Tag: subsidies

What Do the Subsidy Recipients Think about Cutting Subsidies?

Ever since President Trump and budget director Mick Mulvaney released a proposed federal budget that includes cuts in some programs, the Washington Post has been full of articles and letters about current and former officials and program beneficiaries who don’t want their budgets cut. Not exactly breaking news, you’d think. And not exactly a balanced discussion of pros and cons, costs and benefits. Consider just today’s examples:

[O]ver 100,000 former Fulbright scholars, among them several members of Congress, are being asked to lobby for not only full funding but also a small increase.

As a former Federal Aviation Administration senior executive with more than 30 years of experience in air traffic control, I believe it is a very big mistake to privatize such an important government function. 

On Thursday, all seven former Senate-confirmed heads of the Energy Department’s renewables office — including three former Republican administration officials – told Congress and the Trump administration that the deep budget cut proposed for that office would cripple its ability to function.

This is nothing new. Every time a president proposes to cut anything in the $4 trillion federal budget — up from $1.8 trillion in Bill Clinton’s last budget — reporters race to find “victims.” And of course no one wants to lose his or her job or subsidy, so there are plenty of people ready to defend the value of each and every government check. As I wrote at the Britannica Blog in 2011, when one very small program was being vigorously defended:

Every government program is “well worth the money” to its beneficiaries. And the beneficiaries are typically the ones who lobby to create, expand, and protect it. When a program is threatened with cuts, newspapers go out and ask the people “who will be most affected” by the possible cut. They interview farmers about whether farm programs should be cut, library patrons about library cutbacks, train riders about rail subsidy cuts. And guess what: all the beneficiaries oppose cuts to the programs that benefit them. You could write those stories without going out in the August heat to do the actual interviews.

Economists call this the problem of concentrated benefits and diffuse costs. The benefits of any government program — Medicare, teachers’ pensions, a new highway, a tariff — are concentrated on a relatively small number of people. But the costs are diffused over millions of consumers or taxpayers. So the beneficiaries, who stand to gain a great deal from a new program or lose a great deal from the elimination of a program, have a strong incentive to monitor the news, write their legislator, make political contributions, attend town halls, and otherwise work to protect the program. But each taxpayer, who pays little for each program, has much less incentive to get involved in the political process or even to vote.

A $4 trillion annual budget is about $12,500 for every man, woman, and child in the United States. If the budget could be cut by, say, $1 trillion — taking it back to the 2008 level — how much good could that money do in the hands of families and businesses? How many jobs could be created? How many families could afford a new car, a better school, a down payment on a home? Reporters should ask those questions when they ask subsidy recipients, How do you feel about losing your subsidy?

House Testimony on Energy Subsidies

I testified to a House committee today on Department of Energy (DOE) loan programs. These were the Bush/Obama-era subsidies to Solyndra and other renewable energy businesses.

I discussed five reasons why the loan programs should be repealed:

1. Four Decades Is Enough. The federal government has been subsidizing solar and wind power since the 1970s. These are no longer the sort of “infant industries” that some economists claim need government help. Solar and wind are large and mature industries, and they already receive subsidies from state governments, particularly in the form of utility purchase mandates, which are in place in 29 states.

2. Failures and Boondoggles. The DOE claims that Solyndra’s bankruptcy was the exception, and that the agency’s overall loss rate on loans is low. But as an economist, I’m more concerned with whether the overall benefits of projects outweigh the costs, and that appears not to be the case for numerous projects. The Ivanpah solar project in California, for example, is producing less electricity and consuming more natural gas than promised, and its cost per kwh is at least three times more than for natural gas plants.

3. Corporate Welfare and Cronyism. The Washington Post found that “Obama’s green-technology program was infused with politics at every level.” Public opinion polls have shown plunging support for both politicians and big businesses over the years, and one of the reasons is such cronyism. Businesses and policymakers would gain more public respect if they cut ties to each other by ending corporate welfare.

4. Private Sector Can Fund Renewable Energy. Most DOE loan guarantees have gone to projects backed by wealthy investors and large corporations, such as Warren Buffett and General Electric. Such individuals and companies are fully capable of pursuing energy projects with their own money. Buffett’s Berkshire Hathaway has invested $17 billion in renewable energy since 2004. With that kind of private cash available for renewables, we do not need the DOE handing out subsidies.

5. Subsidies Distort Decisionmaking. Federal energy subsidies create counterproductive incentives in the economy. For example, subsidized firms tend to become slow and spendthrift, thus subsidies undermine productivity. Also, because subsidies are not driven by consumer demands, they can induce firms to invest in activities that will not succeed in the marketplace in the long term.

You can watch the full hearing here. My testimony is here. More background on energy subsidies is here.

TTIP Could Rein in the Abuse of Tax Incentives to Attract Foreign Investment

I’ve written often about the global competition to attract foreign investment, and have made the point that investment flows to jurisdictions with good policies in place. Globalization of production and the mobility of capital mean that national policies (regulations, tax policy, immigration, trade, energy, education, etc.) are on trial, with net investment inflows rendering the verdicts.

But some countries (and some U.S. states) use tax holidays and other forms of tax forgiveness, in lieu of adopting good policies, to attract investment, which burdens taxpayers and subverts the process of matching investment to its optimal location. These are subsidies – like so many other programs – that distort markets and should be discouraged.

In today’s Cato Online Forum essay, which is associated with the TTIP conference taking place on October 12, Ted Alden from the Council on Foreign Relations puts forward a strong proposal to end this madness via the Transatlantic Trade and Investment Partnership negotiations.

Read it.  Provide feedback.  And please register to attend the conference.

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Solyndra: A Case Study in Green Energy, Cronyism, and the Failure of Central Planning

Back in 2011 I wrote several times about the failure of Solyndra, the solar panel company that was well connected to the Obama administration. Then, as with so many stories, the topic passed out of the headlines and I lost touch with it. Today, the Washington Post and other papers bring news of a newly released federal investigative report:

Top leaders of a troubled solar panel company that cost taxpayers a half-billion dollars repeatedly misled federal officials and omitted information about the firm’s financial prospects as they sought to win a major government loan, according to a newly-released federal investigative report.

Solyndra’s leaders engaged in a “pattern of false and misleading assertions” that drew a rosy picture of their company enjoying robust sales while they lobbied to win the first clean energy loan the new administration awarded in 2009, a lengthy investigation uncovered. The Silicon Valley start-up’s dramatic rise and then collapse into bankruptcy two years later became a rallying cry for critics of President Obama’s signature program to create jobs by injecting billions of dollars into clean energy firms.

And why would it become such a rallying cry for critics? Well, consider the hyperlink the Post inserted at that point in the article: “[Past coverage: Solyndra: Politics infused Obama energy programs]” And what did that article report?

King v. Burwell: How the Supreme Court Helped President Obama Disenfranchise His Political Opponents

Criticizing my recent post-mortem on King v. Burwell, Scott Lemieux kindly calls me “ObamaCare’s fiercest critic” for my role in that ObamaCare case. Other words he associates with my role include “defiant,” “ludicrous,” “farcical,” “dumber,” “snake oil,” “ludicrous” (again), “irrational,” “aggressive,” “comically transparent,” and “dishonest.”

Somewhere amid the deluge, Lemieux reaches his main claim, which is that (somehow) I admitted: “the King lawsuit wasn’t designed to uphold the statute passed by Congress in 2010. It was intended to ‘enfranchise’ the people who voted against the bill.” I’m not quite sure what Lemieux means. But perhaps Lemieux doesn’t understand my point about how the Supreme Court helped President Obama disenfranchise his political opponents.

As all nine Supreme Court justices acknowledged in King, “the most natural reading of the pertinent statutory phrase” is that Congress authorized the Affordable Care Act’s premium subsidies, employer mandate, and (to a large extent) individual mandate only in states that agreed to establish a health-insurance “Exchange.” That is, all nine justices agreed that the plain meaning of the operative statutory language allows states to veto key provisions of the ACA—sort of like the Medicaid veto that has existed for 50 years and lets states destroy health insurance for millions of poor Americans. The Exchange veto includes the power to shield millions of state residents from the ACA’s least-popular provisions: the individual mandate and the employer mandate.

Video: Teachers Victimized by IRS’s Illegal Taxes Call King v. Burwell a “Godsend”

Yesterday, I blogged about the 70 million Americans President Obama is subjecting to illegal taxes, who would be freed from those taxes by a ruling for the challengers in King v. Burwell. Many of the victims of those illegal taxes are teachers. Kevin Pace, for example, is a jazz musician and music professor in Northern Virginia who lost $8,000 of income in one year alone when the Obama administration unlawfully imposed ObamaCare’s employer mandate on his employer. 

A group called American Commitment has produced a short video telling the stories of two more victims of these illegal taxes. One says these illegal taxes reduced his hours worked by 40 percent, calling it “absurd” and “unfair.” Another says a ruling for the King v. Burwell challengers would be a “godsend” and asks Congress to “come to its senses and give me back my hours, please.”

State-by-State Data on the Number of Taxpayers King v. Burwell Would Free from Illegal Taxes

A ruling for the challengers in King v. Burwell would have benefits that swamp other effects of the ruling, including:

  • More than 67 million Americans would be freed from illegal taxes in the form of ObamaCare’s employer mandate.
  • More than 11 million Americans would be freed from an illegal tax averaging $1,200 (i.e., ObamaCare’s individual mandate).
  • Affected workers could receive a pay raise of around $900 per year.
  • The ruling could create an estimated 237,000 new jobs.
  • It could add an estimated 1.3 million workers added to the labor force.
  • It could result in more hours and higher incomes for 3.3 million part-time workers.

The number of people who could benefit from a ruling for the challengers is, therefore, more than ten times the number who would lose an illegal subsidy. And, as discussed here, the pool of people who need such subsidies may be as small as one-tenth the number receiving them.

Click here for state-by-state data on the number of employers and taxpayers who would benefit from King v. Burwell.

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