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January 10, 1940

Currant and parity incases for farmers
Already a great advance has been made toward price
and income parity for farmers but these goals have not yet
been attained. In 1940, when parity income would be 9 3/4
billion dollars or more, income from farm marketings may be
about 8 billion and Government payments to farmers, including
225 million of parity payments already appropriated, may be
close to 3/4 billion, making a total of 8 3/4 billion. This
would be short of income parity by a billion or more. If
parity payments are dropped, the difference in 1941 would be
larger, unless market developments were favorable to farmers.
It is our position that an approach to parity of incomes for
fanaers is both equitable and economically desirable*
Appropriations and certificate plan
If parity payments are to be maintained or increased,
should they be made out of the general funds, that is, out of
general taxation, or out of special taxes allotted through th@
certificate plan? Appropriations from the general funds pre*
susaably would coise to some extent from income and other taxes
based on ability to pay. The cost under the certificate plan
would fall mostly on consumers of products made from cotton,
wheat, and rice, in accordance with the poundage of these

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materials in products bought. A large portion of the cost
would be paid by people with low incomes-

It is exceedingly

difficult to compare the incomes of farm and aonfarm groups
to determine whether those receiving the payments (in relatively
large amounts each) are worse off than those who would sake the
payments (in relatively assail amounts each* the tax being spread
over a large number of people)• But it is clear from the point
of view of income distribution and also from the point of view
of putting idle funds to work that making payments out of the
general ftmds of the Treasury would be better than mking them
out of the proposed consumer taxes.
There is, moreover* a fundamental objection to waking,
in effect, such large appropriations without th© annual review
accorded those for practically all other purposes} in this connection it should bo noted that the amount of taxes under the
certificate plan would automatically increase if prices received
declined relative to prices paid (and vice versa)*
Another important argument for appropriation* from
the general funds rather than the special taxes proposed is that
farmers really can not afford to lose more of their markets.
Domestic cotton consumption would probably be curtailed as a
result of a 8 cent tax—a study of the effects of the processing
tax by the Bureau of Agricultural Economics would suggest a
loss of perhaps half a million bales annually*

This total

«•» 3 *•

might be reduced by distribution of cotton goods through extension of the Food Starap Plan but in isany particular cases
competitive materials certainly would be given a great
advantage by an increase of perhaps one-third in the cost
of the highest grades of cotton and two-thirds for the lowest
grades* A decrease in consumption would lower production and
have an unfavorable effect on producers* particularly farm
laborers* who in any evmat would be benefited only indirectly,
the effect of the tax on consumption might be lessened if the
certificate plan were revised to bear less heavily on the lowvalue uses of cotton, and more heavily on high-value products
where the cost of the raw isaterial is saall relative to the
price of the finished goods (lawn, lace* and broadcloth fabrics*
for ©scampi©* as against mattresses or overalls)*
If the certificate plan is adopted, demand for
protection from oosspeting domestic materials would probably
take form similar to the compensating taxes under the A*A.A.,
which were very troublesome, and extended almost endlessly*
Cotton manufacturers and growers asked for compensatory taxes
on silk* rayon* and paper} wheat millers and growers for taxes
on corn* rye, and th© iisported starches* Devices of this sort
would run counter to the efforts of various agencies to
eliminate restraints on domestic trade*

They would not be

involved if funds were appropriated direct from the Treasury*

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The principal argument advanced for the certificate
plan is that this year and every other year it will provide
larger payments than can be obtained any other way and make
possible the continuation of effective measures to control
production and supplies in th© interest of consumers as well
as of producers* Consumers* it is urged* would probably not
begrudge the producer his parity price* Also* once the certificate plan was adopted* funds would be made available
automatically each year; how this would work out actually is
uncertain—relating payments to specific taxes might make thes
a target in an election year even if incomes are higher than
in other recent years.
fixed price plans and certificate plan
It is understood that the suggestion of the certificate plan has been made partly to meet a deraand for a system
of fixed or guaranteed parity prices on the domestically
consumed portion of staple crops* The certificate plan would
be preferable to a system of fixed prices since while the effect
on th© ooBsuEier would be approximately the same the certificate
plan would channel the benefit to cooperating producers* thus
supporting the broad adjustment and ever-normal granary

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To summarise, it is our judgment that efforts to
establish a better relationship between the income of farmers
and of others should continue, particularly if it can be done
in a way that would contribute to the effectiveness of the
broader farm program. Our first preference is for appropriations financed by taxes derived in accordance with ability
to pay. Our next choice would be a combination of appropriations
and the certificate plan, with appropriations sufficient to
reduce materially the amount of the taxes under the certificate
plan and sufficient to provide payments for SOE» other group*
not covered by th© certificate program*

If* however, the

choice is between discontinuance of parity payments and possible
consequent dislocation of the farm program on the one hand, and
the certificate plan on the other* or between a system of fixed
or guaranteed prices and the certificate plan, then the certificate plan, with certain revisions, would be favored.
la thinking about revision the following questions
might be considered.
(1) How can substitution of other materials, notably for
cotton, be prevented?

Even if new outlets are gained by exten-

sion of the Food Stamp Flan it would be unfortunate far cotton
growers to lose markets narrowly held with current price
relationships •

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(2) What provision ©an be mad© for integrating the
eertif ieate program with the parity payment program in 194O|
and subsequently for continuing parity payments to oorn
producers* who are now receiving 50 to 60 million dollars
a year of suoh payments?
(S) If Bany other nonmilitary appropriations aee actually
decreased this year* should parity p&yaents to cotton* wheat,
and rice growers be increased as much as would be necessary to
bring the income of these groups all the m y to parity?
(The amount to be collected for these groups under the plan
as outlined would be around 400 or 500 million dollars as
compared with average parity payments to them of about 150
million dollars on the past two crops*)