CONTENTS Chapter I. Defining a subsidy.. Chapter II. Scope of subsidy and subsidylike programs. Grants to business firms and corporations to carry out specific objec- Free services or services below cost, offered by the Federal Govern- Lending and loan guarantee programs of Federal agencies.. Insurance programs undertaken by the Federal Government.. Federal grants-in-aid payments to State and local governments. CHAPTER I DEFINING A SUBSIDY Any study of the subsidy principle and its history and place in the Nation's economy and social structure is complicated by definition. There is no unanimous or uniform agreement on what constitutes a subsidy. The terms "subsidy" and "subsidize," it seems, are words that are likely to evoke an emotional response. Proponents of a Government program designed to aid a particular industry, group, or type of enterprise avoid and indeed resent the term "subsidy" in describing their program, preferring to call it an aid or an expenditure necessary in the national interest or defense. For their part, opponents of the program, in their use of the label "subsidy," seek to stigmatize, or at least to suggest if not demonstrate, that the program somehow benefits certain individuals at a cost offset, if at all, by doubtful benefits to the American taxpayer in general. It is interesting to note that the only Federal statutes using the word "subsidy" are those dealing with ship construction and ship operations. The term is also rarely used in Executive orders and regulations. The popular attitudes toward subsidies are well reflected in the following statement by Prof. C. Lowell Harris, professor of economics at Columbia University: 1 In the United States, and doubtless in other countries, there is a distaste for receiving from Government what is labeled as subsidy. There is, I hasten to add, ample willingness to take benefits from Government. But there is strong preference for forms which help conceal the nature of the receipt. 1. Tax exemption, for example, seems far more attractive than a governmental payment yielding the same economic benefit. The modern search for benefit often takes this form. 2. Business as well as individuals are willing to accept commercial-type services from Government at less than cost. 3. A different type of example arises from the development of social insurance systems which replace programs resting on need. When benefits are set definitely by law, do we ever think of the person who gets more than he paid as receiving a subsidy? Not as a rule, I believe. As governmental expenditures have grown, they have included more of outlays which have a big element of individual benefit. General social welfare is no longer the overwhelming criterion of public spending. Is there, then, a subsidy element? 4. A fourth example arises from governmental assumption of some of the cost of borrowing money. The Treasury's aid is not always obvious. As a result it is too complex to be measured. Rarely does the person who benefits sense that some of what he receives is at the expense of someone else. Yet the examples of such aid are numerous. Some contend the tariff system is a subsidy structure, since it involves Government action that enables protected industries to charge more for their goods in the American markets. Moreover, some consider that accelerated tax amortization for defense plants subsidizes 1 Harris, C. Lowell. Subsidies in the United States. Public Finance, vol. 16, 1961: 271. the owners of these plants, that "depletion allowances" provide subsidylike benefits to the petroleum and some other industries, that Federal non-interest-bearing deposits of billions of dollars in private banks and certain services of the Federal Reserve System amount to subsidies for large private bankers, that sale of Federal surplus property at a loss is a subsidy to the purchasers, and that the postal deficit on secondclass mail is a subsidy to business. Others confine their definition to direct Government payments, to the remission of charges, and to the supplying of commodities or services at less than cost or market price. There is one concept of subsidy which extends to all persons and enterprises whose economic positions are improved, or whose purposes are advanced, as the result of Government action. This embraces industries whose profits would be less without protection of the tariff laws and the many other statutes that soften the full force of competition in a private enterprise economy; and this broad definition likewise encompasses all working people whose earnings are greater because of minimum wage, collective bargaining, and immigration laws. It is pointed out, by those favoring this definition, that the economic benefits accruing to industry and labor, from Government policies, are paid for-as are the costs of the farm program-by the general consuming and taxpaying public. Thus virtually all the population would seem to be in a subsidy recipient posture and, moreover, almost all are participating in the payment of the costs. It is certain that the population feels the economic impact of the subsidy programs. In this overall subsidy concept the Nation's agriculture is a lesser recipient than either industry or labor. Yet the farmer, in some areas of public opinion, seems to have been cast in the role of chief villain. in a drama of Government largesse. Perhaps an explanation is that public acceptance of a particular subsidy may relate directly to how well it is disguised. It certainly is true that, in the broad definition of subsidy, there is no way to measure in dollars the benefits to industry and to labor from all the laws aiding them; yet the principal costs of agriculture's programs are constantly subjected to strict public accounting. Currently the subsidy principle is thrust into public attention by the contention over farm policy. This has brought about a demand for facts and figures relating to subsidies received by agriculture, by industry and business, and by labor, down through the years. Opposition to the farm program, in and out of Government, may have left an impression on the public mind that a subsidy is something inborn and inherent with agriculture, and entirely foreign to the remainder of the economy. Any such conclusion simply cannot be substantiated by the facts. Subsidy and subsidylike programs currently exist in nearly every facet of American life-both private and public. 2 The Agricultural Act of 1970 provides that: "The total amount of payments which a person shall be entitled to receive under each of the annual programs established by titles İV, V, and VI of this Act for the 1971, 1972, or 1973 crop of the commodity, shall not exceed $55,000." CHAPTER II SCOPE OF SUBSIDY AND SUBSIDYLIKE PROGRAMS A better understanding and appreciation of the sweeping and pervasive character of subsidy and subsidylike programs may be gained by a listing of various Federal programs which, by one criterion or another, might be considered to involve an element of subsidy regardless of the original intent of any particular program. It would be easy in such a listing to overlook some program which should be included, just as it would be to expand the listing unduly in order to underscore the many facets of the concept. It will be readily apparent that in a number of instances the programs listed could be included in more than one category. To avoid duplication, an attempt has been made to list each program only in a single category. I. GRANTS TO BUSINESS FIRMS AND CORPORATIONS TO CARRY OUT Shipbuilding differential subsidy: Maritime Administration. Subsidies to wartime producers of various raw materials and consumer Subsidies for carrying mail: Ship and civil air carriers. Partial financing of plants to generate electricity from atomic fuels. II. AGRICULTURAL SUBSIDY PROGRAMS Commodity price support program, administered by the Commodity Credit Corporation, which maintains a floor under the price of certain agricultural commodities, by guaranteeing such prices through nonrecourse loans to farmers. Surplus disposal programs, domestic and export. International Wheat Agreement, under which the price of wheat to American farmers is maintained at levels above those on the world market. Sugar Act payments, a subsidy to domestic sugar producers who meet certain conditions of employment, production, and marketing. Irrigation and flood control. Grazing rights in national forestry and other public lands. Agricultural extension services. III. TAX BENEFITS TO SPECIFIC ECONOMIC GROUPS Depletion allowances to minerals producers and other extractive industries. Accelerated amortization of defense facilities, for holders of certificates of necessity. Specific concessions to small business under the Technical Amendments Act of 1958. |