Sunday, May 15, 2016

Corporate welfare

The term "corporate welfare" was coined by Ralph Nader in 1956 and has since become a standard criticism of government support for corporations and for the very rich.
Recently a new website has appeared called "Subsidy Tracker/Good Jobs First" that tracks in admirable detail what corporate entities receive by way of support from the federal and from state and local governments. At the same time the website shows that the idea of corporate welfare is more complicated than is often thought.

The website lists the corporations that receive the largest subsidies from the federal government. At the top of the list is a Spanish Corporation, Iberola, that owns many wind power installations in the United States. Since 2000 that company received 2.2 billion in subsidies. The Federal Government has adopted a policy of supporting alternative energy installations. So far, wind power is more expensive than electricity generated by fossil fuels. If we want to increase the proportion of electricity generated by wind power, the government needs to subsidize those installations. This is not an example of "corporate welfare."

This is an important point. Not every government subsidy to private industry should be condemned as corporate welfare. There are industries which we want to encourage and subsidizing them does not go against our national interest. Wind generated electricity is a fine example of that. 

The expression "corporate welfare" applies to government subsidies given to industries contrary to public policy. The government gives subsidies to oil companies at the same time as it is trying to move our power generation away from fossil fuels. Oil companies are reimbursed by the government for the oil they pump out of the ground. Since any oil company has limited oil available to it, they argue that they need to be reimbursed for reducing the total oil available to them. All of us, exhaust the total amount of energy available to us as we work. Over the years we loose strength, we tend to move more slowly, our memory becomes less reliable, and our competence is reduced in some areas. We loose the physical attractiveness of youth.  But older workers do not receive subsidies from the government for a exhausting their limited resources. Such payments are only given to oil companies. That is  not only an unfair subsidy but it is subsidizing an industry which we actually do not want to encourage.

Tax breaks are another form of corporate welfare  that are not given to ordinary citizens. Corporations do not have to pay taxes on profits they make outside the United States. If ordinary citizens are paid for work they do abroad, the taxman still wants his cut. Exempting foreign income of corporations from US taxation is clearly giving corporations an unfair boost.

Hedge fund managers are taxed at a 20% rate on their income which is considerably less than other people in the same income bracket have to pay. If there were some reason for encouraging hedge funds that sort of subsidy might not be problematic. But this much lower income tax rate for hedge fund managers is generally regarded as a completely unfair government subsidy for a specific financial industry. Hedge funds have contributed to financial instability. It is not clear that they are desirable and should receive special supported by the government. 

 Walmart and fast food enterprises like McDonald's pay their employees so poorly that they need to go on food stamps in order to be able to feed themselves and their children.  Programs like food stamps make it possible for employers like Walmart and McDonald's to pay extremely low wages to their employees. Food stamps are a subsidy to the very large companies who can raise their profit margins by underpaying their employees. Ordinary citizens who hire roofers or plumbers or someone to plow their driveway in the winter do not receive government subsidies to help them pay these contractors. Subsidies are only for very large and very profitable corporations.

The military is regularly being accused of wasting significant amounts of government money. A great deal of work in war zones is done by a civilian contractors such as Halliburton. These contractors increase their profit margin by hiring workers from Asia or Africa who are paid considerably less than the government allows the contractor for wages. The differential  goes into the contractor's pocket. Contractors often deliver shoddy work or no work at all but the Pentagon pays the contractor anyway.

In recent years there has been a major increase in the number of Americans incarcerated. Publicly owned and run prisons have not been able to house all these prisoners. Private prisons have become a new and rather profitable industry. Their lobbyists are found in state legislatures everywhere to encourage legislators to increase punishments for crimes, to impose mandatory sentences, to pass three strikes laws where someone convicted for three crimes is subject to many years in prison even if one or more of these three crimes is of minor importance. State legislatures subsidize the private prison industry in this way at the expense of people who run afoul of the law and of course at the expense of the taxpayer who has to pay for all these additional prisoners housed in private facilities.

A good deal of information is available about specific government programs, subsidies, reduced taxation for specific industries. Each accusation of corporate welfare is rebutted by the industry lobbyists who claim that the monies paid to specific industries are in the national interest. The accusation of corporate welfare is always open to argument although often those arguments are pretty threadbare.

Given that each individual example of corporate welfare is subject to  argument, it is very difficult to arrive at a rough figure of how much of the national budget is devoted to enriching corporations in ways that are not benefiting Americans at large but are only benefiting owners of companies or their stockholders. At the same time the examples cited here are only a small number of the corporations that are rendered profitable by favorite government action. Ours is indeed a welfare state which keeps the poor, the sick and the elderly on very short rations but is much more generous when it comes to welfare for corporations and the rich.