US Federal Subsidy Programs Ballooning

by Mike Godfrey, Tax-News.com, Washington

25 October 2006

The US Cato Institute has released a study showing that a net 271 new federal subsidy programs have been added to the Federal budget since 2000, the largest increase in programs since the 1960s. At the same time there has been a large increase in the number of subsidies or “incentives” in the tax code.

Chris Edwards, Director of Tax Policy Studies, Cato Institute, says that the proliferation of special interest spending in the federal budget in recent years has created much waste and corruption. Politicians have helped special interests while
helping themselves. But the main problem has not been that politicians have their hands in the cookie jar; it is that
the cookie jar has grown so large.

There are 1,696 subsidy programs in the federal budget, which dispense hundreds of billions of dollars annually to state governments, businesses, nonprofit groups, and individuals. The number of subsidy programs is rising rapidly, with a 44 percent increase since 1990. The largest recent increases have been in the Departments of Agriculture, Health and Human Services, Homeland Security, Interior, and Justice. The number of farm programs has soared partly due to the bloated 2002 farm bill, and many Homeland Security programs have been added since 9/11.

Mr Edwards points out that each new subsidy program comes with complex rules regarding eligibility, funding formulas,
reporting requirements, auditing, and other types of paperwork. And each new program spawns interest groups that favor program expansion and politicians who battle to keep the subsidies flowing.

He says that while most proposals for federal budget reform focus on cutting the growth in overall spending, reformers also need to focus on eliminating subsidy programs and preventing the creation of new ones.

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