Top 9 Prime Cuts recommendations:
Advanced Technology Program | BRAC | Defense Travel System | EPA Grants to Nonprofits | Federal Dairy Programs | FreedomCAR Partnership | HIDTA | Pork-Barrel Spending | Sugar Subsidies
Advanced Technology Program
One-year savings: $150 million Five-year savings: $750 million
The Advanced Technology Program (ATP) was created in 1988 to provide research and development technology grants to small businesses. ATP was modeled after Japan’s system of bypassing free markets in favor of government subsidies and protections for research and development. Today, ATP is nothing more than a spendy boondoggle that serves no other purpose than to subsidize corporations. Since its inception, ATP has cost taxpayers $2.3 billion.
Developing innovative business technologies may seem worthwhile, but a closer look at the program shows that roughly $150 million per year goes to subsidize private sector research, including Fortune 500 companies. According to a mid-1990s Government Accountability Office study, 65 percent of ATP grant recipients did not seek private funding before requesting government funds. From 1990 to 2004, 35 percent of ATP grants were awarded to multi-million dollar corporations. Over the 14 years, 39 Fortune 500 companies (with a combined $1.4 trillion in annual revenues) received $732 million in ATP research subsidies.
Taxpayers nationwide pay for ATP, but the funds are distributed unevenly. Companies in five states — California, Massachusetts, Michigan, New Jersey and New York — receive more than half of ATP funding. Only one-third of these ATP-funded projects bring a product to the market. The development of HDTV technology cost the taxpayers $28 million and flat-panel television research cost $7.3 million through ATP. According to testimony by Brian Reidl of the Heritage Foundation before the Homeland Security and Government Affairs Committee on May 26, 2005, private sponsors would have invested in the technology products had the government not funded the projects.
ATP also gives money to products that have already been developed. In 1991, the Communication Intelligence Corporation received $1.2 million for research into computer recognition of cursive handwriting, even though this technology had already been patented and marketed with the advent of optical character recognition technology in the late 1950s.
Advocates of ATP claim that the subsidies provide help to generate greater technological advancements. In reality, these grants are nothing more than corporate handouts that allow the businesses to make a profit off of the commercialization of research. These companies already have their own research and development departments that can operate without federal grants. Also, private investors contribute $150 billion annually for advanced technology.
In 1995 and 1996, Congress cut all funding for ATP, but both attempts were vetoed by President Bill Clinton. The House has voted to eliminate ATP every year since 2000, only to be overturned by the Senate or in conference. The House followed President Bush’s recommendation to sideline ATP in the fiscal 2006 Commerce, Justice, Science, and Related Agencies Appropriations Act. Unfortunately, the Senate decided to provide $140 million for the ATP in its version of that legislation.
Innovation is a cornerstone of America’s economy and growth. However, the government should eliminate ATP and allow the private sector to manage our nation’s technological innovations.
Base Realignment and Closure (BRAC)
One-year savings: -$20 billion Five-year savings: TBD
First approved in 1988, the BRAC Commission is the congressionally authorized process the Department of Defense (DOD) uses to reorganize its military base structure. If the current round of base closings is approved, net savings are conservatively estimated at $15 billion over a twenty-year period, not including cost avoidances due to military personnel actions.
In an ever-changing world, BRAC is an opportunity for the military to reorganize its assets to most effectively and efficiently deal with threats to national security. On September 8, 2005, the nine-member panel of military experts issued its report to President Bush on how to do just that. The president now has the option to approve the report and send it to Congress or reject the recommendations and return it to the commission for revisions. If President Bush sends the report to Congress, they will have 45 legislative days to accept or reject the list in its entirety because they do not have authorization to make any changes to the final report.
Four previous BRAC rounds have resulted in the closing of 97 major installations and realigning an additional 55 installations, saving taxpayers approximately $17.7 billion. Recurring savings beyond 2001 are projected at $7 billion annually. To date, the Department of Defense has divested itself of 20 percent excess capacity left over from the end of the Cold War.
Base closures can cause difficult periods of adjustment for surrounding towns. However, such temporary setbacks do not reach the spectre of destitution evoked by BRAC opponents. A May 2005 Government Accountability Office (GAO) report showed that communities affected by BRAC continue to recover and fare well compared to average rates for unemployment and income growth.
For example, the former Presidio Army installation in San Francisco closed in 1994 and is now a national park as well as headquarters to George Lucas's film company. Also closed in 1994, Lowry Air Force Base in Denver has generated an estimated $4 billion in economic activity, including $1.1 billion from the construction of homes and commercial properties. Austin converted the Bergstrom Air Force Base into the Bergstrom-Austin International Airport, which contributes $1.8 billion annually to the city’s economy. Approximately 90 private, state and federal entities are currently using the former Charleston Naval Base in South Carolina. The GAO reports that 90 percent of the property from previous BRAC rounds is now available for re-use.
Although each base closure affects towns differently, these examples show that patriotic, blue-collar communities need not give way to ghost towns and tumbleweeds. States and communities have paid lobbyists $10 million over the last three years to shield hometown bases from BRAC; however, they should look to BRAC success stories for inspiration.
Approval of the BRAC Commission’s recommendations would create a more efficient and effective military.
The Defense Travel System
One-year savings: $49 million Five-year savings: $245 million
The Defense Travel System (DTS) is the latest effort in the Department of Defense’s (DOD) 25-year search for a money-saving solution to government travel. In May 1998, the Defense Travel System Program Management Office (DTS PMO) competitively awarded a contract estimated to cost $263.7 million to BDM, which was subsequently purchased by TRW, Inc., which in turn was purchased by Northrop Grumman (Northrop). Northrop was required to develop an “e-travel system” which would provide for the “end-to-end” or total travel management needs of the DOD.
The original DTS contract required Northrop to pay for all costs associated with developing, testing and deploying DTS and receive no revenue until the system was completed, proven effective and operationally deployed. Moreover, the amount of revenue earned by Northrop was contingent on the extent of actual use by DOD travelers.
DOD was to pay a fixed price of $64 million for DTS after it had been operationally deployed at 11,000 DOD sites worldwide and a $5.27 fee each time DTS was used for an official trip by DTS travelers. The total cost for five years with full usage by 3.2 million DOD travelers and approximately 5 million trips a year was supposed to equal the $263.7 million provided for in the contract.
However, the initial tests of DTS were failures. The DTS PMO soon recognized that the envisioned travel system was more complicated than originally thought and Northrop’s software was far less capable than promised. By August 2001, less than one month before DTS was to be fully completed under the contract, the DTS continued to fail its tests and was not ready for use at any DOD site. During this period, it became apparent to the DOD and Northrop that DTS simply would not result in a functional end-to-end travel management system. The expanded cost and the unanticipated burden on taxpayers occurred in 2002 after DOD and Northrop realized that DTS was more cumbersome than originally anticipated. The original contract, under which Northrop would bear all of the development costs, was secretly re-worked, removing the most stringent aspects of the contract and foisting all costs associated with the system onto taxpayers. Even worse, the government paid Northrop $53.5 million to cover the retroactive costs incurred during the unsuccessful tests prior to December 2000, and the government paid another $30-$40 million while the contract was being restructured.
On July 26, 2004, the U.S. Court of Federal Claims recently determined that the contract modifications violated the Competition in Contracting Act and required part of the revised agreement to be re-bid.
DTS has already cost more than $400 million to date and one Pentagon estimate places the final cost at $537 million. Even worse, taxpayers are now paying for the defective travel system, which cannot even guarantee the lowest fare. DTS is so underutilized that the cost per transaction is approximately $33,000. Even if the system is fully implemented by every DOD facility and every DOD traveler, which is not likely, it would take 15 years for any savings to be realized.
The General Services Administration (GSA) required every civilian agency to choose one of three vendors for their e-travel services by January 1, 2005: CW Government Travel, EDS, or Northrop Grumman’s DTS. When the GSA selected the private companies that would provide travel services to government travelers, it did not require each of the companies to guarantee that its e-travel system would produce the lowest applicable fare for government travel. Had this basic protection from excessive costs been mandated, Northrop’s DTS system would not have been eligible for consideration by other federal departments and agencies.
While DOD had good intentions to cut wasteful travel spending and make its travel services more streamlined, what it now has is an inefficient, expensive system. DOD should use alternative private sector e-travel systems that cost taxpayers nothing to develop and provide quicker and cheaper solutions. Both the DOD inspector general (IG) and the agency’s program and evaluation office have documented problems with DTS and the IG recommended canceling the program.
Taxpayers should not be burdened with the defective and expensive DTS. The Pentagon should cancel the current contract and re-solicit the bid to save money and achieve the original goal of producing a streamlined e-travel system.
EPA Grants to Nonprofits
One-year savings: $79 million Five-year savings: $395 million
Since its creation in 1970, more than half of the Environmental Protection Agency’s (EPA) annual budget has been distributed through grants to universities, state and local governments, nonprofits, and tribes in order to achieve its mission of “protecting human health and the environment.” To monitor its grants, the EPA must have an efficient management system, which has been problematic over the years.
The EPA provides roughly $79 million annually in various grants to nonprofits, creating an unnatural relationship for both the private and public sectors. Despite the intense scrutiny the EPA has received from its own inspector general, the Government Accountability Office, Congress, and the private sector, including Citizens Against Government Waste (CAGW), it continues to fund issue-driven nonprofits.
Nonprofits benefit from EPA grants either directly or indirectly because money serves a fungible function. Grants contribute to an organization’s cause by acting as a promotional tool, expanding the nonprofit’s size and scope, lessening the fundraising burden, and advancing private instead of public interests.
For instance, Environmental Defense (ED) is an organization with a history of close association with the League of Conservation Voters, the Natural Resource Defense Council, and Greenpeace. Its board of directors includes former Clinton Administration officials and Teresa Heinz, the wife of 2004 Democratic presidential nominee John Kerry. ED received $314,363 from 2003 to 2004 in EPA grants.
The Nature Conservancy, which according to its website “works collaboratively with communities, businesses, government agencies, multilateral institutions, individuals and other non-profit organizations” spent $3,141,510 in total lobbying expenditures for 2003, including $1,539,444 in direct contact with legislators, their staffs, and government officials. It received $619,453 from 2003 to 2004 in EPA grants.
Also, many grant recipients actively support or oppose such controversial subjects as the Artic National Wildlife Refuge (ANWR), the Superfund Site Project, the Kyoto Protocol, and the Endangered Species Act.
Nonprofits should have the freedom to support and endorse whatever ideology they wish, but not with taxpayer funds. Either the nonprofit is forced to alter its mission by acquiescing to the stringent grant guidelines and thereby becomes an extension of the bureaucracy or the organization uses the grant as a means to advance its ends. If the former occurs, the nonprofit has to reorganize itself so drastically that it becomes dependent on government hand-outs to survive; if the latter happens, taxpayer-funded advocacy emerges. The EPA should not use taxpayer funds to disperse grants to nonprofits. Nonprofits are not accountable to taxpayers, and therefore can use allotted federal dollars in any manner they see fit. The agency should instead focus resources to achieve its original mission of protecting the environment and citizens.
Federal Dairy Programs
One-year savings: $1.15 billion Five-year savings: $5.75 billion
CAGW has long championed reform of dairy programs, as evidenced by a special Through the Looking Glass report, published in 1998, titled “Milk Marketing Order Reform: Watered Down or Real?” That report argued that “the federal dairy program is a tangled web of mind-numbing pricing schemes which have metastasized into a more layered, incomprehensible, intrusive labyrinth increasingly divorced from economic realities.”
In the last seven years, little has changed other than the addition of one more layer the Milk Income Loss Contract (MILC) program to the convoluted batch of programs that constitutes “federal dairy policy.” The MILC program, which was established in the 2002 Farm Bill, is supposed to terminate on September 30, 2005, but the dairy lobby is determined to extend it.
The most significant change that emerged from the federal milk marketing order reform process, the subject of CAGW’s special report, was merely a reduction of the number of federal milk market order regions from 31 to 11.
In addition to the MILC program, the federal government’s dairy policy already consists of a dizzying array of programs, including milk marketing orders, a milk price support program and a Dairy Export Incentive Program (DEIP).
Federal dairy policy is woefully out-of-date. A July 2004 United States Department of Agriculture (USDA) report, “Economic Effects of U.S. Dairy Policy and Alternative Approaches to Milk Pricing,” points out that “many of the individual programs that make up U.S. dairy policy were originally designed to deal with the industry’s structure in the 1930’s, when most milk production (60 percent) was destined for fluid consumption, markets were predominantly local, and many dairy enterprises were part of diversified farming operations.” Now, most milk is used for manufactured dairy products, markets for manufactured dairy products are national in scope, and dairy farms are highly specialized farming operations.
Advances in transportation, storage and distribution technologies have reduced marketing problems associated with perishability, expanded the scope of dairy markets, led to greater market integration, and changed the nature of dairy markets from local markets for primarily fluid milk to national markets where manufacturing milk is dominant. Growth in productivity has meant that fewer cows are able to produce more milk. Coupled with reduced production costs, this has led to larger, more specialized dairy farms to serve the market.
USDA’s analysis demonstrates that current federal dairy programs have only a modest effect on markets and “are limited in their ability to change the long-term viability of dairy farms.” Besides doing little to help dairy farmers, the programs often have countervailing effects. As an example of this phenomenon, the MILC program, which increases dairy farmer income through production-linked payments, expands production and reduces the price of milk. USDA argues that in the absence of the MILC program, the remaining dairy programs would “raise milk prices by 4 percent (compared to about 1 percent with MILC), on average, over 5 years.”
Demonstrating the ludicrousness of federal dairy policy, the MILC program encourages more milk production than would be the case without the program and keeps farm prices lower for a longer period of time. The dairy price support program, first authorized by the Agricultural Adjustment Act of 1933, which creates a price floor for dairy farmers, has been used by USDA in recent years to buy up the extra milk production caused by the MILC payments. In effect, the government is paying twice for the same milk. Together, these two programs cost taxpayers at least $2 billion annually.
The federal milk marketing orders, established in the Agricultural Marketing Agreement Act of 1937, regulate the overall price to be paid for milk in 11 different regions. In addition to establishing a formula for a minimum national price for milk, the marketing orders impose higher prices (a “differential”) for milk based upon how far from Eau Claire, Wisconsin the milk is produced. Supposedly, this is designed to encourage the movement of milk from so-called “milk-surplus areas” into the so-called “milk-deficit areas.” The government also establishes different prices for the milk based upon its end use. The federal milk marketing orders impose a $1.5 billion annual milk tax on consumers.
While the bizarre multi-layered “federal dairy policy” is the main obstacle to the U.S. dairy industry from becoming competitive in international markets, the DEIP program is supposedly designed to “develop export markets for dairy products where U.S. dairy products are not competitive because of the presence of subsidized exports from other countries.” Under the program, USDA pays cash bonuses to exporters, costing taxpayers more than $30 million in the most recent fiscal year.
Massive reform of federal dairy policy is needed. Complete elimination of the milk marketing order system and the dairy price support program would result in milk marketing being more responsive to consumer demand and free the industry to pay greater attention to the marketplace. Milk would be produced where it can be done most efficiently and competitively and manufactured into the products that are wanted by consumers.
The federal government should have no role in the production or manufacture of milk or dairy products in this country. Federal dairy programs are preventing a $50 billion industry from adapting to become more competitive and profitable and pits region against region, fracturing the country and forcing taxpayers and consumers to pay unacceptably high prices for milk and dairy products. After seventy years of government price manipulation, it is long past time to get the government out of the milk business.
FreedomCAR Partnership
One-year savings: $481 million Five-year savings: $731 million
The Freedom Cooperative Automotive Research (CAR) Partnership is a joint effort between the Department of Energy (DOE) and the private sector to fund the research of clean fuel cell technology in order to develop an automobile that uses hydrogen energy instead of gasoline. Former Energy Secretary Spencer Abraham hoped this effort would develop “cars and trucks that are more efficient, cheaper to operate, [and] pollution-free.” But if the history of similar efforts is any guide to the future of this program, FreedomCAR will fail to achieve these well-meaning goals at the expense of hundreds of millions of taxpayer dollars.
FreedomCAR proponents argue that government intervention is necessary because hydrogen fuel would produce large environmental benefits to society from cleaner emissions, but the private sector alone will not adequately fund research for this technology. However, both of these claims are mistaken.
First, the federal government has already invested millions into the development of a cleaner automobile, and these efforts were mostly fruitless. In 1993, the Clinton Administration launched a cooperative venture with the three biggest U.S. automobile companies Daimler Chrysler, Ford, and General Motors called the Project for a New Generation of Vehicles (PNGV). The venture spent $1.5 billion in federal subsidies for the development of hybrid cars, which use engines that combine gasoline and electric energy. In 1999, each of the three companies fulfilled their responsibility under the program and delivered a hybrid car model to the DOE National Renewable Energy Laboratory for preparation for commercial release. By 2004, the year when production of PNGV cars was to begin, no U.S. car manufacturer offered a hybrid vehicle for sale. Instead, Japanese companies experienced success with their hybrid models, such as the Honda Insight and the Toyota Prius. Sec. Abraham himself admitted that the program was a failure, saying that "the PNGV wasn't cost effective and wasn't moving a competitive automobile to the showroom" in January 2002. Despite this recognition of the problems with PNGV, DOE seems all too willing to repeat its mistakes with FreedomCAR.
Second, the incentive for private research into clean fuel technologies is increasing as gas prices have risen to record levels, spurring consumer demand for alternative sources of energy and ways to save fuel. The hybrid car market itself is evidence of this phenomenon. The popularity of hybrids in the U.S. has skyrocketed in the last few years. For example, 2005 sales of the Toyota Prius are expected to be around 100,000 units doubling the sales from 2004. This move toward hybrid cars was the result of consumer decisions in a free market, not the influence of government subsidies in the form of PNGV or FreedomCAR. The automobile industry is responding to this demand by funding research for better hybrid engines and liquid hydrogen fuel. In addition, the Alliance of Automobile Manufacturers, a trade association that includes DaimlerChrysler, Ford, GM, Toyota, and others, has launched a new production strategy intended to reduce dirty emissions.
The traditional market incentive of efficiency is also pushing private technological development away from polluting gasoline to electrical engines. While electric cars have not succeeded to date, the technology is now catching up. As Manhattan Institute researchers Peter Huber and Mark Mills explain, “a steadily rising fraction of the power produced under the hood of a car already is used to generate electricity …in the end, electricity will drive the wheels, too.” Electricity is appealing to businesses as energy sources because the electric engines currently being developed “simply deliver better performance, lower cost, and less weight.” If the government subsidizes hydrogen, it will most likely interfere with the natural development of this clean and efficient technology.
Many object and argue that the U.S. should not wait for the market to shift to cleaner technology because pollution must be reduced now. However, hydrogen subsidies do not guarantee less pollution than the status quo. While it does not produce the polluting emissions of gasoline, hydrogen must be extracted from water or other sources in order to be used as fuel. According to Paul Georgia of the Environmental Studies Center at the Competitive Enterprise Institute, it requires more energy to produce hydrogen rather than gasoline. This is echoed in the Congressional Budget Office “Budget Options 2005” report, which notes that “generating hydrogen fuel …imposes a significant environmental burden.”
FreedomCAR is a massive duplication of a service provided by the private sector. Furthermore, the failure of PNGV shows that FreedomCAR is a particularly inefficient way to encourage protection of the environment. The elimination of FreedomCAR from the budget would save taxpayers hundreds of millions of dollars that could be better spent.
The High Intensity Drug Trafficking Area Program
One-year savings: $126 million Five-year savings: $632 million
The White House Office of National Drug Control Policy’s (ONDCP) High Intensity Drug Trafficking Area Program (HIDTA) was designed chiefly to curb drug trafficking across America’s borders, but has morphed into a drug war spending free-for-all that has decreased drug enforcement in areas where it is critically needed. Created in 1988, the program’s funding was to be distributed to five “gateway” regions of the U.S. where the majority of drug trafficking took place, and by 1990, financial support was headed to Los Angeles, Houston, New York/New Jersey, South Florida, and the Southwest border.
Soon after its inception, politicians — always aware of opportunities to bring pork to their constituents — began to lobby for HIDTA money for their states. Landlocked states like Kansas and West Virginia were added to the program and by 2001, 56 percent of states were receiving HIDTA funding.
Although funding has increased dramatically for HIDTA, an increasingly smaller percentage of tax dollars is being spent in regions for which the money was initially intended. For example, the program’s 2005 budget grew 804 percent from 1990, from $25 million to $226.5 million. Yet, funds for the Southwest border region — a key area for stopping the import of drugs from Mexico — dropped from 44 percent of total HIDTA funds in 1990 to 25 percent by 1997.
States without a serious drug trafficking problem begged for HIDTA funds to control local drug problems, such as the rise of methamphetamine (meth) labs all over the U.S. However, approximately 80 percent of meth in America is “Mexican meth,” a cheaper version that’s been smuggled across America’s borders. With federal resources pulled away from the Southwest border, it is not surprising that such a large percentage of meth can be traced back to Mexico. More HIDTA monies designated to combat the meth problem should be given to the Southwest border states, since only 20 percent of meth on the streets is produced domestically.
Many states show an increase in drug busts after an injection of HIDTA funding (usually meth or marijuana-related), but rarely show a decrease in drug trafficking, drug-related crime, or production of drugs. In Arizona, drug-related crimes are on the rise, despite the federal funding pouring into the state. California still accounts for 75 to 90 percent of the illegal meth production in the U.S., even though it receives a sizeable chunk of federal anti-drug spending.
Members of Congress would rather secure HIDTA funds for home districts than fight drug trafficking at the border, where drug prevention resources are needed the most. Despite the millions spent annually in the war on drugs, the drug trade is on the rise. ONDCP should be sending money to states where the majority of drugs enter the U.S., which still happen to be the original five areas targeted by HIDTA.
President Bush’s solution is to consolidate HIDTA with the Department of Justice’s (DOJ) drug control programs and reduce HIDTA funding from $226.5 million to $100 million annually. Unfortunately, in the fiscal 2006 Commerce/Justice Appropriations bills, both the House and Senate have ignored the president’s proposed reforms and spending cuts.
Pork-Barrel Spending
One-year savings: $27.3 billion Five-year savings: $136.5 billion
Pork-barrel spending remains one of the least defensible contributors to our nation’s declining fiscal health. Instead of focusing on the declining fiscal health of our nation, members of Congress eagerly grab taxpayer dollars from the U.S. Treasury to pay for projects in their states or districts. For 14 years, Citizens Against Government Waste (CAGW) has tracked Congress’s record of pork spending in its annual Congressional Pig Book. In CAGW’s view, the term “pork barrel” refers to any project that has not gone through the proper process to receive funding. In order to be included in the Pig Book, a project must meet one of the following seven criteria:
· Requested by only one chamber of Congress;
· Not specifically authorized;
· Not competitively awarded;
· Not requested by the President;
· Greatly exceeds the President’s budget request or the previous year’s funding;
· Not the subject of congressional hearings; or
· Serves only a local or special interest.
Procurers of pork have a long and infamous history. While the non-political meaning of pork dates back to the U.S. colonial practice of handing out salt pork to slaves, the political expression began circulating around 1905. The first known example of pork was the Bonus Bill in 1817 which appropriated money for rural roads.
Pork-barrel spending will not go out of style anytime soon. Although pork has long been a feature of government, it saw a marked expansion in during the mid-1990s. In 1991, CAGW identified 546 parochial projects totaling $3.1 billion; by 1995, pork spending had increased to $10 billion for 1,439 projects. Members of Congress larded up the fiscal 2005 appropriations bills with a record 13,997 pork projects totaling a record $27.3 billion. The period between 1995 and 2005 saw an average yearly increase of 11.6 percent in the total cost of pork.
Pork should be eliminated from the federal budget. The appropriations process allows skillful appropriators to send disproportionate sums of taxpayer dollars back to their states and districts. Such projects include $50 million for an indoor rainforest in Coralville, Iowa, $750,000 for grasshopper research in Alaska, and $100,000 to the Tiger Woods Foundation in Los Alamitos, California. The sheriff of Nottingham policy of taking from the many to give to the few adds unnecessary billions to our ballooning national debt. Pork undermines our democratic process and our fiscal welfare; Congress must stifle this wasteful practice.
Sugar Subsidies
One-year savings: $160 million Five-year savings: $800 million
The present sugar program, created by the 1981 Farm Bill, consists of a domestic commodity price support loan program that sets a support price (loan rate) for sugar and a tariff-rate quota (TRQ) import structure that imposes both quotas and tariffs. Together, these programs restrict foreign competition and ensure a high domestic price for sugar.
The loan program provides U.S. processors of domestic sugarcane loans of 18 cents per pound and processors of sugar beets get 22.9 cents per pound. Sugar processors would be allowed to forfeit their sugar to the government rather than repay the loans if the market price fell below the loan rate. However, the sugar program was set up to be no-net-cost, so the government uses the system of quotas and tariffs to prevent the market price from falling below the loan rate. The government can also utilize the sugar payment-in-kind (PIK) program, under which it provides sugar producers government-held sugar if they agree to divert acres from sugar production.
Supporters of the sugar program claim that there is no cost to taxpayers. But a June 2000 study conducted by the Government Accountability Office demonstrated that the sugar program costs taxpayers $90 million annually in higher prices for sugar and sugar-containing products purchased for the federal government’s feeding programs. The program costs consumers at least $1.9 billion annually in higher costs.
The sugar lobby maintains that many jobs would be lost if this sweet deal were taken away from them. However, the sugar program puts jobs in the sugar-using industry at risk, which employs more than ten times as many people as the sugar industry. The program has virtually destroyed the domestic sugarcane refining industry. Since the program was enacted in 1981, 12 of 22 refineries have closed, the industry has lost more than 40 percent of capacity, and thousands of Americans have lost their jobs.
The only protection provided by the sugar program has been to a handful of wealthy sugar barons. Less than one percent (17 cane sugar growers) of the nation’s sugar growers gobble up 58 percent of the program’s benefits. Contrary to popular rhetoric, these are not small family farmers. Rather, they are multimillion-dollar members of the sugar cartel, which pumps millions of dollars into congressional campaigns to protect their precious subsidy.
In a recent year, 33 sugar growers obtained more than $1 million each from this government boondoggle. In fact, one grower alone received $65 million.
Although sugar accounts for only 1 percent of U.S. farm revenue, the sugar lobby was responsible for 17 percent of political contributions by agricultural producer-related entities over the 1990-2004 election cycles.
The federal government has no business continuing to protect the special interests of sugar growers to the detriment of everyone else. This sweetheart deal for a handful of sugar moguls must be stopped.
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