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REINVENTION

Ending Corporate Welfare: Reforming Fossil Fuel and Agribusiness Subsidies

Proposed legislation: The Corporate Welfare Elimination and Subsidy Reform Act

Subsidy Reform: Cost-Benefit Analysis

Every year the federal government channels tens of billions of dollars to mature, profitable industries through tax breaks, direct payments, and below-cost insurance. Some of these subsidies date to the early twentieth century and were designed for economic conditions that no longer exist. The two largest and most frequently criticized categories are subsidies to the fossil-fuel industry and to agribusiness. Both flow disproportionately to large, established companies and wealthy producers; both distort markets; and both have proven remarkably durable despite decades of bipartisan criticism from economists across the political spectrum — from the free-market Cato Institute to progressive environmental groups.

The case for subsidy reform is fiscal, economic, and philosophical. Fiscally, eliminating outdated giveaways frees revenue. Economically, subsidies misallocate capital toward favored industries and away from where markets would direct it. Philosophically, "corporate welfare" — government support for businesses that do not need it — is hard to defend in an era of trillion-dollar deficits. This analysis examines the proposal's target of $45–60 billion in annual savings, assesses where the money is, and treats honestly the question of whether that range is achievable.

Where the Savings Come From

Fossil-Fuel Subsidies

Estimates of U.S. fossil-fuel subsidies vary widely depending on definition. Counting only direct subsidies and targeted tax preferences for oil, gas, and coal producers, credible estimates cluster in the range of roughly $20 billion to $35 billion per year. Oil Change International, for example, estimated direct federal subsidies to the fossil-fuel industry at roughly $35 billion annually. These include long-standing tax provisions such as the expensing of intangible drilling costs, the percentage-depletion allowance, and various preferences that reduce the industry's effective tax burden.

It is important to distinguish these direct subsidies from the much larger implicit subsidy figures that circulate in public debate. When analysts include unpriced environmental and health externalities — the costs of pollution and climate damage not borne by producers — U.S. fossil-fuel "subsidies" are sometimes estimated in the hundreds of billions of dollars (figures of $640 billion-plus per year appear in some analyses). Those implicit figures are legitimate in environmental economics but are not budgetary savings — eliminating a tax break recovers federal revenue, whereas an "implicit subsidy" from unpriced pollution does not appear as a line in the budget. For a fiscal cost-benefit analysis, only the direct subsidies and tax preferences — roughly $20–35 billion annually — count as recoverable savings.

Agribusiness Subsidies

Federal farm support is large and concentrated. From fiscal years 2019 through 2023, USDA's Farm Service Agency, Natural Resources Conservation Service, and Risk Management Agency distributed roughly $161 billion in financial assistance to agricultural producers — an average of over $30 billion per year. The federal crop-insurance program alone cost about $17.3 billion in 2022, with roughly $12 billion subsidizing premiums and the remainder covering insurance-company administrative costs and losses. CBO has projected the crop-insurance program's cost at more than $100 billion over a decade.

GAO has repeatedly identified opportunities to reduce these costs without undermining the safety net that genuinely small and vulnerable farms rely on — for example, by capping premium subsidies for the largest and wealthiest operations, reducing the rate of return guaranteed to private crop insurers, and eliminating duplicative payments. Watchdogs including the Environmental Working Group have documented "triple dipping," in which some producers collected payments from multiple overlapping programs during years of historically high crop prices and farm incomes. Cato Institute analysts have long argued for substantially cutting commodity and insurance subsidies that flow mainly to large agribusinesses.

Projected Figures and the Realistic Range

The proposal targets $45–60 billion per year. Stacking the two categories at their upper credible bounds — roughly $35 billion in fossil-fuel direct subsidies plus $30 billion-plus in annual farm support — the raw total can approach or exceed the proposal's range. So the figure is not invented; it is grounded in real spending.

But two honest qualifications are needed. First, not all of these subsidies would or should be eliminated entirely. Crop insurance, for instance, serves a genuine risk-management function for farmers facing weather and price volatility; the credible reform is to trim it — cap subsidies for the wealthiest producers, reduce insurer returns, end triple-dipping — rather than abolish it. Realistic crop-insurance savings are therefore a fraction of the program's total cost, likely in the single-digit billions per year, not the full $17 billion. Similarly, some fossil-fuel tax provisions are smaller or more defensible than others.

Second, the savings depend on legislative action against extraordinarily entrenched interests. These subsidies have survived decades of criticism precisely because their beneficiaries are concentrated, well-organized, and politically influential, while the costs are diffuse.

The balanced conclusion: the $45–60 billion range is achievable only if reform is aggressive across both categories and counts the full elimination of direct fossil-fuel preferences alongside substantial (not total) trimming of farm support. A more conservative, highly defensible estimate — eliminating the clearest fossil-fuel tax breaks and capping the most regressive farm subsidies — lands somewhere in the $25–45 billion per year range. The site's figure is plausible at the lower end and reachable at the upper end only with politically maximal reform. This is worth stating plainly: the arithmetic supports the range, but the politics make the upper bound ambitious.

Mechanism: How Reform Would Work

The proposed Corporate Welfare Elimination and Subsidy Reform Act would proceed on two tracks. On fossil fuels, it would repeal targeted tax preferences — the percentage-depletion allowance for oil and gas, expensing of intangible drilling costs, and similar provisions — bringing the industry's tax treatment closer to that of other capital-intensive businesses. This is a revenue measure scored by the Joint Committee on Taxation (JCT), and several of these repeals have been proposed and scored in past budgets.

On agriculture, the Act would implement GAO-recommended reforms: means-testing and capping premium subsidies and commodity payments so support flows to family-scale and genuinely at-risk producers rather than large agribusinesses; reducing the guaranteed rate of return to private crop insurers; and instituting data-matching to eliminate duplicative "triple-dipping" payments. Crucially, it would preserve a meaningful safety net for small and beginning farmers, framing reform as redirecting support to those who need it rather than ending farm support wholesale.

Administrative and Implementation Considerations

Subsidy reform is administratively simpler than most savings proposals because it works largely through existing tax and program machinery. Repealing a tax preference requires no new agency — JCT scores it, the IRS administers the changed code. Capping or means-testing farm subsidies uses USDA's existing payment systems, though it requires updated eligibility verification and income testing, which carry modest administrative cost.

The principal implementation consideration is transition. Abruptly removing long-standing subsidies can disrupt businesses and farms that have made investment decisions in reliance on them. Phasing reforms in over several years, and targeting the largest and least-needy beneficiaries first, reduces disruption and political backlash while still capturing the bulk of the savings. A second consideration is ensuring that means-testing thresholds are set to protect genuinely vulnerable producers — the political and moral case for reform weakens if it is seen as harming small family farms rather than large agribusinesses.

International Comparisons and Precedent

Subsidy reform has international precedent and a notable success story. New Zealand undertook a sweeping elimination of agricultural subsidies in the mid-1980s; despite dire predictions, its farm sector adjusted, became more efficient and market-oriented, and is frequently cited by reform advocates (including the Cato Institute) as evidence that agriculture can thrive without heavy subsidization. On fossil fuels, the G20 nations have repeatedly pledged to phase out "inefficient" fossil-fuel subsidies, and international bodies such as the International Monetary Fund and OECD regularly catalog these subsidies and argue for their reduction. These precedents show reform is feasible, though New Zealand's experience also illustrates that transition is genuinely disruptive in the short term.

Comparison to the Status Quo and Alternatives

The status quo perpetuates subsidies whose original justifications have largely lapsed: tax breaks written when domestic oil production needed encouragement, and farm programs designed for an agricultural economy dominated by small farms rather than today's large operations. The result is recurring federal expenditure on mature, often highly profitable industries, with benefits concentrated among large players.

One alternative is to leave subsidies in place but improve their targeting — for example, keeping crop insurance but tightening eligibility. This is, in fact, a core component of the reform proposal and the most politically viable path. A more radical alternative is wholesale elimination, as New Zealand pursued; it maximizes savings but maximizes disruption and political resistance. The middle path — eliminate the least-defensible tax breaks, cap and means-test the rest — captures most of the fiscal benefit while preserving genuine safety-net functions.

Risks, Trade-offs, and Counterarguments

The strongest counterargument on agriculture is food security and farm stability: subsidies and crop insurance cushion farmers against weather and price shocks, and a thinner safety net could increase farm failures, consolidate the sector further, or affect food supply. This is a serious concern, and it is why the proposal trims and retargets rather than abolishes farm support, preserving protection for small and at-risk producers. Critics may reasonably argue about where to draw the means-testing line.

On fossil fuels, industry advocates and some analysts (including at the National Center for Energy Analytics) argue that several "subsidies" are simply ordinary cost-recovery tax provisions available to many industries, not special handouts, and that repealing them could raise energy costs or reduce domestic production. There is genuine debate about which provisions are true subsidies versus standard business deductions; honest reform should target provisions that are demonstrably industry-specific preferences rather than mislabeling general tax rules as subsidies.

A third counterargument is competitiveness: removing subsidies could disadvantage U.S. producers against subsidized foreign competitors, particularly in agriculture, where other nations heavily support their farmers. This argues for pursuing reform in concert with international commitments where possible.

Finally, there is the political reality that these subsidies are entrenched precisely because their beneficiaries are powerful. The savings are real on paper but require defeating organized, well-funded opposition — the binding constraint is political, not analytical.

Conclusion

Subsidy reform targets a category of spending that economists across the ideological spectrum agree is hard to justify: tens of billions of dollars per year flowing to mature, profitable fossil-fuel companies and large agribusinesses through tax breaks and below-cost programs. Eliminating the clearest fossil-fuel tax preferences (roughly $20–35 billion annually) and trimming and retargeting farm support (single-digit to low-double-digit billions) puts the proposal's $45–60 billion target within reach at its upper bound and comfortably supports a conservative $25–45 billion estimate.

The honest caveats are that the upper bound is politically ambitious, that crop insurance and other programs serve real purposes and should be reformed rather than abolished, and that the headline-grabbing "$640 billion" implicit-subsidy figures are environmental-economics measures, not budgetary savings. Pursued through phased, well-targeted reform that protects genuinely vulnerable producers while ending corporate welfare for those who need it least, subsidy reform offers durable, recurring savings and a more efficient, market-driven economy.

Sources

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