Wednesday, October 8, 2008

Entry from The Carolina Journal

Just Who Subsidizes Who?
By John Hood


There’s great mischief lurking in fuzzy definitions.

In politics, the mischievous – and most certainly the villainous – prefer to employ ill-defined words that hide their true intentions and reduce their exposure to investigation and refutation.
As John Locke himself once wrote, in An Essay Concerning Human Understanding, “there is no such way to gain admittance or give defense to strange and absurd doctrines as to guard them round about with legions of obscure, doubtful, and undefined words.”

Today’s excursion into the political misuse of the English language, a form of rhetoric Locke compared to “the dens of robbers, or holes of foxes,” concerns the word subsidy.Many politicians and commentators employ the term to describe any payment from one party to another. But that doesn’t capture its true meaning. If I give you a dollar today, and you return the dollar to me tomorrow, neither of us has been subsidized.

There was no net transfer of wealth. Moreover, if I pay you a dollar in exchange for a good or service you perform for me, I’m not subsidizing you. Again, there is no net transfer. It is a trade.Bear with me. This is no mere semantic distinction. It has a bearing on many political debates in North Carolina, on issues ranging from transportation to higher education.

The original Latin term was subsidere, combining two words: sub, meaning below, and sidere, to settle or sit. It is the root of such modern-day English words as subside, subsidiary, and subsidy. The common denominator is the concept of something being left over, as in what solids sink to the bottom of a glass of liquid. Figuratively, it refers to something being supplemental, extra, a remainder.The money you spend buying a chicken dinner for lunch is not a subsidy of Bojangles (I must assume you go to the proper chicken & biscuits outlet).

However, if Bojangles is a partner in a local charitable enterprise, say a juvenile-diabetes philanthropy, and you choose to donate money through a handy jar while eating at the restaurant, you are subsidizing the diabetes program – it isn’t giving you a good or service in exchange (or, at least, one that you’re likely to be aware of at the time).

Subsidies can be voluntary, like the above example. But in the political context the subject is typically an involuntary subsidy, a forcible transfer of money from some group of taxpayers to another group of beneficiaries. The important point is that it has to be a net transfer. It is impossible for everyone to be subsidized. That’s an incoherent concept.

If everyone receives direct benefits in relationship to direct taxes paid, no one is being subsidized.I’ve written before about how the notion applies to transportation funding. Defenders of mass transit like to argue, as several respondents did to JLF’s just-released study of the Charlotte light-rail line, that all transportation choices are subsidized, so fixating on the share of transit cost shouldered by non-transit users is unfair.

This is a case of a little knowledge being a dangerous thing. Sure, if we’re talking about government assets such as unlimited-access highways or airports, it appears as though taxpayers rather than users are financing the system. In reality, however, the taxes and fees that fund roads and airports bear a strong relationship to usage. Moreover, the direct beneficiaries aren’t hard to identify.

You either ride the train or you don’t. Either there’s a net transfer of wealth from transit users to non-transit users, or the money flows the other way. It is impossible for both users and nonusers of transit to receive a net subsidy, unless foreigners or extraterrestrials are involved. One group must subsidize the other.

It is, of course, the transit users who are heavily subsidized. In the case of the Charlotte rail line, more than 90 cents of every dollar spent to transport a rider come from taxpayers other than the rider.To distinguish the subsidized from the subsidizers is not necessarily to invalidate the government program in question. You might say that even though students at public universities derive the vast majority of the benefits from their education, those who don’t attend public universities should help pay the bill.

But at least you’d be admitting that a subsidy exists (in this case, from the relatively less-affluent to the relatively affluent).Using precise language helps to clarify the issue – which is why so many politicians and commentators prefer to keep things nebulous.

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