Corporate Welfare Vs. Social Welfare: Which Benefits The Economy More?
(MintPress) – The word “welfare” is often synonymous with individuals on the receiving end of government-sponsored programs — a keyword when debating fiscal responsibility and the role of government in the lives of Americans.
Rarely is it used to describe tax incentives used to lure corporations. Yet it’s that type of welfare that takes up a larger piece of the puzzle, with more than $90 billion spent on corporate welfare subsidies in 2007. That’s compared to $59 billion spent on social welfare programs.
Offering subsidies to companies is commonplace in economic development. Whether city or state, providing the edge when attempting to draw corporations is regularly necessary — it has become part of the competitive equation. If one state provides the incentive for more savings, business will likely follow.
The premise of this is economic growth and job creation, yet at what point does the tax relief serve corporations over taxpayers and the overall economy?
A recent article in the New York Times highlights Texas as a model for deciphering who benefits from government incentives. The state ranks top on the list in terms of its subsidies — in one year, it gave up to $19 billion worth — that’s $19 billion that would otherwise be poured into the state tax pool.
When dealing with its yearly budget, the state was “forced” to slash funding for education by $5 billion in 2011 in order to deal with a budget shortfall of $15 billion. In 2012, the Houston Chronicle reported that schools were struggling with the widespread cuts, with consequences including increased class sizes and more than 10,000 teacher layoffs.
In terms of drawing private business, it’s worked. Texas is home to more than 50 Fortune 500 operations, according to CNN Money, including oil giants Exxon Mobil and ConocoPhillips. This equates to job creation.
But the type of jobs created are not exactly responsible for a bursting economic situation. The state ranks third in the nation for the number of jobs paying minimum wage or less, according to the Times.
In 2010, more than 18 percent of Texans were living in poverty, according to Census data.
Texas leads common practice
Texas may be leading the way in economic subsidies, but it certainly isn’t alone.
In 2007, the U.S. dished out $92 billion to private-sector operations, according to a CATO Institute study. The study used a broad definition to account for such subsidies, but included all government-sponsored benefits awarded to corporations.
The conclusion CATO Institute came to was that many of the corporations benefiting from taxpayer funds were some of the most successful companies in the country, refuting the argument that such subsidies are necessary to fill a gap felt by businesses to succeed.
“Supporters of corporate welfare programs often justify them as remedying some sort of market failure,” Stephen Slivinski of the CATO Institute wrote in the report. “Often the market failures on which the programs are predicted are either overblown or don’t exist. Yet the federal government continues to subsidize some of the biggest companies in America.”
Some of those companies included Dow Chemical, Motorola and General Electric — corporations that produce billions in revenue each year. The extra incentives help, but do they really need them?
“While economic development is the mantra of most officials, there’s a question of when does economic development end and corporate welfare begin,” Daly Craymer, president of Texas Taxpayers and Research Association, said in an interview with the Times.
Some federal subsidy programs, including those given to the ethanol industry, were created to build up the industry for the long-term economic health of the country and to move the nation toward a more environmentally-friendly blend of fuel. But did it work — or is it worth it?
“Moreover, the federal budget is filled with a potpourri of grants, loans, loan guarantees, and other subsidies for virtually everyone in America. The doors to the federal Treasury have been open for years to anyone inclined to pillage the public,” writes Doug Bandow for Forbes Magazine.
The Nieman Foundation for Journalism at Harvard University published a piece by Dr. David Cay Johnston of Syracuse University on the struggle between social and corporate welfare focus. At a time when local governments are drastically cutting education and other social programs, Johnston, also a Pulitzer prize winner, argues that the media has failed in highlighting the vast amounts spent on corporate welfare.
“Reporters,” he writes, “and their editors and producers, should be comparing cuts in benefits to the vulnerable to giveaways to corporations.”
CATO’s Slivinski presented a possible solution and end to the inadequacies of corporate welfare programs. It largely involves congressional action, similar to that seen with the Military Base Closure Commission. He proposes the creation of a Corporate Welfare Reform Commission (CWRC), which would take a look at appropriate corporate welfare initiatives, creating a system in which the commission could vote a proposal up or down.
Some local governments that have been burned by corporate subsidies have created their own system for change. Travis County in Texas created a rule that states companies benefiting from subsidies must pay employees at least $11 an hour.
This, in theory, would at least boost the economy in the area, which would in turn help fill the government’s coffers. There is clear opposition to this notion, however, with business leaders claiming any mandated wage would hurt business.
The struggle to highlight corporate welfare comes at a time when the U.S. is quite divided, especially in terms of fiscal responsibility. Approaching the so-called fiscal cliff, President Barack Obama and Democrats are having a tough time convincing Republicans that cuts on the country’s highest earners (those making more than $250,000) would be good for the economy. Opponents argue that job creators should not be severely taxed — if they are, conservatives claim the economy will suffer.
Yet with social programs being gutted and with those on the bottom bearing the brunt of budget cuts, at some point an agreement will need to be made. Highlighting the numbers — social vs. corporate welfare — would be a start.
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