Corporate Welfare Vs. The National Debt

SECOND UPDATE: January 30, 2011

Yet an even more in-depth post on corporate welfare.

UPDATE: March 19, 2010

There’s been a considerable amount of interest in this post. Therefore the Old Man has added a page devoted solely to Corporate Welfare. There you will find additional information on the subject. New information will be added to that page from time to time. You will also find the page in the navigation bar above, as well as a link button on the right. After reading this post you may want to visit the page.

Thanks to all the readers.

January 27, 2010

Page 1 of 2

With the recent ruling by the Supreme Court which allows corporations to spend unlimited amounts of money on political campaigns, one of the Old Man’s passions has been rekindled — corporate subsidies; otherwise known as “corporate welfare”. Corporations don’t like the use of the latter term, but that is precisely what it is, camouflaged by the word ‘subsidies’. It has always amazed me how much these corporations are allowed to scam from taxpayers, made possible only by our lawmakers, but, given the amounts, I’m even more amazed at how little importance the average American puts on it. Of course, corporations and their faithful servants don’t like this subject mentioned, and the main stream media conveniently obliges them. I’ve always wondered why. But with all of the hullabaloo over the national debt and budget deficit these days, now is a good time to revisit corporate welfare.

(Personal Note: The Old Man ordinarily doesn’t configure links in his post to open in a separate window. However, this time I have configured them to do so for various reasons, which I hope won’t offend you. However, you shouldn’t see that in the majority of my post.)

Corporate welfare, as described by Wikipedia, puts it like this: “Corporate welfare is a pejorative term describing a government’s bestowal of money grants, tax breaks, or other special favorable treatment on corporations or selected corporations”. I’m of the opinion that Wikipedia puts it very mildly, but, on the other hand, they are suppose to be unbiased. This cartoon is a great rendition of what it really means.

While the $3 trillion plus bailout of the financial industry can most certainly be termed as corporate welfare, it is not there I want to focus — my focus is on the hundreds of billions of dollars given away each year to these corporations with no end in sight. Ironically, it is that industry (along with many of the others) and their “political party of choice” who are always pointing to welfare programs for the poor and less fortunate —- the people who really need help — as “the problem” with the debt and deficit.

Let’s get this out of the way first. No doubt the defenders of corporate welfare will point to the only defense they have – trickle-down-economics. Or, if you so desire, supply-side-economics. The reason they always point to that is because there is no other defense! But with 800,000 jobs lost under the last administrations’ first four year and just as many their last four — all right behind one of the biggest trickle-down-economic giveaways in history — I think one can safely say TDE doesn’t work; except for the corporations. See this example. And if that’s not enough for you, revisit how many jobs were lost under the (President) Reagan administration, which also saw huge increases in corporate welfare.

In November 1998 Time Magazine printed a series of articles entitled “Corporate Welfare”. The investigation leading to that report took 18 months. Time published the story over four consecutive issues of the magazine: November 9, 16, 23, and 30. The first part begins with an attempt to get ones attention:

How would you like to pay only a quarter of the real estate taxes you owe on your home? And buy everything for the next 10 years without spending a single penny in sales tax? Keep a chunk of your paycheck free of income taxes? Have the city in which you live lend you money at rates cheaper than any bank charges? Then have the same city install free water and sewer lines to your house, offer you a perpetual discount on utility bills–and top it all off by landscaping your front yard at no charge?

But then they burst your bubble:

Fat chance. You can’t get any of that, of course. But if you live almost anywhere in America, all around you are taxpayers getting deals like this. These taxpayers are called corporations.

Time tells us the Federal Government alone (not including state governments) “shelled out $125 billion a year in corporate welfare. That’s $1.25 trillion every ten years. Now what’s our debt today? It would be nearly $3 trillion less if corporate welfare had been eliminated over just the past 20 years.

As for what states and local governments hand over, this is what Time had to say:

There are no reasonably accurate estimates on the amount of money states shovel out. That’s because few want you to know. Some say they maintain no records. Some say they don’t know where the files are. Some say the information is not public. All that’s certain is that the figure is in the many billions of dollars each year–and it is growing, when measured against the subsidy per job.

There’s plenty of other interesting facts there in the first part, such as an estimated 11,000 organizations and agencies who work on getting this money out of taxpayers. For a moment, think about just how much money corporations pay out to these groups. Then think about how profitable the welfare program has to be.

So the defendants of this welfare program want to tell us that jobs are created as a result (reference trickle-down-economics). Unfortunately, that’s not what Time found in their investigation. The five biggest customers of the Import-Export bank, a bank funded by the taxpayer to subsidize companies who sell goods overseas, cut a third of a million jobs during a period when those five accounted for 40 percent of the banks loans. And there’s more than enough information out there to prove that it’s never worked any where except for a few small businesses — businesses with less than 50 employees. So sure, trickle-down-economics really works!

SIDE NOTE: Evidently Time has archived the articles that followed the first one linked above. However, the Old Man was able to piece the individual parts together and convert it to a PDF if you’re interested.

Time’s piece seems to include not only taxpayer cash that is shelled out to corporations each year, but special tax breaks and other incentives which cheats the country out of additional tax revenue, for which the ordinary taxpayer has to make up. But in testimony before a Congressional committee in 1997, Stephen Moore, then Director of Fiscal Policy Studies at the Cato Institute, talked in terms of actual cash paid out to these corporations.

Moore said the government had $75 billion in their budget for corporate subsidies for that year. That was the same year corporations had record earnings of $325 billion. He went on with “these welfare payments come in every conceivable shape and size, including government grants, contracts, cut rate insurance, loans, and loan guarantees. There are roughly 125 such business subsidy programs in the federal budget and they can be found in virtually every cabinet agency of the government–including the Defense Department” [bold added]. And these welfare programs have been increasing every year since. By 2006 that $75 billion had grown to $92 billion.

Moore points out that most all of the subsidies are federal expenditures, not tax loopholes, which means the $75 billion is coming right out of the taxpayers pocket. Many of these companies are double, triple and quadruple-dippers into the taxpayer pig trough. And there are no time limits to these corporate subsidies — they go on forever, unlike most social welfare programs.

Moore offered the following table as alternatives to corporate welfare:

WHAT $75 BILLION IN ANNUAL CORPORATE WELFARE SAVINGS WOULD BUY

Now since these corporations are always harping on their tax rate being too high, maybe — just maybe — we might be able to drop the tax rate a few points if they’d be willing to give up welfare. However, as Moore points out, the Republicans are too skittish to push these cuts, but he also says the Democrats are just as disappointing.

No numbers of just how much cash is paid out of the taxpayers till could be found since 2006, but because it grew by nearly 23 percent in ten years we can assume it was at least $100 billion in 2009. And that would be without the financial bailout. So just what could we do with an extra $100 billion each year??

The Cato Institute, which keeps close tabs on corporate welfare, published their 7^th edition of Handbook for Policymakers in 2009. They offer the following recommendations to end corporate welfare.

• end programs that provide direct grants to businesses;
• end spending that indirectly subsidizes businesses, such as preferential loans and assistance for exporting;
• eliminate trade and regulatory barriers that favor some businesses at the expense of other businesses and consumers;
• eliminate earmarking in spending bills and subject all spending projects—assuming that they are legitimate federal activities— to expert review and competitive bidding;
• expand financial transparency with further Internet disclosures of spending details for proposed and enacted bills; and
• downsize the federal government by terminating programs, reviving federalism, and privatizing activities.

However, don’t hold your breath waiting on our government to adopt any of those recommendations. The same Cato Institute has been offering Handbooks for Congress since 1995 and Congress has yet to take even one of their recommendations relative to corporate welfare. And although Congress was controlled by the Republicans 10 of those 14 years, both parties are to blame.

So far we’ve covered corporate subsidies as a whole. Now lets take a brief look at a couple of the details, then some closing remarks. (Click Page 2 Below)