Government Subsidies I Definition Governmental financial support The

Government Subsidies

I. Definition: Governmental financial support. The main types of subsidies are: • A. Cash (TANF) • B. Tax incentives (Home mortgages) • C. Credit subsidies (Loans for veterans) • D. Benefit-in-kind subsidies/ non-cash benefits (medical) II. Purpose of subsidies: to encourage a particular type of private sector action. • A. Examples: (loans, production or development of something, etc. ) • B. Most people associate subsidies with welfare programs for the poor; actually, most subsidies go to people in the top half of the nation’s income distribution. Many subsidies, in fact, go to corporations, leading liberals to criticize this as “corporate welfare. ”

III. The politics of subsidies. • A. Most Americans complain about subsidies; however most also receive them in one form or another. • B. Once subsidies are established, they are extremely difficult to eliminate. “Iron triangles or issue networks develop and work quite hard to keep the subsidies. Some subsidies even become “sacred cows. ” • C. Another reason subsidies are hard to eliminate is that they are often difficult to “see. ”

IV. Subsidies that promote commerce A. Examples of subsidies to business and industry. 1. The Reagan Administration raised tariffs on imported motorcycles to assist Harley Davidson. 2. Chrysler Corp. received a “bailout” from the government to prevent bankruptcy in the 80’s. 3. Oil companies receive tax breaks to encourage oil production and make us less dependent on foreign oil. 4. Airlines received billions in federal aid after the 9/11 terrorist attacks. 5. Auto, banking, and financial industry companies received substantial support through the American Recovery and Reinvestment Act of 2009 (Stimulus Bill).

B. Examples of subsidies to agriculture. 1. In the 19 th century, the federal government made huge land grants to states to support the building of agricultural universities. 2. FDR’s New Deal during the 1930’s started programs to reduce crop surpluses and raise crop prices. 3. The federal government today provides loans and cash payments to farmers (“crop support payments”), and in some cases pays farmers to not grow crops to prevent surpluses. 4. Criticisms of these subsidies: a. Though these are supposed to help farmers, 30% of these subsidies go to huge “agribusiness” firms, leading once again to charges of “corporate welfare. ” b. Consumers end up paying higher prices for food, yet so much of the subsidies go not to the small farmers, but instead agribusiness. 5. The federal government pays for agricultural research, often at land grant colleges.