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Proaosal 6 - Prohibition on the Use of Federal Subsidies and Tax Benefits for Activities Causing the Loss or Dggradation of Endangered Species Habi- Description: Private parties who enjoy direct and indirect federal subsidies, price-supports, and tax considerations would be denied the use of such subsidies for activities that eliminate or degrade habitat for endangered, threatened, and candidate species and for significant biodiversity. Concurrently, all private parties enjoying direct and indirect federal subsidies would be required to inven- tory their lands for endangered, threatened, and candidate species habitat and to develop management plans for such habitat. Examples of direct and indirect federal subsidies include federal price supports for crops and commodities, feder- ally subsidized water and energy, and the subsidized federal timber program. A variation on this prohibition would be to deny standard business expense deductions, depreciation allowances, and investment tax credits to economic agents when these deductions and credits foster loss or degradation of biologically significant habitat (Dennis 1985). Rationale: Federal subsidies and tax benefits can be powerful motivators of economic activity. As such, they could be an equally powerful lever to discour- age environmentally destructive activities. The enjoyment of federal financial resources for private gain should require a responsibility to work toward a goal of national importance: the preservation of the nation's biodiversity resources. Transaction Costs: Those federal agencies furnishing subsidies would be re- quired to track and monitor their use to ensure that habitat for endangered species and significant biodiversity was not being destroyed or degraded. Private parties enjoying federal subsidies would be required to document compliance with the prohibition on their use in activities causing habitat loss and degradation. Con- ducting habitat inventories and developing management plans would require use of qualified biologists and land managers, and agency assessment and approval. Research Questions and Issues: The first research need is to identify and docu- ment further the many direct and indirect federal subsidies contributing to habitat loss and degradation. A second need is to determine how far back in the subsidy chain these prohibitions should apply. For example, some municipalities in western states have access to water from federal water projects. Should use of this subsidized water be denied to municipalities whose zoning practices encourage patterns of residential and commercial growth that obliterate endangered species habitat? The Free-Market Approach. Free markets hold tremendous potential to price and allocate accurately and efficiently scarce resources (Anderson 1991). But the applicability of free market approaches to the endangered species issue may be severely limited by the very scarcity that threatened or endangered species status 12