A refusal to confront corporate welfare shows the grip crony capitalism has on Washington and state capitols.
In what is being interpreted as an election year stunt, Rep. Paul Ryan (R-Wis.) released a 204-page statement earlier this month. “The War on Poverty: 50 Years Later” critiques the federal government’s anti-poverty policies, calls the government’s efforts inefficient and marks where he and the GOP feel spending cuts or consolidations are needed.
“There are nearly 100 programs at the federal level that are meant to help, but they have actually created a poverty trap,” Ryan said in an interview with The Washington Post. “There is no coordination with these programs, and new ones are frequently being added without much consideration to how they affect other programs. We’ve got to fix the situation, and this report is a first step toward significant reform.”
Ryan is far from the only Republican talking about cuts to social welfare programs. Since President Lyndon Johnson’s Great Society — which introduced most of the components that are now assumed to be part of the nation’s social welfare program: Medicare/Medicaid, the Supplemental Nutrition Assistance Program (SNAP, formerly Food Stamps), Temporary Assistance to Needy Families and the National School Lunch Program — the social safety net has been a favorite target for Republicans, who criticize the use of federal money to benefit a subset of society unlikely to vote Republican. Instances of fraud are regularly used to justify rollbacks or tightening of fund distributions.
“Big, expensive welfare programs riddled with fraud and abuse threaten our future,” said Maine Gov. Paul LePage (R) in his state of the state speech. LePage is supporting a massive tightening of his state’s social welfare program. “Too many Mainers are dependent on government handouts. Government dependency has not — and never will— create prosperity.”
Taken as is, it would seem that the Republicans are against government handouts. The party’s stance, however, seems less sure-footed when one considers 26 U.S. Code Section 5010, which grants a $13.50 tax credit per gallon to distilleries of flavored or wine-distilled liquor. Another point of consideration is that if sugar prices fall too low in the United States, the U.S. Department of Agriculture would buy sugar from processors that have government loans to prevent the processor from defaulting on the loans.
This is akin to a bank giving a lender who is about to default on his mortgage money to stay current on his payments. In the ordinary world, such things are unheard of, but such maneuvering is commonplace in the world of corporate welfare. The nation’s oil and gas companies, for example, collectively receive more than $7 billion in subsidies, credits and reimbursements, despite the fact that the top five oil companies broke their all-time profitability records with $93 billion in profits last year, not including tax provisions and immunities for new shale drilling operations.
Corporate welfare in the U.S. has exceeded social welfare by a factor of nearly 2-1. According to a February study from Washington-based Good Jobs First, just 965 corporations received $3 out of every $4 of state and local governments’ economic development funds. Warren Buffett’s Berkshire Hathaway received 310 subsidies totaling $1.06 billion, while Boeing received more than $13 billion — roughly $20 million on every jet Boeing makes.
Alcoa, formerly the Aluminum Company of America, received 91 subsidies totaling $5.6 billion. This is roughly equivalent to 17 years of expected pretax American profit for the company.
Fortune 500 companies account for more than 16,000 subsidies, worth approximately $63 billion. The database tracked subsidies from all years that were reported — typically starting in 1995.
On the federal side, the federal Joint Committee on Taxation has estimated that special corporate tax breaks will add up to $154 billion for 2013. For many of the nation’s major companies, these tax breaks bring their effective corporate tax rate to below zero.
Understanding this helps to explain the current redistribution of wealth. Many of these companies depend on these subsidies for their profits. As the bottom quintile of all households by income in almost every state pay a higher percentage of their household earnings than the highest percentile, more of the poor’s money is going to corporate subsidies, which is then redistributed among those fortunate to own stock in those corporations.
“It’s not about tax policy, it’s about benefiting the political class and the well-connected and the well-heeled in this country,” said Sen. Tom Coburn (R-Okla.).
In 1986, Congress reduced the number of tax breaks as part of a comprehensive reform package under the Reagan administration. However, in succeeding administrations, the breaks were reintroduced as a means to subsidize various industries. Typically, the breaks are promoted by powerful legislators who promote business interests among their constituencies or in which they have a personal or political stake.
“There’s a justification and rationale for virtually every one of these. They have their intellectual advocates, and they have their political advocates, and that’s how they get in the law,’’ said Lawrence F. O’Brien III, an influential lobbyist and a top campaign fundraiser for the Senate Democrats.
While the acceptance of government money — particularly for a company that would likely fail otherwise — is a no-brainer for the corporations, it represents a certain level of hypocrisy and moral ambiguity for the government. An example of this is the case of Wal-Mart. Since 1994, Wal-Mart Stores have received $150 million in subsidies from local and state governments.
Despite already benefiting from government handouts, Wal-Mart admitted in its 2013 annual report that the company’s financial performance was “materially affected” by changes to the amount of payments made to SNAP and other social safety net programs. As the company receives more than half of its sales from grocery operations, and as its clientele largely depend on public assistance, social welfare cuts will create a situation in which Wal-Mart is likely to seek more local and state government assistance in tax credits.
While many Republicans quietly admit that corporate welfare is a problem, the party is unwilling to address the issue head-on, as the business community is the GOP’s primary financial backer. With the Republicans seeking to attack not the weak claims for government support, but the weak claimants, the government sinks deeper into crony capitalism — a system in which profits are determined more by whom one knows than what one does.
With government contract spending more than double what it was in 2000, conversations about reducing government handouts without discussing corporate welfare seem hollow.
“Mitt Romney had it wrong: When it comes to the Fortune 100, it’s 99%, not 47%, on some form of the government’s gravy train,” said Open the Books founder Adam Andrzejewski.