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? (Is. 10:1-2)

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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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By Robert Waldrop