Friday, August 14, 2009

Confronting corporate welfare

In the crusade to trim federal spending, it's business's turn to face the knife. But which funding programs? And how far should we go?

On November 22, 1994, Robert Reich, then U.S. Secretary of Labor, issued a challenge to Washington's public policy "think tanks" to identify business subsidies he characterized as "federal aid to dependent corporations."(1) Along with the many social welfare programs being targeted for reduction or termination by the incoming Republican-controlled 104th Congress, Reich believed that "corporate welfare" subsidies would provide considerable fuel for deficit reduction. Reich challenged congressional Republicans to terminate inappropriate federal government involvement in the workings of the U.S economy.

Secretary Reich's call to action was answered the following year with corporate welfare "white papers" issued by the libertarian Cato Institute, the centrist Progressive Policy Institute, and the liberal Center for Responsive Law and Essential Information. The reports' findings and recommendations were stunning. The Cato Institute identified 125 federal programs that subsidize business to the tune of $85 billion annually. The Progressive Policy Institute found 121 spending and tax subsidies benefiting specific industries that, if eliminated or reformed, would save $265.2 million over five years. Not to be outdone, the Center for Responsive Law and Essential Information's report uncovered 153 federal business welfare programs totaling $167.2 billion in taxpayer subsidies for Fiscal Year (FY) 1995.

How did corporate welfare endure under a Republican congress and a Democrat president? According to Cato Institute analysts Stephen Moore and Dean Stansel, it came out of the budget debate relatively unscathed. Of the $19.5 billion budgeted for the 35 least defensible programs identified by the Cato Institute, Congress cut only $2.8 billion (or 15 percent) for FY96. Moore and Stansel found that many programs were reduced nominally or not at all. Meanwhile, although President Clinton called Secretary Reich's proposal an "attractive idea," he clearly articulated that he did not endorse cutbacks in benefits to business. In fact, Moore and Stansel found that the Clinton administration actually proposed increased spending in the 35 least defensible programs. And the White House vetoed Republican budget bills because Republican reductions in corporate subsidies were deemed too large.

Defining Corporate Welfare

The condemnation of corporate welfare across the political spectrum may lead one to believe--incorrectly--that the definition of this concept is universally understood. But as we will see, the ideology of each public policy think tank or public interest group colors the definition of what constitutes "corporate welfare."

The Cato Institute defines corporate welfare as special government subsidies or benefits that are targeted to specific industries or businesses. It can take the form of direct government grants, loans, insurance, or subsidies provided to businesses; trade barriers designed to protect U.S. firms in particular industries from foreign competition at the expense of American consumers; or a loophole in the tax code carved out solely for the benefit of a particular company or industry. However, tax provisions that are universally available to all companies and industries, such as allowing faster write-off of capital equipment or a general tax cut for business, are not included in the definition.

The libertarian interpretation of the federal tax code differs markedly from liberal interest-group interpretations of federal corporate tax policy. The liberal definition of what constitutes corporate welfare often includes universal business tax provisions that are deemed inequitable, especially when comparing the corporation's "ability to pay" with the tax burden placed on other segments of American society.

The Progressive Policy Institute defines corporate welfare as subsidies that benefit specific industries, with the proviso that there may be offsetting social or economic policy reasons for preserving certain subsidies. The definition includes direct spending subsidies, direct and indirect tax subsidies, trade protections, and anticompetitive economic regulation as the conceptual elements of corporate welfare.

The Center for Responsive Law and Essential Information includes the following elements in its definition: (1) direct payments to companies; (2) provision of public goods and services without adequate compensation from companies; (3) federal purchases from companies of goods and services at more than market value; (4) federal tax breaks for businesses; and (5) business exemptions from laws.

A real-world example of a corporate welfare consensus is found in a "Dirty Dozen" list of federal subsidies and programs jointly issued in June 1995 by the three institutions. The list--which affects agriculture, defense, and construction industries, among others--constitutes the core elements of corporate welfare targeted to specific industries and firms: direct subsidies, tax breaks, regulatory exemptions, and trade protection. The three institutions unanimously recommended that this list of programs and subsidies be eliminated or significantly reduced from FY96 and future budgets. Anticipated savings over the subsequent five years were estimated at between $16.2 and $18.5 million.

No comments:

Post a Comment