I. Definition: Governmental financial support. The main types of subsidies are:
A.
Cash
B.
Tax incentives
C.
Credit subsidies
D.
Benefit-in-kind subsidies/
non-cash benefits
II. Purpose
of subsidies: to encourage a particular type of private sector action.
A.
Example:
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 80s.
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
B.
Examples of subsidies to agriculture.
1.
In the 19th century, the federal government made huge
land grants to
states to
support
the building of agricultural universities.
2.
FDR’s New Deal of 30s 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.