Long before the government rescued some faltering companies, during the so-called “Great Recession,” the US government had subsidized many corporate sectors that were vital to the economy and national well-being.
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Due to the large number of industries that receive government subsidies, this article will focus on three representative industries that receive subsidies: energy, agriculture, and transportation. Each of these business units receives billions of dollars from the government every year.
- Although many industries receive government subsidies, the three biggest beneficiaries are energy, agriculture, and transportation.
- The government provides subsidies to companies that develop renewable or non-renewable energy, issues bonds for certain power facilities they own, and imposes tariffs on certain biofuels.
- Agriculture provides subsidies to farmers through cash payments and basically non-repayable loans; in addition, the USDA provides insurance against severe weather and pest risks at affordable prices.
- The government provides transportation companies with cash payments, airport and railway construction and other infrastructure construction funds, and tax incentives.
The United States and the world rely on energy-mainly petroleum and petroleum products. But there are other economically important forms of energy, including non-renewable energy (natural gas, oil, coal, etc.) and renewable energy (ethanol, biodiesel, wind energy, etc.).
To help develop and explore new and old energy sources, the federal government provides subsidies to companies that take these initiatives. It also provides subsidies to energy producers who develop more efficient and economical production and distribution procedures.
The federal government provides energy producers with various tax accounting allowances, credits, exemptions, deductions, depreciation, and other economically favorable tax reliefs.
Government subsidies are cash payments or tax deductions provided to companies or institutions to help reduce the burden or provide economic growth for a troubled sector or company.
Types of energy subsidies
The government provides funding for research and development in the form of grants and loans with preferential interest rates and repayment terms. However, some risks in the nuclear energy industry and the consequent liabilities are borne by the federal government.
In order to ensure that electricity is provided at prices below market prices, the federal government owns certain dams that generate hydroelectric power. Bonds-interest-bearing debt-are issued by power generation facilities owned by the U.S. Department of Energy, such as the Tennessee Valley Authority.
For example, government land is leased or sold for oil and coal exploration at below market prices, and import duties are imposed on biofuels (such as ethanol) to protect prices.
The “Federal Family Assistance Directory” provides a complete list of all subsidy recipients, including businesses, individuals, and non-profit organizations.
Food is the most important product of the agricultural sector. But in this multi-billion-dollar industry, there are other non-food products that are vital to the economy, including cotton, wool, and tobacco.
Before the Great Depression, government subsidies to the agricultural sector were relatively limited. However, beginning in 1933, following the promulgation of the first administration of President Franklin D. Roosevelt, new legislation was promulgated to support commodity prices, control production, restrict competition, secure crops, and impose tariffs on imports. These subsidies support many commodities in the agricultural sector, including (but not limited to) corn, wheat, peanuts, honey and dairy products.
“Too big to fail” is a frequently heard term, referring to banks and financial insurance institutions that were “assisted” by government funds during the financial crisis that began around December 2007.
The agricultural sector that provides the food we eat every day is another entity that the government cannot let fail. Farmers must continue to operate, and consumers must have food. Although food prices fluctuate, they must be kept at a relatively low and affordable level.
Types of agricultural subsidies
There are many ways the government subsidizes agriculture-monetary and non-monetary. These include:
- When the prices of agricultural products fall, cash is paid directly to farmers to make up for their economic losses.
- The U.S. Department of Agriculture provides farmers with loans without penalty. These loans are actually a gift, because there is no penalty for default.
- The USDA sells insurance against weather and pest damage to crops at an affordable price.
- In addition to government insurance payments, farmers can also receive government disaster assistance (cash payment) if crops suffer losses.
The transportation sector includes not only vehicles, trains, airplanes, and waterborne vessels that travel from one location to another, but also includes a huge national supporting infrastructure.
These include railway lines, roads and highways, bridges, waterways, aviation and railway terminals, and port facilities for lake, river, and marine transportation.
The government subsidizes many elements of the transportation sector to ensure the rapid, efficient, reliable, and economical movement of people, goods, and mail from one place to another. Both domestic and international trade depend on the smooth operation of various modes of transportation in the country, and it began to receive major support after World War II. One of the most expensive and far-reaching subsidies in the sector was the Federal Aid Highway Act of 1956, which provided funding for the transcontinental interstate highway system.
Types of transportation subsidies
Subsidies in the transportation sector are similar to those in the above-mentioned sectors. In some cases, user fees levied on aviation, railway, and road users help the government recover part of the subsidized expenditure system through direct cash payments, airport and railway construction funds, and tax incentives (or tax exemptions) for private transportation.
Government subsidies to key business sectors have promoted the profitability of many companies and ensured national prosperity and domestic well-being.
Despite these positive benefits, critics have complained about giving some companies an unfair competitive advantage, pointed out that some subsidies have caused damage to the environment, and proposed substantial reductions in subsidies due to the expansion of government debt and the reduction of tax revenue.
Even with government subsidies, some companies have not survived. In recent decades, the United States has witnessed the decline of the railroad industry, the bankruptcy and extinction of several former large airlines, and the disappearance of small farms that were acquired or closed down by large-scale agriculture. These are all supported by government subsidies.
Although some companies claim that they cannot survive economically without the help of the government, the question that must be answered is: Which companies will continue to receive government support, and which will not, and how much is the cost, is the cost worth the return?