immediate transfer to Federal Reserve banks or if the Treasury required the banks to pay interest on these deposits.3

The banking laws of the United States and the various States support the banks in the position that not all depositors are likely to withdraw deposits at the same time. The result is that banks need and in fact do hold as reserves only a fraction of the amount of demand which might be made upon them. When the reserve requirements of commercial banks are established at low levels or reduced, the banks may expand credit and their earning assets without any real cost to themselves.

Banks also have been able to expand their loans significantly as a result of the Federal Government's various loan insurance programs, and the Government's participation in other loans, such as some of those of the Small Business Administration.

There are various other ways in which the U.S. Government, especially through the operations of the Federal Reserve System, absorbs costs which might ordinarily be expected to be paid by the commercial banking system itself. This absorption of costs by the Reserve System amounts in effect to a Government subsidy. While the par collection system of clearing checks at face value is generally accepted as a national good, there is no clear or persuasive reason why the banks should not pay the costs of check clearing, as they do indeed in some local situations, through local clearinghouses. As it is, the commercial banks, in effect, receive a subsidy in an amount which would otherwise have gone into the Treasury accounts through the residual earnings of the Federal Reserve banks. The Government and the Federal Reserve System also bear part of the cost of such services as handling, sorting, and maintaining stocks of coin and currency, which banks would otherwise have to absorb.

NATURAL RESOURCE AND REGIONAL DEVELOPMEN

A large proportion of the Government's irrigatior power, and other natural resource and regional developi are frequently considered as subsidies. The reclamation Federal Government had its inception, like the earlie in the goal of settling new lands. To the extent that t struction of irrigation projects was borne by interest-fi though repaid, this would constitute a subsidy, simil celerated amortization of defense facilities.

With the coming of multipurpose projects and the the Federal Government of responsibility for fish an servation and for flood control, it becomes difficult to d elements of subsidy are involved in the costs of entir

A conspicuous example of a multiple-purpose pri determination of the extent of subsidy is particularly Tennessee Valley Authority. The TVA carries on such tions as clectric power production, manufacture, dev research on fertilizers, flood control, improvement of cilities, topographic mapping, and educational progra

The argument as to whether or not the TVA power r adequate to cover all capital costs, on a basis compar electric utility companies, remains an unresolved issue eral agreement that TVA rates have covered the costs 1 operating the facilities that are used exclusively inç transmitting power. There is no such agreement as to have borne a fair share of the joint costs of multipu The allocation of the costs of dams as among navigation and power remains a matter where wide divergence of There is also disagreement as to whether a subsidy is rates charged are insufficient to permit a rate of return that generally considered a fair rate of return for reg electric utility companies. Finally, a subsidy may be i the taxes, or payments in lieu of taxes, are less than such taxes which an equivalent utility company might

The TVA in 1956 produced 3 percent of all the i manufactured in the United States; by 1963 this was 1 percent. Sales of fertilizer are not on a commerical made to organizations collaborating in an educational | at improving the manufacture, distribution, and use

Some of these programs certainly pay for themsel not; some do not pay for themselves directly but ter cconomic potential of the area, thereby increasing its more taxes and to add more substantially to the weal of the Nation. The Columbia Valley, Upper Colorado, rence Seaway projects may be cited as other multipi with benefits accruing in the first instance to partici groups of people. In fact, any Federal public works, and begun, will obviously funnel funds and benefits ir which it is located, with the cost borne by the Nation a whole.

It is clear that many of these reclamation, power, flor irrigation programs, as well as related programs for of forests, for the assistance of agriculture, and for th

Tax BENEFITS

Various tax provisions, as they have worked out, tend to favor certain firms, industries, and individuals, and thus might be interpreted to involve an element of subsidy. The provisions for accelerated amortization of certain facilities for tax purposes have already been mentioned. The depletion allowances for petroleum, sulfur, gas, and other extractive industries are designed to permit producers by means of a tax credit to recoup the reduction in capital involved in the extraction of particular raw materials, and thus to encourage the development of these resources.

State and local governments have encouraged new businesses by providing for specific exemptions from business and property taxes. State and/or local development bonds to finance the location of new industry are Federal income tax exempt, thereby aiding industry and capital investors alike.

Attempts to obtain greater equity in the tax structure have resulted in benefits that tend to help particular groups of individuals, such as home mortgagors and other borrowers, those with high medical expenses, the aged, etc.