An Urban's Rural View

Food, shelter, clothing. They’ve been our species’ basic necessities since Adam and Eve were evicted from the garden. We can’t live without them. Should the government therefore subsidize them?

Directly or indirectly, the U.S. government does. For food, Uncle Sam gives producers farm programs and consumers food stamps. For shelter, it offers a tax deduction on mortgage interest payments. For clothing, it has tariffs; even though Americans no longer produce much apparel, the government still imposes tariffs on foreign producers, which they can evade if they use American textiles (http://tiny.cc/…).

Are any or all of these subsidies justifiable? Free-market purists have long argued against them. Many economists would do away with them. But each, needless to say, has an army of defenders, folks who benefit from the subsidy and think the general public benefits as well.

Some of these people oppose subsidizing industries in principle but favor subsidies for their industry. Their industry is different--unable to survive unsubsidized and critical to the national welfare (unlike those other industries). They sincerely believe this; they’re not consciously cloaking their self-interest in the public interest. Still, the mental effort involved in jugging these two interests without dropping either can occasionally lead them down strange paths.

Take, for example, the shelter industry’s reaction to one of President Trump’s tax proposals. The president wants to double the standard income-tax deduction, making the first $24,000 of income for a married couple tax free. This would simplify tax preparation for many Americans; they’d get a significant tax beak without having to itemize.

But that would mean some taxpayers would no longer take the mortgage-interest deduction, and lacking that incentive they might decide to rent rather than buy their place of abode. So even though the president’s proposal leaves the mortgage-interest deduction in place, the National Association of Home Builders complained that doubling the standard deduction “could severely marginalize the mortgage interest deduction, which would reduce housing demand and lead to lower home values” (http://tiny.cc/…).

Apparently without realizing it, the home builders and realtors have slipped into the trap of opposing a tax-law change that would actually be good for taxpayers. We would all get a choice: Take the new standard deduction or itemize and write off mortgage interest—whichever offers the biggest tax break.

The home builders could have argued that the president’s proposal would add to the government’s debt, which is already closing in on $20 trillion. But that would leave them open to the counterargument, “If you think the debt is a problem, why not just eliminate all deductions, including the one for mortgage interest?”

Instead, the NAHB’s bow to the public interest was to warn of “lower home values.” But houses have both buyers and sellers, and it’s debatable that high house prices are better than low. Moreover, as the Wall Street Journal editorialized, it’s also not clear that the mortgage deduction is what drives home ownership.

“Canada and Britain have similar rates of home ownership as the U.S. (nearly two thirds of their citizens) without a mortgage-interest deduction,” the Journal wrote. “If the housing industry really depends on a tax subsidy, maybe it’s time we ask why the U.S. tax code should favor buyers over renters” (http://tiny.cc/…).

Farm lobbyists, thankfully, are not likely to face a similar conundrum, as farm subsidies do not depend on tax breaks for the general public. The major threat to the farm programs is simply the dwindling amount of money available to fund them. As Kansas Republican Pat Roberts, the chairman of the Senate Agriculture Committee, put it, “The reality is we’re going to have to do more with less.”

There is, though, a lesson in the home builders’ slip for farmers: Critics are going to attack the justifications for farm subsidies, so think hard about how to defend them. Is “food security” really a valid justification? Is it really true that without subsidies we’d have to import our food?

Some farmers would not make it without subsidies, to be sure, but is that the public’s problem? Critics are sure to point out that whenever one farmer decides to hang it up these days, others are eager to acquire his land—and that the last century’s experience suggests that as the farm population shrinks, food production swells.

If this sounds harsh, it is--but the budgetary realities are harsher still. Choices will have to be made between farm programs; Uncle Sam may not have enough money to pay for them all.

Food really is different, and there are answers to these questions. With thought farmers will find ways to justify at least some farm programs as in the interest of the broader public. The cynics will say this thinking is unnecessary—the farm program with the most lobbyists will win. They may be right, but conscientious farmers should want their interests to be aligned with the public’s.

Urban Lehner can be reached at urbanize@gmail.com

(CZ)

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