Between 2005 and 2009, the U.S. Department of Agriculture (USDA) spent an average of about $15 billion annually on programs to support farm income, assist farmers after disasters, and conserve natural resources. Under one of these federal farm programs, USDA provides fixed annual paymentscalled direct paymentsto farmers based on a farm's history of crop production. Direct payments were most recently reauthorized in the Food, Conservation, and Energy Act of 2008, which will expire in 2012 without future action.
GAO has shown that taxpayer dollars can be saved with strengthened oversight of farm program payments, including direct payments. For example, GAO reported in October 2008 that USDA provided farm program payments to thousands of individuals with incomes exceeding income eligibility caps. GAO has also shown that USDA's oversight and enforcement of program rules is not always effective. For example, in July 2007, GAO reported that USDA paid $1.1 billion in such payments to more than 170,000 deceased individuals, and in April 2004 GAO reported that USDA provided such payments to people who may have had only limited involvement in farming because the agency lacks sufficient management controls. Since then, USDA has taken some actions in response to GAO's recommendations.
Reducing or eliminating direct payments to farmersparticularly those to large farming operationscould achieve cost savings of as much as $5 billion annually. In contrast to other major farm programs, which compensate farmers for declines in price or lost crops, direct payments go to farmers regardless of risk factors. Direct payments are calculated using a formula that considers the crop and production history and the number of acres planted during certain years in the past on a farm. Generally, a percentage of the acres that were planted is multiplied by a set payment rate for the crop that was planted. For 2009 through 2011, this percentage is 83.3 percent, and for 2012, it will be 85 percent. Although a farmer's direct payments are based on the historical production of a particular crop, the farmer has almost complete flexibility in deciding which crops to plant and whether to plant any crops at all. To be eligible for such a payment, a farmer's average nonfarm income (over the preceding 3 tax years) can be no more than $500,000, or average farm income no more than $750,000. Direct payments are limited to $40,000 per person per year; however, a farm can receive multiple payments depending on its ownership structure. For example, a husband and wife operating a farm together can collect up to $80,000 annually, and a partnership with 10 partners can collect up to $400,000 annually.
In light of the following observations made by GAO and others, the need for direct payments should be reconsidered:
 Specifically, the formula uses a percentage of the average number of acres planted during 1998 through 2001 and multiplies it by a set payment rate and the historical crop yield for a farm. The percentage and payment rates for each crop are specified in legislation commonly referred to as farm bills passed by Congress roughly every 5 years.
Recognizing current budget constraints, the National Commission on Fiscal Responsibility and Reform  the Debt Reduction Task force the administration, Members of Congress, GAO, and some farming groups have proposed options to reduce or eliminate direct payments. For example, Congress may wish to consider the following three. To reduce direct payments, the administration and others have proposed lowering payment or income eligibility limits. They argue that lower limits leave payments intact for recipients of smaller payments or with smaller incomes and could therefore still help smaller and beginning farmers. On the other hand, critics say, focusing on payment limits may be ineffective because farmers may develop methods to avoid being restricted by the limits. GAO previously reported that many farmers structure their operations to avoid payment limits and that USDA has not consistently enforced eligibility requirements, bringing into question the effectiveness of both types of limits.
Congress may also wish to consider reducing the portion of a farm's acres eligible for direct payments. In 2009, GAO reported that reducing the portion of eligible acres to 80 percent from 83.3 percent might save millions of dollars annually Further reducing the portion of eligible acres to 75 percent could save millions more each year. Such an across-the-board reduction would affect all recipients. Moreover, Congress may wish to consider terminating the payments. Some agriculture organizations, including the National Farmers Union and the Iowa Farm Bureau, have recommended phasing out or terminating the payments altogether and using the savings to bolster other farm programs.
GAO has identified the following potential for cost savings:
 The National Commission on Fiscal Responsibility and Reform was established under Executive Order 13531 (Feb. 18, 2010). It issued The Moment of Truth: Report of the National Commission on Fiscal Responsibility and Reform (Washington, D.C., December 2010).
 Led by former Senate Budget Committee Chairman Pete Domenici and former White House Budget Director Alice Rivlin, the Debt Reduction Task Force issued Restoring America's Future: Reviving the Economy, Cutting Spending and Debt, and Creating a Simple, Pro-Growth Tax System (Washington, D.C., Nov. 17, 2010).
To update information on the number of farms receiving direct payments of $200,000 or more, GAO used data from USDA's Producer Payment Reporting System and determined that the data were sufficiently reliable for its purposes. To estimate the potential savings from reducing the portion of acres used to calculate direct payments and from terminating the payments, GAO used the most recent budget figures from the Congressional Budget Office. Other information in this analysis is primarily based on the related GAO products listed under the "Related GAO Products" tab.
For additional information about this area, contact Anne-Marie Fennell at (202) 512-3841 or firstname.lastname@example.org.
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