The Subsidy Debate: Bridge to Nowhere or Economic Boost?
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 McNary-
Haugen 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
Come to Coolidge Camp!
•
Many Scholarships Available
•
More Information:
http://coolidgefoundation.org/events/team-
usa-training-camp/
Subsidies are financial aids provided by governments or public bodies to industries. They come in various forms such as production, consumer, and employment subsidies. While subsidies can encourage production and consumption, they may also lead to overproduction, market collapses, and distortions. The history of subsidies, including the case of Calvin Coolidge in the 1920s, sheds light on the debate over their effectiveness. Explore the different types of subsidies and their impacts to understand their role in economic development.
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Presentation Transcript
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 )
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 McNary- Haugen 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
Come to Coolidge Camp! Many Scholarships Available More Information: http://coolidgefoundation.org/events/team- usa-training-camp/
