaller than fiscal 2012’s, the first such time it has done so, cutting $487 billion over ten years from its previous projections.
But Panetta was fiercely resisting an additional across-the-board cut that would be triggered in January 2013 if Congress and the president fail to agree on an alternative to reduce future deficits. “[A]fter 10 years of these cuts,” Panetta wrote to Congress, “we would have the smallest ground force since 1940, the smallest number of ships since 1915 and the smallest Air Force in history.” Skeptics were quick to note that the navy already has the fewest ships since 1916, that the types of ships now and then are quite different, that counting ships is hardly a measure of military might, that today’s navy is larger than the next thirteen combined, and that across-the-board spending cuts would leave the Pentagon with as much money, adjusted for inflation, as it had in 2007, when there were few complaints about money for defense.
Panetta’s cry is widely seen as a bargaining stance: the defense budget almost surely will be cut more in any deficit-reduction compromising, forcing the Pentagon to pare its long wish list. “We do not have and probably never will have enough money to buy all the things we could effectively use,” military strategist Bernard Brodie said—in 1959. It’s still true.
The bulk of the Pentagon’s budget goes for three big items: personnel, operations and maintenance, and buying weapons. A close look at a couple of choices illuminates where the money goes, just how much this stuff costs, and why cutting the defense budget is so contentious.
Some of the decisions are too complex for ordinary civilians to understand. Others can be stated simply, such as: How many big aircraft carriers does the navy need to keep America safe? The price tag on these ships is staggering. The navy estimates each aircraft carrier costs in excess of $11 billion, more than Medicare spends annually on knee, hip, and shoulder joi
nt replacements for nearly seven hundred thousand elderly. Aircraft carriers are expensive even in death: it costs about $2 billion to decommission a carrier, including removing and storing two nuclear reactors.
The navy now has eleven big carriers, the oldest launched fifty years ago. The current plan is to replace one every five years with a new one—bigger, better, and much more expensive. The existing Nimitz class carriers are the largest warships in the world. The navy calls them “4.5 acres of mobile, sovereign U.S. territory.” The new carriers will be about one-fifth of a mile long, capable of launching seventy-five aircraft from a flight deck almost as large as a football field. Partly because shipbuilding creates so many jobs and partly because aircraft carriers are such a symbol of military might, Congress, by law, requires the navy to maintain eleven carriers. It has, however, okayed a temporary plan to sail only ten carriers between the retirement of USS Enterprise in 2013 and the commissioning of the first of the new ones, USS Gerald R. Ford, in late 2015.
The more carriers, of course, the greater the navy’s global reach and the greater the nation’s capacity to send aircraft anywhere, even when no conveniently located nation is willing to offer a land base. The nagging question is this: Are aircraft carriers obsolete? Pearl Harbor, where so many U.S. planes were destroyed on the tarmac, demonstrated the strategic value of aircraft carriers, but that was sixty years ago. Today, the Chinese—now seen as the biggest potential maritime threat—are developing missiles that could render the modern carrier as vulnerable as the battleships at Pearl Harbor were.