THE 1988 FEDERAL BUDGET : Proposed Farm Spending Cuts Likely to Spark Heated Battle

President Reagan on Monday proposed a huge cutback in farm spending, firing the opening shot in what is expected to be a fierce legislative battle to fix a year-old farm program that has failed to curb soaring taxpayer subsidies and grain surpluses.

Because farmers already are signing federal payment contracts for this year’s crops, Reagan was able to propose only small spending cuts for fiscal 1988, which begins Oct. 1. However, he urged that Congress take immediate action--primarily a sharp reduction in income subsidies--to chop $24 billion from commodity price-support programs in the following four years.

Such spending soared from $4 billion in 1981 to $25.8 billion in 1986, contributing significantly to the federal deficit. Program costs are running nearly 50% ahead of projections made just over a year ago when Congress passed the 1985 farm bill.

Although Reagan acknowledged that his proposals would retain the basic mechanisms of the 1985 law, he asserted that the changes would “solve the farm program problems once and for all.”

Greeted With Skepticism

That claim was greeted with considerable skepticism on Capitol Hill as the Democrat-run 100th Congress prepared to convene today. Although there is widespread agreement on the need for repair--and a bushel of proposals by lawmakers--few in Congress want to make deep cuts in farm subsidies as rural America is suffering its worst crisis in half a century.

“My political judgment tells me that (Reagan’s farm budget) is probably going to be unacceptable to both parties,” incoming Senate Budget Committee Chairman Lawton Chiles (D-Fla.) said. Sen. Rudy Boschwitz (R-Minn.) agreed, and an aide quoted him as saying: “It’s for proposals like this that filibusters were invented.”

Reagan’s proposals are similar to several major bills in Congress. “None of these proposals has any significant chance of passage in the form proposed,” agricultural consultant John Schnittker said. “However, all of them have to be considered because the Congress has to find some savings.”

Reagan’s chief proposal involves tripling a scheduled 10% slash in “target prices” that are used as a basis for figuring income subsidies to producers of cotton, rice, wheat, corn and other feed grains.

‘Deficiency’ Payments

The 1985 farm bill sets per-bushel target prices, which are supposed to represent a fair rate of return on production costs for those crops through 1990. Farmers receive federal “deficiency” payments to cover shortfalls between the statutory targets and actual market prices. Existing law would cut wheat and feed grain target prices by 2% in 1988, 3% in 1989 and 5% in 1990. Reagan proposes cutting those target prices by 10% each year, saving more than $23 billion.

“If you’re talking about cutting target prices 10% a year, with no other measure that gets farm income up, you’re talking about making what is currently a disaster even worse,” said Robert Denman of the National Farmers Union, which represents mostly small- and medium-size operations.

But John Datt, lobbyist for the more conservative American Farm Bureau Federation, said that although it would be “politically difficult to get more than what is in the law,” Reagan’s proposal is “headed in the right direction.”

Other proposals by Reagan would pay grain growers even if they did not plant a crop, would curb the total subsidies each farmer may receive and would provide more foreign competition for domestic sugar producers.

In a bid to cut massive grain surpluses, the President proposed that growers be encouraged to restrain themselves in situations where there is little or no profit incentive other than government subsidies.

New Basis for Subsidies

A new policy of “decoupling” income-support benefits from planting decisions would base subsidies on past yields rather than on current production. Under the plan, a corn or wheat farmer could receive full government benefits either by growing his traditional-size crop or no crop at all.

However, few farmers are participating in a similar program now in place, a Senate Agriculture Committee aide said.

Reagan also proposed that total subsidies to a farmer be limited to $50,000 instead of the $250,000 limit in current law. In addition, he suggested closing loopholes that enable thousands of farmers to subdivide their farms among family members and to use other means to get around the subsidy cap.

These proposals are expected to appeal especially to House members from urban districts, who are increasingly impatient with runaway farm costs when other social programs are being cut.

In reality, though, the loophole-closing would save little money--and its effectiveness is in doubt. Many farmers easily get around the current $250,000 limit, and one California cotton producer received $20 million last year.

Both Democrats and Republicans in Congress are expected to push several major farm initiatives of their own, but congressional aides do not detect a majority behind any of them.

Eugene Moos, a top aide on the House Agriculture Committee, foresees Congress making major cuts in farm spending only if forced to at the 11th hour--if, for example, the Gramm-Rudman deficit-reduction law threatens to trigger damaging across-the-board trims in September.

Radical Alternative Proposed

Nevertheless, a radical alternative to current programs is being advocated vigorously by Sen. Tom Harkin (D-Iowa) and Rep. Richard A. Gephardt (D-Mo.). Their bill would impose stiff production controls on grain growers in a bid to sharply boost domestic market prices above the level of target prices.

In such a circumstance, they say, the need for federal deficiency payments would disappear, saving billions in income subsidies. However, food costs would rise for consumers and the government would have to heavily subsidize exports for them to compete in world markets. Also, tariffs would have to be imposed on grain imports from Canada and elsewhere to prevent U.S. beef and pork producers from buying cheaper foreign grain at the expense of U.S. growers.

“This bill is not likely to pass because it would transfer the cost of maintaining farmers from the taxpayer directly to consumers in the form of higher food costs,” Moos said. “That would be a 180-degree turn in our policy.”

Reagan’s decoupling plan is similar to another major legislative initiative sponsored by Sens. Boschwitz and David L. Boren (D-Okla.), both key wheat-state senators on the Senate Agriculture Committee.

But in contrast with Reagan, Boschwitz and Boren’s decoupling plan proposes doing away with target prices altogether, replacing deficiency payments with lump-sum payments based on farm size and phased out over a period of years.

“We think the Administration took a good idea and headed down the wrong road,” a Boschwitz aide said.