Transcript Subsidies: A Bridge to Nowhere, or Manna from Heaven?

Subsidies: A Bridge to Nowhere,
or Manna from Heaven?
Rushad L. Thomas
Program and Editorial Associate
Calvin Coolidge Presidential Foundation
What is a Subsidy
• Def: a sum of money granted by the government
or a public body to assist an industry or business
so that the price of a commodity or service may
remain low or competitive.
• Usually associated with governments, but they
can relate to subsidies from sources like NGOs.
• Their many forms include direct bequests (cash
grants, interest-free loans), and indirect ones
(tax breaks, insurance, low-interest loans,
depreciation write-offs, rent rebates, etc…)
Understanding the Effects of Subsidies
Production Subsidies
• Encourages suppliers to increase the output of a
particular product by partially offsetting the
production costs or losses.
• Objective: to expand production of a product more
than the market naturally would, but without
increasing the final price to consumers.
• Problems with Production Subsidies:
▫ Can incur additional costs for storage of excess
product.
▫ Increases in supply without concurrent increases in
demand can collapse prices on the world market.
▫ Incentivizes overproduction.
Farmers Never Have Made Much
Money: The Case of Calvin Coolidge
• The 1920s was an era of general
prosperity for everyone but the
farmer.
• Many in Congress, including Sen.
McNary of Oregon and Rep.
Haugen of Iowa, wanted to
institute price supports and
subsidies.
• Coolidge wanted Ag to stand on its
own two feet on “an independent
business basis.”
• Coolidge vetoed the McNaryHaugen Farm Relief Bill TWICE.
Consumer Subsidies
• Subsidizes the behavior of consumers.
• Most common in developing countries for
commodities like food, water, electricity, and
education.
• Example: Supplemental Nutrition Assistance
Program (SNAP), also known as “Food Stamps.”
Export Subsidies
• Government support for
products that are exported.
• The Chinese Example, from
The Economist.
Employment Subsidies
• Provides an incentive for firms to hire by
offsetting the cost to the business for their
wages.
• Example: Temporary Jobs Programs during an
economic slump.
• Also includes old age pension programs like
Social Security.
Tax Subsidies
• Selective tax breaks that benefit particular groups of
people or industries.
• May be available to an entire class of economic
activity, or may be more narrowly tailored.
• Also known as “tax expenditures.”
• Government forgoes revenue that would have been
collected otherwise, and must make up the lost
revenue through higher taxes.
• Primary reason the U.S. Tax Code is so complicated.
• Examples: Film Tax Credits, Renewable Energy
subsidies, Sports Tax Exemptions...
For More Information Visit…
• http://www.investopedia.com/terms/s/subsidy.
asp
• https://www.iisd.org/gsi/subsidy-primer/
• https://www.foreignaffairs.com/articles/tunisia
/2011-03-23/let-them-eat-bread
• http://www.cato.org/publications/commentary/
save-farms-end-subsidies%20
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http://coolidgefoundation.org/events/teamusa-training-camp/