Profiles in Privilege

Farm Favoritism:

A new report from the Environmental Working Group, a nonpartisan research organization, found some farmers are double-dipping when claiming federal crop insurance, costing taxpayers nearly $23.9 billion to date.

Farm aid is a transfer from low-income households to high-income households, and the vast majority of aid benefits the largest farms.

Proponents of federal crop insurance often argue that in its absence, private alternatives would not be viable. Professor Vince Smith takes on this claim in his recently-released Mercatus working paper. For one thing, he argues, these proponents often ignore the existence of reinsurance, which allows insurers to deal with systemic risk. These reinsurance markets often “cope with much larger losses in other sectors.” But even if private insurance and reinsurance did not emerge in the absence of government insurance, Professor Smith notes that “the absence of a product in the marketplace does not imply a market failure; it just means that the cost of providing the commodity by the private seller exceeds the price the buyer is willing to pay.”

On November 7th a bipartisan and bicameral group of legislators introduced the Sugar Policy Modernization Act, which would enact a host of reforms designed to introduce market forces into the U.S. market for sugar, and reduce federal assistance to sugar processors. This is a rare policy step in the right direction. As with crop insurance subsidies, the benefits of sugar subsidies are primarily absorbed by a small number of producers. Mercatus Senior Research Fellow Veronique de Rugy noted in 2015 that sugar subsidies heavily inflate the price of US sugar relative to the global average. For those of you with a sweet tooth that rivals mine, this means that sugar policy makes getting your fix more expensive.

Economic Development Favoritism:

Wisconsin: Governor Scott Walker signed a deal to provide Foxconn Technology group with nearly $3 billion in economic incentives if the company follows through with plans to build a $10 billion manufacturing plant in Mount Pleasant, Wisconsin. Instead of giving $3 billion to Foxconn, Wisconsin lawmakers could have instead reduced Wisconsin’s corporate tax rate by 21%, benefiting all businesses.

New Jersey: New Jersey’s Economic Development Authority approved a proposal to offer Mars Wrigley Confectionery $31 million in economic incentives to locate its new headquarters in Newark. Chicago, the other city in contention for Mars Wrigley’s headquarters, has yet to make public the terms of its proposal. This is but one example of how offering targeted economic development incentives to specific companies can create something of an arms race between cities. Writing in the Fiscal Times last month, Matthew Mitchell and Michael Farren discussed one way to mutually disarm that arms race.

Virginia: A recently-released study by Virginia’s Joint Legislative Audit and Review Commission concluded the state’s financial incentives for the film industry, which have doubled in the past five years, produce “mixed results” at best. Over the five-year span of the study, the film industry returned roughly 20 cents for every dollar it received in tax credits and 30 cents for every dollar it received in grants. The poor return is the rule rather than the exception across the United States, as Matthew Mitchell noted in 2014.

Occupational Favoritism:

Last week the Institute for Justice released the second edition of its landmark report: “License to Work: A National Study of Burdens from Occupational Licensing.” IJ’s website also has an interactive database, allowing users to compare state burdens in occupational licensing regulations for lower-income occupations. Even the states with the least restrictive licensing regimes — Wyoming, Vermont, and Montana — still enact significant barriers to employment through educational, experiential, and age requirements.

Occupational licensing disproportionately affects the poor, minorities, and those without college degrees, something lawmakers in states ranging from Nebraska to Pennsylvania are finally acknowledging and beginning to address legislatively.