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Tuesday, November 23, 2010

Corporate Welfare

Corporate Welfare

Financial aid, such as a subsidy or tax break, provided by a government to corporations or other businesses, especially
when viewed as wasteful or unjust.

Corporate welfare is a term describing a government's bestowal of money grants, tax breaks, or other special favorable treatment on corporations or selected corporations.

The term compares corporate subsidies and welfare payments to the poor, and implies that corporations are much less needy of such treatment than the poor.

The Canadian New Democratic Party picked up the term as a major theme in its 1972 federal election campaign.[1]

Ralph Nader, a prominent critic of corporate welfare,[2][3] is often credited with coining the term.[4]

Each year, U.S. taxpayers subsidize U.S. businesses to the tune of almost $125 billion, the equivalent of all the income tax paid by 60 million individuals and families.

These corporations receive a wide range of favors: special corporate tax breaks; direct government subsidies to pay for advertising, research and training costs; and incentives to pursue overseas production and sales.

While Congress institutes dramatic cuts in funding for traditional support programs for individuals and families, corporate giants continue to live off the dole.

Each dollar spent on these "aid for dependent corporations" welfare programs means one dollar less for environmental programs, support for education, assistance to those in need, tax breaks for families, or deficit reduction.

Public Citizen is helping to lead a major push to reduce corporate welfare.

Corporate welfare is a pejorative term first coined by Ralph Nader in 1956 to describe a government's bestowal of grants and/or taxbreaks on one or more corporations or other "special favorable treatment" from the government.

Usually these actions are seen to be at the expense of the citizens, although in the case of "wealthfare" unevenly distributed to different corporations, they might be seen as at the expense of other corporations as well.

The word "wealthfare" is meant to remind one of welfare payments
to the poor, and perhaps imply that corporations are much less
deserving than the poor.

Corporate welfare is applied in a number of different situations.

A classic example of corporate welfare is the granting of the use
of broadcasting rights to TV stations at nominal fees-when other
companies would gladly pay handsomely to use this spectrum.

Increasingly common with the rise of globalization is offering incentives to locate in an area.

For instance an auto-plant is never built today without the company declaring interest in two areas, e.g. Alabama and Ontario and then letting those two governments race to outbid each other with promises of tax breaks, free land, and infrastructure developments.

This skews the free market, it gives an important competitive advantage to large multinationals, who might not otherwise be more efficient than a local producer. It also shifts tax burdens away from these large companies to smaller ones and to individuals.

Another common cause of corporate welfare is a large company nearing collapse.

While free market liberalism views the bankruptcy of companies as essential to the process, the specter of lost jobs and unhappy voters often means the government will step in to help a faltering behemoth, but rarely a small business.

An example of this is the airline industry, recently, a perennially money losing industry that has only survived through continuous government aid.

Much corporate welfare has even less justification than the above two cases and is pure pork barreling. Defence contracts given inefficient businesses in a politician’s district, or giving funding
to a major campaign donor are both instances of pure corruption.

There are some cases where corporate welfare is arguably justifiable. Many companies produce positive externalities that would not be accounted for by a pure free market.

For instance most countries heavily support their domestic film companies, arguing that preserving national culture would not be ensured by an unfettered market. Funding that can be seen as an investment can also be justifiable.

A number of countries have used corporate welfare to get industries started that would go on to pay great dividends for both the government and society in the long run.

Corporate welfare can be viewed as one of many forms of regulator capture.

What is Corporate Welfare?

Written by Sherry Holetzky
Edited by Bronwyn Harris
Last Modified: 09 September 2010

Corporate welfare can be defined generally, as any assistance provided by a government, which gives a private business an advantage over others.

In the United States, corporate welfare refers to any number of favors, costing billions of dollars each year, bestowed on corporations by the federal government.

It includes, but is not limited to, tax breaks, direct grants for corporations, and various other forms of special favorable treatment.

As with other forms of welfare, many individuals and groups oppose the concept. One of the main contentions concerning corporate welfare is the fact that it like other welfare programs is unconstitutional at the federal level.

The Constitution provides no authority for Congress to redistribute money collected via taxation, in an effort to subsidize businesses or individuals. In fact, the spending power of Congress is specifically detailed and limited.

While entitlement programs ostensibly designed to assist families or individuals are often described as “leveling the playing field,” those who support public assistance rarely apply this position to corporate welfare. In fact, it is as inaccurate concerning corporate welfare as
it is in regard to other entitlement programs.

Corporate welfare is accused of not leveling the field at all, but distinctly providing advantages for select industries or companies
at the expense of other businesses and often consumers.

Not only that, but the cost is astronomical, and the taxpayer doesn’t get a say in which companies will be propped up. Adding insult to injury, some say that the government seems to choose blindly when determining which industries or businesses will yield a return on this huge investment.

Corporate welfare is not always recognizable in its various forms. Along with cash bailouts there is also money provided to pay for research and development, insurance, or for subsidized loans.

Favors also include acts of protectionism, shielding only certain American industries or businesses, from foreign competition.

This of course, stifles free trade, limits other companies, and
means that Americans often pay more for goods and services.

Many people believe that corporate welfare also breeds corruption.

It seems that frequently, those that make the greatest campaign contributions receive the greatest windfalls.

Aside from monetary concerns, certain industries sometimes have greater lobbying power when it comes to legislation.

Can you think of any industry that has been able to persuade the government that the purchase of its product or service should be mandatory?

If so, you have just discovered another form of corporate welfare.

Corporate Welfare

"Then we see hearts harden and minds close, and men no longer gather together in friendship but out of self interest, which soon leads to opposition and disunity." Populorum 19

"Woe to those who enact unjust statutes and who write oppressive decrees, depriving the needy of judgment and robbing my people's poor of their rights, making widows their plunder and orphans their prey! What will you do on the day of punishment when ruin comes from afar?" (Isaiah 10:1-2)

Corporate welfare is the use by the rich of special pleadings to produce subsidies, preferential economic favors, trade regulations, tax abatements, and subsidies for their personal enrichment.

This is not a small item in the federal budget. The Progressive Policy Institute estimates that the annual federal budget has $20.36 billion in preferential tax treatment and, while not a direct federal budget item, preferential trade rules cause $32 billion in economic cost to consumers (Shapiro 8).

The libertarian Cato Institute finds a total of $87.3 billion in the
cost of trade regulation.

By combining the two corporate welfare approaches, this paper estimates the total federal commitment to Aid to Dependent Corporations to be $139.7 billion, of which $107.7B are direct expenditures and tax subsidies, much more than the $64 billion which the federal government spends on AFDC, food stamps, WIC, school lunch, and the earned income credit (1994 numbers).

It was not possible to derive a figure for local and state welfare to corporations, but it is likely that this figure is even higher than the federal commitment.

Some of the typical local and state perks for the corporate welfare queens and dependent corporations include (a) special tax breaks for businesses that move into the area, (b) direct subsidies, (c) property tax abatements, (d) protection from competition, (e) favorable regulatory treatment for some businesses, (f) zoning and occupational licensure.

This creates a rather seedy climate where communities bid against other communities to lure factories from one area to another. There are many government organizations devoted to such raiding of their neighbors.

Yet, how many actual new jobs are created? Often, they are simply moved around -- one area loses 200 jobs while another area gains 200. Too many businesses are learning that it is easier to loot the taxpayers than it is to earn an honest profit.

This corruption is another market problem rarely addressed by conservatives, whose attitude seems to be that whatever a business can grab from the taxpayers is justified.

One factor driving the welfare reform crusade is the need to balance the federal budget and do something about the huge federal debt.

But if the real concern is balancing the budget, why not start with Aid to Dependent Corporations? This is where the money is (together with Aid to Wealthy Seniors).

Supporters of corporate welfare allege that these welfare checks for big business are socially useful because they "create" jobs, and the economy needs jobs in order to improve the plight of the poor.

However, many of these subsidies only result in rearranging jobs, and the pro-corporate welfare argument does not consider the effects of taking money from the economy and then awarding it based on political power.

How many jobs were not created because this particular batch of money was handed out in this way, based on political patronage and not upon market realities, and was not available for other productive uses?

It seems unlikely that any jobs were created via corporate welfare that would not have been created anyway.

The Cato Institute notes additional problems with corporate welfare:

(1) The government has a poor record in picking winners and losers in the marketplace.

(2) Corporate welfare wastes money with few benefits, except for those on the receiving end; often, the "return" on investment is negative. The government spent a billion dollars on the "Supersonic Transport," that did not fly one passenger -- ever! In the 1970s, two billion was wasted on the Synthetic Fuels Corporation, which did not produce one kilowatt of electricity.

(3) Corporate welfare helps big business destroy its smaller competitors. Sematech was launched by the feds to counter Japanese domination of the computer chip market. But the way it has worked, a few big U.S. companies have ganged together and are suppressing the many smaller chip producers. Eighty percent of agriculture subsidies go to large farmers (net worth of more than $500,000).

(4) Corporate welfare encourages corruption of the marketplace and of politicians. A lot of this stuff is political payoff for big campaign contributors.

(5) Corporate welfare raises consumer prices. The U.S. Department of Commerce says that the sugar welfare program is effectively a regressive sales tax that hits poor consumers the worst (since sugar is included in so many foods purchased in grocery stores) (Moore and Stansel, 6-8).

If the amount of corporate welfare was much smaller, and if the financial crisis of the federal and state governments were not so pressing, corporate welfare as a structure of sin would be a minor consideration.

But this is not the case. The federal government is in an on-going financial crisis and there seems to be no credible program that is proposed to resolve the situation.

Indeed, since the Republican Ascendancy of 1994, the main focus has been to slash and cut programs for the poor, not the wealthy and the middle class.

Since corporate welfare is such a major contributor to the on-going financial crisis, it is a structure of sin that oppresses the poor.

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