Lots of folks would probably be surprised to find that our federal government subsidizes tobacco farmers to insure their profitability. Well, if you didn’t know it before, there’s no use in studying up on it now because Congress recently passed legislation to end tobacco subsidies.
During the Depression, President Franklin Roosevelt provided tobacco farmers a “floor” price for their crop as long as the government could set production quotas. That system has been in place for 70 or so years now.
Under the new legislation, cigarettemakers will fund $10 billion in payouts to tobacco growers in return for ending price supports. The funds are an attempt to help farmers survive the transition to free market competition.
Speculation is that ending subsidies will mean the end for small tobacco farms. However, change has been inevitable for years as the ranks of smokers declined and new technology made foreign tobacco more palatable. The government has been consistently reducing quotas and, since 1997, U.S. tobacco production has been halved.
Needless to say, the combination of ending subsidies and the increasing unpopularity of smoking signals a bleak future for tobacco growers. Though plagued by blights and negative press, tobacco has been a mainstay of the South since the 1660s. Growing tobacco ensured a good living for the farmer and helped create a lifestyle of gentility for the plantation owners. It funded universities, roads, the birth of our nation and the Civil War that tore our nation apart. But with the end of government subsidies and decreasing product demand, the era is coming to an end.
The $10 billion will be paid over a 10-year period. Theoretically, this will allow small growers ample time to convert to another product. In reality, the huge profits heretofore enjoyed by tobacco farmers makes alternative products unattractive, blighted, one might say.
Furthermore, many non-farmers profited handily by selling their quotas for cash as did former Senator and presidential candidate Al Gore, who, despite his ranting about the evils of tobacco, continued to bank his share of the subsidy every year.
Are subsidies a good thing or a bad thing? The answer probably depends on whether you are a tobacco grower or not. Since most of us are not tobacco growers, then the debate turns to the appropriate role for the federal government. And tobacco, a product hated by so many these days, provides a good backdrop for framing the discussion.
Before I drop the hammer on government subsidies, I need to confess that my family is not without blemish. Up until about 1955, we grew 10-15 acres of cotton in rural Hinds County. When I was around six years old, my father put our land in the “soil bank” wherein the government paid us not to plant cotton. I recall wondering why the government would pay us not to grow something. It seemed bizarre to me then and it still does today. However, before all you free-marketers whack me too hard, please recall that I was a mere lad of six when all this took place.
Why should the taxpayers foot the bill to manipulate the American farm economy? Why does the government insist on interfering with the operation of our free markets? I have it on good advice that Idaho potato farmers collect their subsidies and dump the excess potato production out on the ground. I paid some of those tax dollars that produced those dumped potatoes and sometimes I’ve wanted a potato and didn’t have one. I object to waste in any form and that seems pretty wasteful to me.
The argument is that the government is protecting the small farmer and without financial assistance, the small farms would cease to exist. Well, it could happen. However, unhampered by tax subsidies, I’m convinced that most American farmers, both large and small, will find a way to survive and prosper. It is a cornerstone of a free market economy that inefficient producers are replaced by those who can operate more efficiently. Government subsidies, in any form, encourage laziness and discourage innovation.
Why do we do it? Government involvement with any industry is like getting Johnson grass in a field; once it’s there it’s very hard to get rid of. Perhaps with President Bush’s strong re-election showing he can make some dents in the system during this second term. Ending the tobacco subsidy is a good first step in that direction. I’ll bet it was pretty tough for old Al Gore to get his tobacco farming done from that Washington penthouse suite anyway.
Thought for the Moment — Make it your ambition to lead a quiet life, to mind your own business and to work with your hands, just as we told you, so that your daily life may win the respect of outsiders and so that you will not be dependent on anybody. — 1 Thessalonians 4:11
Joe D. Jones, CPA, is publisher of the Mississippi Business Journal. Contact him at email@example.com.