Subsidies and Tax Increases

I am increasingly concerned about the tone and tenor of the conversation concerning oil and gas subsidies. Some have suggested that dropping the subsidies is tantamount to a tax increase.  That is ridiculous. Any feature of the code that is not widely available is a subsidy.  Yes, that even means the mortgage interest deduction, which is a wealth transfer from the poorer (renters) to the richer (homeowners) and as a practical matter acts a subsidy to homebuilders, mortgage bankers, and real estate agents.

So if the mortgage interest deduction, which is the most widely available deduction, is a subsidy, then surely the oil and gas tax advantages – however meritorious – are also subsidies.

In short, we have arrived at the inflection point in the debate.  There are only three possible arguments to make.  All subsidies are legitimate.  None are legitimate.  The legitimacy of a subsidy can only be determined by the political strength of its advocates.  Given both our fiscal situation and our longstanding commitment to smaller government, only the second of these is supportable.

Yet, inexplicably, some have chosen to select the third argument.  Our subsidies are good; yours are suspect.  Worse yet, some have argued that opposing our subsidies would raise the price of gasoline, thereby presenting the features of a tax.  That is a particularly wrong and dangerous line of rhetoric.  First, whether as consumers or taxpayers, the public is already paying what the increased cost of gasoline would be – most of it directly to the oil companies and then a tiny fraction (2 cents a gallon?) to the federal government.  What conceivable difference would it make if the consumers pay all of it to the oil companies directly?

Second, and potentially much more damaging, this line of thought and language leads us into a situation in which we will not be able to reduce any subsidy under almost any circumstances.  Surely, that cannot be the desired result.

Perhaps everyone would be better served if the conversation pivoted to the wisdom of all other subsidies.  The bottom line is this:  all subsidies are either good or bad; they either distort investment and spending or they don’t; they either corrupt the political process or they don’t.  I think they are all bad.