Understanding Farm Subsidies

Farm subsidies are a controversial topic in many circles. The essence of a farm subsidy is giving tax dollars to farmers to help supplement their incomes, pay for equipment, and other farm costs. Crops that are on the farm subsidies list include: corn, soybeans, cotton, sugar, milk, and many more. In all, there are over two dozen crops that the United States government provides subsidies for. Each year under the farm bill, they spend over $16 billion to subsidize farms. Many people do not understand the basics behind farm subsidies. Here is a little information to consider on the topic.

Subsidy Basics

The basic idea behind farm subsidies is simple. Farmers that produce certain crops are given money by the government to help run their farms. They are given the subsidies based upon the price of the crops that they produce. The government has set standards for how much they will guarantee the price of crops to be. For example, let's say that the government decided to set the price at $2.50 a bushel. If the price for corn on the open market is only going for $2.00 bushel, the government would then give $.50 per bushel to the farms that sold it at $2.00. Therefore, they guarantee that the farmer will receive at least $2.50 per bushel no matter what happens in the market.

Getting Subsidies

To obtain farm subsidies you have to meet certain requirements set forth by the government. You have to apply for the subsidies which is a pretty simple process. Once your farm is in operation, you have to grow the crops and livestock according to government standards. This may include using certain pesticides, antibiotics for animals, and any other standards that they have set. Once you sell your crops, you have to keep accurate records of what was sold and for what price. The government then pays out the subsidy based on the market price.


There are two sides to the debate and many people believe that farm subsidies are not in the best interest of the country or world. Proponents of the farm subsidies argue that crops are subject to wild swings in price due to weather, political, and social changes. They argue that these subsidies allow farmers to level their incomes during the down times. Those that are against argue that many other industries are subject to wild swings as well, but do not receive subsidies. Instead, they level out those swings with insurance or by selling futures.

Free market economists argue that farm subsidies  hurts the world as a whole. One study showed that United States subsidies cost developing countries $50 million in lost revenue from their crops.

In a free market system, price is determined by demand. Farmers are rewarded for making smart decisions on which crops they produce. If the market wants what they have, they make a profit. If they choose poorly, they lose money. Subsidies often reward bad choices and create overproduction. For example, high-fructose corn syrup has been used in everything because it is now cheaper to use corn instead of cane sugar. Farm subsidies are a very controversial issue that is destined to see much change in the future.


Are farm subsidies taxable?

Farm subsidies are provided by the federal government in order to help farmers level out their incomes and avoid the impact of wild price swings in the market. However, even though the federal government is giving these farmers' money, it is not free money. The money that is taken by the farmers is considered taxable income. This means that they will have to count it as part of the profits from their farms as if they were selling crops at full price. This increases their taxable incomes and the total amounts of taxes that they pay for the year.

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