Government Subsidies for Business (2024)

Long before the government bailouts of certain faltering businesses, during what has come to be called The Great Recession, the U.S. government had subsidized many sectors of business vital to the economy and to our national well-being.

Because there are so many industries receiving government assistance, this article will focus on three business sectors that receive subsidies: energy, agriculture, and transportation. Each of these business sectors receives billions of dollars annually from the government.

The Energy Sector

America and the world run on energy—mainly oil and petroleum products. But there are other economically important forms of energy, including nonrenewable energy sources (gas, oil, coal, etc.) and renewable energy sources (ethanol, biodiesel, wind, etc.).

To aid in developing and exploring both old and new energy sources, the federal government provides subsidies to businesses pursuing these initiatives. Subsidies are also awarded to energy producers developing more efficient and economical production and distribution procedures.

A wide variety of tax accounting allowances, credits, exemptions, deductions, depreciation, and other financially beneficial tax breaks are given by the federal government to energy producers.

Types of Energy Subsidies

The government provides funds for research and development in the form of grants and loans at favorable rates and repayment terms. Even the nuclear energy industry and its consequent liabilities are offered assistance by the federal government.

For example, the federal government owns about 2,800 dams that generate hydroelectric energy, which acts as a subsidy for the energy industry by ensuring power is available at lower than the market price. Bonds are issued by power-generating facilities owned by the U.S. Department of Energy, such as the Tennessee Valley Authority.

Additionally, some government land is leased or sold for oil and coal exploration at lower-than-market rates, and import tariffs are imposed on biofuels (such as ethanol) in order to protect prices.

The Agriculture Sector

Food is the most vital product of the agriculture sector. But there are other non-food products critical to the economy generated in this multi-billion dollar industry, including cotton, wool, and tobacco.

Before the Great Depression, government subsidies to the agriculture sector were relatively limited. Beginning in 1933, however, with the first administration of President Franklin D. Roosevelt, new legislation was enacted to support commodity prices, control production, restrict competition, insure crops, and impose tariffs on imports. These subsidies supported many commodities in the agriculture field, including (but not limited to) corn, wheat, peanuts, honey, and dairy.

The agriculture sector that provides the food we eat daily is another entity the government can't let fail. Farmers must be kept in business, and consumers must be fed. Food prices, although variable, must be kept relatively low and affordable.

Types of Agriculture Subsidies

There are various ways that the government subsidizes the agriculture industry—both monetarily and non-monetarily. These include:

• Direct cash payments are made to farmer-producers when farm commodity prices fall to compensate for their financial losses.
• Loans with no penalty for default are granted to farmers by the U.S. Department of Agriculture. The loans, in effect, are a gift since defaults are not penalized.
• The USDA sells affordable insurance against weather and pest damage to crops.
• In addition to payments from government insurance, farmers may also receive government disaster aid (cash payments) if crop damage is suffered.

The Transportation Sector

The transportation sector includes vehicles, trains, aircraft, and water-borne vessels that travel from one location to another and a vast, nationwide supporting infrastructure.

These include rail lines, roads and highways, bridges, waterways, air and rail terminals, and port facilities for lake, river, and ocean traffic.

The government subsidizes many elements of the transportation sector to ensure the fast, efficient, reliable, and economical movement of people, commercial goods, and mail from one place to another. Both domestic and international commerce depend on the smooth functioning of the nation's various transportation modes, with major support beginning after World War II. One of this sector's most costly and far-reaching subsidies was the Federal Aid Highway Act of 1956, which provided funding for the Transcontinental Interstate Highway System.

Types of Transportation Subsidies

Subsidies for the transportation sector are similar to subsidies for the abovementioned sectors. In some instances, user fees levied on air, rail, and highway users help the government recover a portion of the money expended on subsidies via direct cash payments, airport and railway construction funding, and tax incentives (or exemptions) to privately owned transportation systems.

For example, in 2022, the federal government added funds to programs that help states and municipalities plan for and build an electric vehicle infrastructure on the national highway system to help accelerate the pending conversion to electric vehicles.

The Bottom Line

Government subsidies of critical business sectors have promoted profitability in many enterprises and assured national prosperity and domestic well-being. They haven't always helped struggling businesses or industries, but for the most part, subsidies are an excellent, while costly, way to encourage growth in specific areas.