Top Five Worst Subsidies

Anyone versed in basic economics knows that government subsidies are almost always a bad idea. To be sure, government support can be crucial in furthering basic research and other beneficial activities that for-profit corporations avoid. But it’s a sad reflection of America’s budget process that we continue to subsidize activities that are well established and often highly profitable. In other cases, we taxpayers distort costs through our subsidies, thus encouraging over-consumption of a subsidized good relative to an unsubsidized one.

While many articles on this blog have been devoted to the topic, I couldn’t resist – so here’s my top-five list of most-reviled government subsidies:

5. Small Business Administration – Why is the government involved in subsidizing small businesses, particularly in established industries? SBA loans often aren’t even available to high-tech startups, as their business models are considered too risky. So why spend a few billion a year loaning money to businesses like dry cleaners and motels that should be able to go to a local bank?

4. Oil subsidies – Why subsidize the oil industry now, during its most profitable hour? For that matter, why subsidize the oil industry even when oil prices fall again? Oil may be necessary, but subsidizing its production encourages pollution while discouraging alternatives.

3. Road subsidies – DOT spends $35B a year on the federal highway system, but only takes in $25B in gasoline tax revenue. The situation at the state level is similar. Other taxes are effectively subsidizing Americans’ desire to drive, clogging our roads further, polluting the air, and encouraging sprawl.

2. Defense pork – Pork is a form of subsidy, particularly when it goes to the same group of military contractors year after year. Since the Dept. of Defense is the least transparent department in the federal government, it’s no surprise that defense appropriations bills are larded up - $12B according to this analysis.

1. Farm Subsidies$30B a year in subsidies, including direct payments, crop insurance, and agricultural marketing expenses, have fattened America, caused significant illegal immigration, and helped keep the world’s poor from picking themselves up.

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5 Comments »

  1. Sireesha said

    You REALLY don’t like farm subsidies, do you….?

  2. Mark Lange said

    Great stuff. Thank you.

  3. If I were to remake this list, I’d update it as follows:

    1. Employer-based health care subsidy – That’s $250B a year subsidizing employer-based health care, thus making health care more expensive for those in government plans (Medicare) and for those without insurance.

    2. Mortgage Interest Deduction – $100B a year, and this subsidy helped create the financial crisis by subsidizing American homebuyers. Without the subsidy, it’s unlikely that the housing bubble could have grown so large.

    http://truecost.wordpress.com/2008/08/22/mortgages-and-health-insurance-the-biggest-subsidies-of-them-all/

    3. Farm subsidies, as above

    4. Defense pork, as above

    5. Transportation subsidies, in the form of both road and oil subsidies as listed above, together distort American transportation, making it dirtier and less efficient.

  4. Gene Bourn said

    Subsidies for Oil, Industrial Farms, Defense, really? When do we give subsidies to the Homeless, or the hungry, or the suicidal or the prevention of hate, or education? What are we thinking?

  5. Sue said

    You failed to mention lobbyists……those subsidies are promoted by lobbyists or politicians (who become lobbyists once they’re booted out of office).

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