Like most people who follow the federal budget closely, I tend to see federal spending and taxing implications in almost everything. Political unrest in Egypt get’s me to think about the level of aid the U.S. provides for that country and whether it will go up or down after the change in leadership that now seems inevitable. Big weather problems in the Midwest? Will states ask for federal funds to help with the cleanup? American athletes don’t do as well at an international competition as expected or hoped? Will there be a call for a tax break for those who contribute to their training?
That’s why this story in yesterday’s New York Times about size of corn reserves caught my eye. The story says that, because of increased use by ethanol producers, the demand for corn in the U.S. is so high that reserves are at their lowest level in 15 years and prices are going up significantly (Note: the ethanol folks deny this). This is expected to affect consumer prices both on products that include are corn itself — chips, creamed, on the cob, salsa, etc. — and those where corn is a major component like soft drinks and gasoline.
So my federal budget self is wondering how long it will take before someone, or perhaps lots of people, start calling for some type of new federal tax break to encourage additional production of corn and, therefore, whether current budget estimates will have to be revised to account for the higher deficit from the revenue loss (I know: I really need to get out more).
Never mind that the higher prices themselves should provide all the incentive growers need to increase production, shift their efforts from another crop with a lower yield to corn, encourage research into farming methods that allow more to be grown per acre, etc. Let’s put aside the fact that higher prices should reduce demand and, therefore, that the market should stabilize on its own. The fact that there are substitutes for some uses of corn (I can get salsa without black beans, can substitute some other complex carb when I cook, and can use whole wheat instead of corn tortillas, for example) that will allow consumers to reduce the impact of the higher prices on their lives. And let’s forget about the existing tax subsidies for ethanol.
The economic theory may well be beside the point. I hope I’m wrong, but it looks to me as if there’s a potential broad coalition of producers and consumers that could come together to push for some type of new federal corn subsidy. It’s worth watching.