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Bipartisanship On Sugar Isn’t Very Sweet

These days, pretty much anything that gets Congress to work across party lines is cause for celebration. But last month’s bipartisan Senate vote to continue protecting the U.S. sugar market is not a sweet deal for most Americans.

The Senate passed the latest farm bill in a 64-35 vote on June 21, a week after it rejected an amendment that would have dismantled the Depression-era system of price supports and import controls that provides about $1.4 billion annually to roughly 5,000 domestic sugar beet and sugar cane producers.

While sugar producers stress that the program does not involve direct taxpayer contributions, the price controls and import limits increase the cost of sugar for candy makers and others in businesses that use sugar in their final products, as well as for individual consumers. Americans pay about 50 percent more than the world price for sugar, according to a recent Wall Street Journal editorial written in support of the failed amendment. This is, in large part, due to the import restrictions, which keep the supply of cheaper sugar from such places as the Caribbean and Latin America low.

Sugar producers argue that, even if the policy does increase costs for consumers - the president of the American Sugarbeet Growers Association, responding to the Wall Street Journal editorial, denied that it does - the damage is offset by the benefit to the economy as a whole. Keeping foreign sugar out, they say, creates more farming jobs in the United States. A 2006 Commerce Department study, however, found that the effect on the food industry downstream outweighs the benefits for agriculture, with each agriculture job saved by the program coming at the cost of three other jobs. The higher sugar prices force the food industry to stall increases in production or move facilities overseas.

If Senate votes were based on what is best for most Americans, the sugar program would have died years ago. But the original 13 states were not equally populous or city-centric, and the nation’s founders were just as inclined as any group of modern politicians to protect parochial interests. That is why every state was allotted two senators. The more populous states get to flex their political muscle in the House of Representatives, where seats are allocated according to the census.

The modern result of this compromise is that, instead of splitting the Senate on party lines, the sugar amendment divided lawmakers geographically, creating an alliance between Midwestern and Great Plains states that produce sugar beets and Southern states that produce sugar cane. That coalition produced enough votes, once again, to keep the sugar program alive.

In the House, which still has to formulate its version of the farm bill, sugar-producing states will have less influence. Other factors, however, are likely to create another set of atypical alliances. Small-government Republicans and budget hard-liners, including many of those elected during the surge of the Tea Party movement two years ago, will be inclined to try to end this government interference in the free market. Democrats with urban constituents who incur higher food prices ought to find themselves, however uncomfortably, on the same side as those Tea Partiers.

But that is not likely to happen, because most of the spending proposed in the Senate farm bill is for the food stamp program, not farm subsidies. Spending on food stamps, officially known as the Supplemental Nutrition Assistance Program (SNAP), has doubled over the past five years as the number of beneficiaries has risen from 20 million to 46 million.

House Republicans are expected to target that spending. The House GOP budget introduced by Wisconsin’s Rep. Paul Ryan earlier this year proposed reducing spending on food stamps by $134 billion over the next decade. The Senate farm bill, by contrast, would save only around $4 billion over the same time period. House Democrats are likely to be much more interested in protecting food stamps than in reducing sugar subsidies.

For the foreseeable future, then, we will be left with a policy that serves the interests of a small number of sugar producers at the expense of most Americans. This isn’t a sign of corruption or legislative folly; it is a sign that our system is working the way it was designed to work. It may leave a sour taste in economists’ mouths, but you can’t sugarcoat everything.

Larry M. Elkin is the founder and president of Palisades Hudson, and is based out of Palisades Hudson’s Fort Lauderdale, Florida headquarters. He wrote several of the chapters in the firm’s recently updated book, Looking Ahead: Life, Family, Wealth and Business After 55. His contributions include Chapter 1, “Looking Ahead When Youth Is Behind Us,” and Chapter 4, “The Family Business.” Larry was also among the authors of the firm’s book The High Achiever’s Guide To Wealth.

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