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Show by another Federal agency, the Commission makes no recommendation concerning this phase of the problem.) No such considerations prevail in the case of Federal income taxes. Hence, the Commission does not fa.vor including in the price of vendible products an equivalent of Federal taxes which would be paid if these products were supplied by private enterprise. The Federal corporation in- come tax is a tax on private profit, not a cost of production. Hence, if Federal electric power and water are sold at cost, including interest as herein advocated, it is both illogical and self- defeating to burden such services with an im- puted equivalent of income taxes paid by private firms operating for profit. To do so would be to use power and water as a basis for tax gathering; this violates one of the basic canons of progres- sive taxation and defeats the very purpose for which such developments are undertaken. The Subsidy Issue One of the perennial indictments against cur- rent reimbursement practice in multiple-purpose developments is that it results in subsidies. The word subsidy is given a variety of meanings, most of them critical. It is said that the East subsi- dizes the South and the West; that railroads com- pete with subsidized water transportation; that certain industries, strategically located in relation to water resources, are subsidized by concerns less fortunately situated; that the present allocation of joint costs subsidizes certain functions, as for instance power, at the expense of others, such as navigation; that the assignment of capital costs to intangible values and to national interests is a fraudulent device to conceal subsidies to pri- mary beneficiaries. Also it is held that Federal taxpayers subsidize power customers of Federal electric plants, irrigation farmers, property own- ers in areas vulnerable to floods, etc. The total effect of these allegations is to cast doubt on the soundness of the developments and on the integ- rity of their sponsors. In the traditional usage, which is followed here, a subsidy is a public grant of privilege to private persons for which they render no equivalent serv- ice to society. Thus, regardless of the form in which it is expressed, a subsidy always results in private gain at public expense. It is for this rea- son that subsidies are regarded with such disfavor in democratic societies where the principle of equality obtains. A sharp distinction should be drawn between subsidies, as here denned, and payments by gov- ernment to private individuals for some service to society. If the recipients render services rea- sonably commensurate with the payments made to them, no subsidy is involved. The same rule prevails where government, on behalf of the en- tire society, makes an outlay or investment for the general welfare; individuals will benefit differ- ently, each according to his interests and capac- ity, but all enjoy the same opportunity. In such cases, it is only where certain strategically situated individuals are in a position to derive some special gain not open to others that a subsidy question arises. Here, the problem is to equalize economic advantages by appropriate charges against them special beneficiaries. This is the situation in multiple-purpose water resources developments. To meet criticism on this score, Federal water resources policy merely needs strengthening at two points: (a) All pri- vate beneficiaries should be required to return the costs incurred to serve them, and (b) social bene- fits and national interests should be clearly differ- entiated from those for which reimbursement would be required, and appropriations be made accordingly after full congressional discussion. The charge of subsidy would then be invalid. Where the public interest is clearly established, public expenditures to promote it cannot prop- erly be regarded as subsidies. Once these two main issues are disposed of, the minor remaining questions could be dealt with 1. A pricing policy for vendible services de- signed to cover at least the costs incurred in pro- viding these services, including the separable costs, a reasonable proporton of joint costs, and payments in lieu of State and local taxes. 2. An agreed plan for sharing the costs of secondary benefits among local, State, and Fed- 78 |
