Commentary
The United States is allocating significant funds towards subsidies, with a large portion being squandered on unsuccessful ventures, projects that fail to materialize, or rushed payouts before the inauguration of President-elect Donald Trump.
The Inflation Reduction Act of 2022 could potentially cost taxpayers up to $1.8 trillion in tax subsidies, including allocations to the oil and gas industry, which is set to receive approximately
$35 billion in tax benefits over the next decade. The Infrastructure Act of 2021 led to a nearly $550 billion increase in federal subsidies.
Many of these subsidies lack economic viability. For instance, Cleveland Cliffs, an Ohio
steel manufacturer, is contemplating rejecting a $500 million subsidy aimed at producing low-emission steel because the market demand for “green steel” among car buyers is insufficient to justify the additional costs. As a result, auto manufacturers are reluctant to pay more for environmentally-friendly steel.
Some subsidies also raise national security concerns. The Chips Act includes over $50 billion in semiconductor subsidies, with funds being allocated to
foreign companies like Samsung of South Korea and TSMC of Taiwan, receiving billions in subsidies. However, challenges such as a lack of customers, contractual disputes, and preferences for chip production in China over U.S. restrictions raise doubts about the effectiveness of these investments.
Nevertheless, the situation is nuanced. Maintaining domestic chip production is essential for scenarios like a conflict involving Taiwan, which could disrupt U.S. chip imports from the island nation, a major producer of high-speed chips.
An example of recent
meatpacking subsidies involves a chicken farm in Iowa that received up to $45.6 million in subsidies and loans but declared bankruptcy in September. This led to the culling of 1.3 million chickens and potential taxpayer liabilities for defaulted loans. The program disbursed over $300 million in subsidies and loans, with some recipients never commencing operations.
The rationale behind meatpacking subsidies was to support small farms and enhance market diversity in the event of a crisis that disrupts major meatpackers, as seen during the pandemic. While this seems reasonable, the subsidies also aimed to foster competition against established meatpackers who have achieved efficiency in production, potentially impacting their profitability and shareholders, including retirees who rely on company earnings.
The recent elections on Nov. 5 signaled a call for increased focus on basic economics in Washington. The removal of subsidies aligns with the electoral mandate, as both Trump and Vice President-elect
JD Vance opposed subsidies during their campaigns.
Eliminating subsidies can contribute to reducing the national debt, currently standing at around
$36 trillion, translating to over $100,000 per individual in the country. The escalating debt poses risks of inflation, high interest rates, economic downturns, and potential damage to the global standing of the U.S. dollar, leading to further inflationary pressures. Notably, the federal budget deficit reached $3.1 trillion and $1.8 trillion in the final years of the first Trump and Biden administrations in 2020 and 2024, respectively.
The current administration operates with a budget of approximately
$6.5 trillion. Trump aims to significantly reduce the budget deficit and has considered appointing Tesla CEO Elon Musk for this task, setting a target of slashing $2 trillion from the budget by 2030.
Federal subsidies are typically introduced in response to highlighted issues, but by the time funds are disbursed, market forces may have addressed these concerns. Governments are not renowned for their business acumen, suggesting that subsidies, aside from securing supply chains during emergencies, should be discouraged in the future. Trump’s approach of favoring tariffs over subsidies, particularly in incentivizing U.S. chip production, demonstrates a strategy that trims federal expenses, boosts government revenue, fulfills national security objectives, and nurtures critical domestic industries for emergency scenarios.
Opinions expressed in this article are solely those of the author and do not necessarily reflect the views of The Epoch Times.
