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Forget The Fiscal Cliff, There’s Also A Milk Cliff.

milk1

Along with increased taxes, a loss of unemployment benefits, the return of the Payroll Tax, and the lack of any adjustments to the Alternative Minimum Tax, failure to resolve the “fiscal cliff” issues before December 31st could lead to a huge increase in the price of milk. Suzy Khimm explains how it could happen:

Here’s how that would happen: Without legislative action in the next five days, the government will have to revert to a 1949 dairy price subsidy that requires the Agriculture Department to buy milk at inflated prices. Much like the current fiscal cliff, the law was left on the books “as a poison pill to get Congress to pass a farm bill by scaring lawmakers with the prospect of higher support prices for milk and other agriculture products,” as Vincent Smith, a Montana State University professor, told the New York Times.

The Farm Bill isn’t technically part of the fiscal cliff. Speaker John A. Boehner (R-Ohio.) has resisted the call by Agriculture

Secretary Tom Vilsack (D) to incorporate it into the budget negotiations — to avoid complicating the budget talks and losing GOP votes, a Boehner aide told Politicolast week. Legislators from rural districts are also worried that crop subsidies could be a tempting target in the fiscal cliff negotiations, so they’ve been trying to push Congress toward a separate resolution, to little avail. Although producers would temporarily benefit from the hike in milk prices, it would hurt processors and consumers, and the dairy industry would prefer a long-term resolution as well.

The legislative impasse is over a host of issues: There’s major disagreement about how much to cut food stamps, how much the government should be subsidizing crops, and how dairy prices should be stabilized. As Time explains, the Senate has already passed a $969 billion farm bill that would reduce the deficit by about $24 billion over 10 years, in part by cutting $4.5 billion in food stamps and replacing direct payments to farmers with weather-related crop insurance. The House hasn’t passed a bill yet, but the House Agriculture Committee passed a bill that would cut $35 billion over 10 years, with a bigger $16 billion cut to food stamps.

If nothing else, this is yet another example of the failure of Congress to get anything done as both sides stake out their own political positions and the two sides refuse to negotiate. The normal procedure when there’s a conflict between the House and Senate version of a bill would be to assign the matter to a Conference Committee made up bipartisan groups of Senators and Congressman, but the use of conference committees has nearly died off into nothingness in recent years for a whole host of reasons. So, instead of having a real discussion about our nation’s farm policy, and especially the question of whether the Federal Government should be subsidizing farmers at all, we’re at an impasse and. absent some action in the next five days, the price of milk and everything made with it is going to increase substantially.

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About Doug Mataconis
Doug holds a B.A. in Political Science from Rutgers University and J.D. from George Mason University School of Law. He joined the staff of OTB in May, 2010 and also writes at Below The Beltway. Follow Doug on Twitter | Facebook

Comments

  1. Argon says:

    Right, both sides do it….
    But some ‘side’ has clearly been doing it to excess.

    The deal has always been farm subsidies in exchange for food stamps until one side decided that they didn’t want food stamps. And enjoy the two-faced caterwauling of Steve King (R-Iowa’s 5th district), a Tea Party wannabe and Mr. Let The Markets Pick Winners And Losers, who’d trying to have it both ways. ‘Subsidies for me, not thee’ is not an evolutionarily stable strategy. No wonder the farm bills are getting hosed.

    Like or Dislike: Thumb up 4 Thumb down 2

  2. rudderpedals says:

    You’ll get your conference when Boehner holds a vote on the committee-blessed ag bill and not a moment sooner. Actually you won’t get your conference even then if it takes 60 votes in the Senate to appoint conferees.

    Like or Dislike: Thumb up 3 Thumb down 0

  3. @Argon:

    There are numerous, numerous occasions on which Harry Reid has refused to consent to the establishment of a Conference Committee in the case of conflicting legislation. So, yes, both sides do it.

    Like or Dislike: Thumb up 2 Thumb down 6

  4. Tony W says:

    both sides stake out their own political positions and the two sides refuse to negotiate

    Putting a stake in the ground about taxes (or anything else) is not negotiating. There is no good faith on the Republican side. Boehner won’t even put a bill forward that could be mostly carried by ‘D’ votes with a few ‘R’ defections (presumably including his own).

    This is 100% Party above country.

    Like or Dislike: Thumb up 6 Thumb down 0

  5. OzarkHillbilly says:

    The House hasn’t passed a bill yet, but the House Agriculture Committee passed a bill that would cut $35 billion over 10 years, with a bigger $16 billion cut to food stamps.

    But God forbid we raise taxes on the 1%. If there is a hell, and I find myself hoping there is, that is where these people will end up.

    Like or Dislike: Thumb up 3 Thumb down 0

  6. Tsar Nicholas says:

    Just wait until Social Security implodes. At that point we’ll be longing for the days of the current “fiscal cliff.” If Gen. Y was a horse it’d be sent right to the glue factory.

    As far as farm subsidies go, arguably they’re the dumbest thing in current captivity. Seriously. Paying farmers with federal taxpayer dollars not to produce food was dumb from the get-go. That we’re still doing that in 2012, during a period of massive worldwide inflation in food prices, truly is brain dead.

    Like or Dislike: Thumb up 3 Thumb down 6

  7. Jeremy says:

    Here’s a better idea: just stop subsidizing farmers. Period. End them. A lot of grassroots conservatives are pissed off with them (I think AFP, Freedomworks, and other organizations are moving against them) so there’s support there for the conservative Republicans.

    Just end it. All of it. That should cut government down a little bit and bring back a genuine free market to agriculture. Of course, though, that will never happen, because most Republicans don’t believe in free market capitalism beyond using it as a talking point.

    Like or Dislike: Thumb up 6 Thumb down 2

  8. An Interested Party says:

    Just wait until Social Security implodes.

    Keep that conservative wet dream alive….

    Like or Dislike: Thumb up 1 Thumb down 0

  9. Argon says:

    @Doug Mataconis:
    No, sorry. Orders of magnitude difference.

    Like or Dislike: Thumb up 6 Thumb down 0

  10. Argon says:

    @Tsar Nicholas:
    No reason for Social Security to implode unless that’s your goal. Relatively minor changes can be made to keep the system solvent, such as raising the ceiling on taxable income.

    Like or Dislike: Thumb up 5 Thumb down 1

  11. @Tsar Nicholas: Why do you think Social Security will implode? There’s no reason it has to and the tax increases necessary to keep it solvent for 75 years only amount to about 1.5% of GDP.

    Like or Dislike: Thumb up 4 Thumb down 0

  12. Tyrell says:

    The explanation of this is still hard to follow. Just give me a simple explanation of why the price of milk is not tied to supply and demand ? The only way that government should be involved is for health inspections at the dairies and grocery stores (refrigeration temperature checks).

    Like or Dislike: Thumb up 1 Thumb down 0

  13. wr says:

    @Jeremy: “Just end it. All of it. That should cut government down a little bit and bring back a genuine free market to agriculture.”

    Yes, because there is absolutely no societal interest in making sure the food supply is relatively constant and unruffled by panics and speculators. If some billionaire decides to corner, say, the wheat market and drives up prices by ten or 50 thousand percent, that’s the glory of the free market in action.

    Is there actually a libertarian out there with an IQ higher than my dog’s? Because I haven’t seen one, and Jeremy here may be the dimmest libertarian in history.

    “Ay, yup, speculator induced famines are freedom! Hyuk hyuk hyuk!”

    Like or Dislike: Thumb up 4 Thumb down 2

  14. Tyrell says:

    @wr: so the answer is a system in which the price of a basic food item can double in a short time ?

    Like or Dislike: Thumb up 1 Thumb down 2

  15. Dave Schuler says:

    Who could possibly have guessed that after only a few generations of dairy subsidies the market for milk would be totally out of whack? Jeremy above is righ: milk subsidies should end. The present system establishes a price floor. Penalties for charging more than the floor price include prison time.

    Under the circumstances it’s possible that prices could increase. It’s also possible they could decrease. The question is what the market clearing price for milk is and nobody knows what that is any more.

    Like or Dislike: Thumb up 1 Thumb down 1

  16. Dave Schuler says:

    @Robert Prather:

    Social Security retirement benefits already exceed the revenue that’s coming in. They’ll continue to do so for the foreseeable future. As long as that continues the system will continue to work through the “trust fund”.

    The critical question is what happens when the “trust fund” is completely depleted and the system is insolvent. Present projections are for that to happen around 2033 but that assumes much higher economic growth and employment than I think is likely to occur. Think more in terms of 2020.

    There are several possibilities. One is that benefits will be cut to fit the amount of revenue coming in. Is that really politically feasible? I can hear already hear the howls over Social Security checks 25% lower than they used to be.

    The second possibility is that FICA will go up. Or, said another way, all of the temps and low wage workers will have their take-home pay cut. Again, politically unlikely.

    A third possibility, the one I think most likely, is that we’ll just continue to pay the benefits, taking money from the general fund, i.e. borrowing, “printing”, or just spending it into existence. At some point that’s a strategy that will lead to loss of confidence in the currency.

    All three of those scenarios are a reasonable approximation of “implode”.

    There are several reasonable solutions, some combination of means-testing, chained CPI, and increasing the SSRA. At this point those are all political non-starters. Said another way, we’re at an impasse.

    Like or Dislike: Thumb up 1 Thumb down 1

  17. Argon says:

    @Dave Schuler:
    Or, we raise the ceiling on the level of taxable income for SS withholding. That’s less of a nonstarter.

    Like or Dislike: Thumb up 1 Thumb down 0

  18. Dave Schuler says:

    @Argon:

    Yes, thank you. That’s something I’ve favored for a long time. I’ve thought that FICA max should be set by law to whatever the highest pay received by a Congressman is.

    Like or Dislike: Thumb up 1 Thumb down 0

  19. wr says:

    @Tyrell: “so the answer is a system in which the price of a basic food item can double in a short time ?”

    This is only the “system” because the House Republicans have been taken over by a small set of insane reactionaries who believe they are entitled to hold the entire country hostage unless the country is restructured to work exactly as they want it to be.

    Like or Dislike: Thumb up 1 Thumb down 0

  20. @Dave Schuler: I don’t think your realistic examples (we won’t cut checks by 25%, etc) count as imploding. We could also remove the cap on FICA all together and that would certainly help.

    As I said above, and last I read, it will only take 1.5% of GDP in new revenue to keep it solvent for the next 75 years.

    Like or Dislike: Thumb up 2 Thumb down 0

  21. An Interested Party says:

    As I said above, and last I read, it will only take 1.5% of GDP in new revenue to keep it solvent for the next 75 years.

    Yes, but don’t let facts like that get in the way of people who have never liked Social Security and want to see the program destroyed…

    Like or Dislike: Thumb up 0 Thumb down 0