Obama targets farm payments in financial mess

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Agriculture already is being eyed for budget savings when the new Obama Administration takes the helm in January. While announcing key members of President-elect Barack Obama's financial team in the Office of Budget and Management, Obama referenced a recent Government Accountability Office (GAO) report revealing the ineffectiveness of farm payment limits.

Obama pointed out that his financial team will go through the federal budget -- "page by page, line by line" - eliminating those programs that are unneeded and don't operate in a "sensible cost-effective way."

His first example - a GAO report revealing that from 2003 to 2006 millionaire farmers received $49 million in crop subsidies even though they were earning more than the $2.5 million cutoff for such subsidies.

"If this is true, it is a prime example of the kind of waste I intend to end as President," Obama said.

GAO found that of the 1.8 million individuals receiving farm payments from 2003 through 2006, 2,702 had an average adjusted gross income (AGI) that exceeded $2.5 million and derived less than 75 percent of their income from farming, ranching, or forestry operations, thereby making them potentially ineligible for farm payments. Nevertheless, USDA paid over $49 million to these individuals.

Notably, according to the GAO, a founder and former executive of an insurance company received a total of more than $300,000 in farm program payments in 2003, 2004, 2005, and 2006 that were subject to the AGI provisions.

An individual with ownership interest in a professional sports franchise received a total of more than $200,000 in farm program payments during the same time frame. A top executive of a major financial services firm received more than $60,000 in farm program payments in 2003. The individual received these payments directly, not through an entity.

Sen. Chuck Grassley, has been a long-standing advocate of tightening payment limitations and requested the GAO report. The most recent report is one of a series of reports requested by Grassley on improper farm payments. Last year, Grassley released a Government Accountability Office report on farm payments going to dead people. The first report was released in 2004.

More trouble ahead

According to USDA officials, a number of factors—such as resource constraints that hamper its ability to examine complex tax and financial information as well as a lack of authority to obtain and use IRS tax filer data for such purposes—contribute to the department's inability to verify that each individual who receives farm program payments complies with income eligibility provisions.

However, USDA does not routinely sample individuals receiving farm payments to test for income eligibility; instead, its annual sample selected for review is based primarily on compliance with eligibility requirements other than income. The 2008 Farm Bill directs USDA to use statistical methods to target those individuals most likely to exceed income eligibility caps.

President Bush tried to push for tighter payment limits, one of many reasons Bush vetoed the farm bill. GAO states the 2008 Farm Bill will likely increase the number of individuals likely to exceed the income eligibility caps. "That is, with lower income eligibility caps under the 2008 Farm Bill, the number of individuals whose AGI exceeds the caps will rise, increasing the risk that USDA will make improper payments to more individuals. For example, had the new Farm Bill been in effect in 2006, as many as 23,506 individuals who received farm program payments would likely have been ineligible for crop subsidy and disaster assistance payments totaling as much as $90 million," GAO reported.

"It's hard to have faith in USDA's ability to police these income limits. Unfortunately, it's one thing after another. One year we have payments going to dead people, now we have payments going to owners of professional sports teams. I hate to think what might be next," Grassley said.

Grassley added USDA noted in its own database that nearly 100 people exceeded the income limits, but did nothing about it. "Now, with tighter income limits from the new farm bill, not only does the federal treasury stand to lose a good deal of money, but the taxpayer will be helping big farmers get bigger, which is not who the farm payment system was intended to help," he said.

GAO recommendations

GAO recommends that USDA work with IRS to develop a system for verifying the income eligibility for all recipients of farm program payments.

 If USDA determines that it needs authority to work with IRS, it should seek this authority from Congress, as appropriate.

In commenting on a draft of this report, USDA agreed with these recommendations but disputed some of the findings. GAO believes that the report is fair and accurate.

 

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