Pork Tax, Justice Injustice
|January 9, 2007||Posted by Staff under Progress Report, The Progress Report|
Economic Analysis of Pork Tax Scandal
Just Taxes, Unjust Taxes
by Damon Gross
“Dump the Pork Tax!” declares Joanne Kennedy in Part One. I wholeheartedly agree. She nicely documents how the pork check-off, which started as a purely voluntary way of supporting a trade association, the National Pork Producers Council, was usurped and turned into a tax by an act of Congress in 1986. Despite the fact that its funding is now guaranteed, or indeed because of that fact, the NPPC has been ineffective in supporting pork consumption. Its research actually seems to favor the big factory-style hog producers who are prone to pollute the air and water in competition with the family farmers who pose a much smaller threat to the environment. The biggest favor she does us is to report the shenanigans that our Federal officials and the NPPC are doing to retain the tax despite its opposition by a majority of pork producers. All good reasons to dump the pork tax! I might add to them the discriminatory nature of designating one trade organization among many for mandatory funding by legislative fiat.
But there is more. There is also a mandatory beef check-off, with similar shortcomings. Let’s dump that too. And agriculture in general has been singled out for special government meddling at least since the Agricultural Adjustment Act of 1933, which was actually held unconstitutional in 1936, and then reinstated in 1938 after FDR stacked the Supreme Court. Since then farm bill after farm bill has failed to stem the decline of the family farm or the steady drop in farm prices. Time after time the biggest benefits of such programs have gone to the huge corporate farm operations and not to the working farmers they were intended to help. Is there no end to special programs worthy of dumping?
But let us not get carried away with nostalgia over a particular mode of agriculture: the family farm. Ever since the tractor replaced the horse and mule it must have seemed inevitable and innocuous that farms would get larger and there would be fewer of them. The point is not to pick sides between families and corporations but to allow them to compete in the market with no special privilege for anyone.
We do need protection from the damage to our environment when manure lagoons rupture. At present, at least in Iowa, we try to prevent these disasters with a crazy kludge of state laws, county statutes, zoning, and a panorama of regulatory and enforcement boards and agencies from the state Department of Natural Resources to county and city commissions. The fines, rules, and overlapping jurisdictions make it hard to figure out what is legal and what not. Worse, the various levels of government and their agencies are highly susceptible to the influence of the politically well connected big hog producers. And it seems as though there is a big new spill every few months.
I suggest that we actually hold the hog factories and family farmers alike fully accountable for any damage that they do. Make them pay the full amount of the damages, as near as these can be determined, that their spills cause. Add to that penalties for the public loss of enjoyment of the waterways while they are being rehabilitated.
If this were done then hog producers would need to have manure spill liability insurance. Indeed this could be made mandatory, just as auto liability insurance is. Insurance companies could spread the cost of really monitoring and scientifically investigating the best way to prevent spills for all levels of hog farming over their many clients. Private insurance companies are much more likely to come up with innovative ways to prevent spills than are the bureaucrats in the state agencies that are chronically strapped for funds.
If my suggestion sounds radical, I am only recommending that we extend a protection to our environment that is similar to the protection we insist on from reckless driving. Incidentally, if the large hog producers are so much more prone to damage the environment than are family farmers, which I believe is the case, then the inevitable difference in manure spill insurance premiums should naturally help level the playing field between the big boys and the family farmers.
The pork check-off is a selective sales tax. There are selective sales taxes outside agriculture also. Many states support their insurance and real estate regulatory commissions with taxes on insurance premiums and real estate transactions. Many states also have state-wide general sales taxes and it is growing more common for states to allow counties or cities the local option to impose additional sales taxes within their jurisdictions. Some of these sales taxes arguably do not have all the drawbacks that we have noted above regarding the pork check-off. If the pork check-off could be purged from such drawbacks then might it be good public policy? More generally put, are sales taxes good public policy ever?
I think not. Every sales tax drives a price wedge between what the consumer pays and what the producer receives. Either the consumer has to pay more or the producer has to accept less, or a little of both. This is precisely the problem Kennedy points out in her article: “People buying pork in the grocery store are paying thirty percent more than they were in 1986. But, the price a farmer receives for a hog has remained stagnant since 1975.”
Not all of this wedge is due to sales taxes but some of it is. The alternative to the sales tax is land value taxation. The rent of the land that it took to produce a good is a component of the price of everything we buy. To collect that component as a tax instead of allowing it to rest in private hands does not drive a new wedge between what the consumer pays and what the producer receives. Indeed, land value taxation actually drives the speculative premium out of the price of land. It reduces the rent wedge.
But doesn’t land value taxation automatically hurt the farmer? Probably not. First, in Iowa only 35% of the cropland is farmed by the person who owns the land! And it is the landowner who pays the tax. Second, so much of the nearly $2,000 an acre that Iowa cropland now sells for is speculative premium, that would go away, that most of the farmers who do own their land could see their total tax liabilities drop considerably. Third, farmers are huge consumers of farm machinery, seed, and fertilizer, as well as producers of food. They stand to gain greatly from pulling the sales tax wedge out from between what consumers pay and producers receive.
So while we are dumping the pork tax, let’s dump all sales taxes!
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