Tag: corporate welfare

Polls Show Voters Don’t Support Corporate Welfare

Two polls of likely voters released by Rasmussen Reports today indicate that the federal government’s corporate welfare programs should be prime targets for spending cuts.

The first poll found little support for the Small Business Administration’s lending programs:

  • A majority (58 percent) of likely voters said that the federal government shouldn’t guarantee loans issued by private lenders to small businesses. 23 percent said the government should back small business loans and 19 percent were unsure.
  • A majority (59 percent) of likely voters said that reducing government regulations and taxes would be more helpful to small businesses than the government providing loans to small businesses that can’t obtain financing on their own. 22 percent said the government loans were better and 18 percent were unsure.
  • Entrepreneurs particularly believed that reducing government regulations and taxes is preferable to government lending programs. 76 percent of entrepreneurs felt that way and 61 percent opposed government loans to small businesses that couldn’t obtain financing.

(See this new Cato essay on why the Small Business Administration should be terminated.)

Similarly, the second poll found little support for various federal corporate welfare programs:

  • Only 15 percent of likely voters said the federal government should continue to provide funding for foreign countries to buy military weapons from U.S. companies. 70 percent were opposed and the rest were undecided.
  • Only 29 percent of likely voters said the government should continue to provide loans and loan guarantees to help finance export sales for large corporations. 46 percent were opposed and the rest were undecided. (See Sallie James’ new Cato paper on why the Export-Import Bank should be terminated.)
  • Only 37 percent of likely voters said the federal government should continue providing farm subsidies. A plurality (46 percent) said farm subsidies should be abolished and 17 percent weren’t sure. (See this Cato essay for more on farm subsidies.)

Journalism and Generality

The media makes it hard for ordinary people to be libertarians. In large part, this is because journalism is in the business of selling panic—panic about terrorism, panic about drugs, panic about food, panic about pornography, panic about our health care system. If it’s not an emergency, it’s not news. To the lazy journalist, everything becomes an emergency—and emergencies always—always—demand state action.

The media makes things hard for the would-be libertarian in other ways, too. Consider this story from today’s Washington Post, about… well, it’s hard to say, actually:

Senate Democrats unveiled a plan Tuesday to save $21 billion over the next decade by eliminating tax breaks for the nation’s five biggest oil companies, a move designed to counter Republican demands to control the soaring national debt without new taxes.

With the proposal, Democrats sought to reframe the debate over debt reduction to include fresh revenue as well as sharp cuts in spending. For the first time, Democratic leaders suggested an equal split between spending cuts and new taxes — “50-50,” said Senate Majority Leader Harry M. Reid (Nev.).

That represents a larger share for taxes than has been proposed by either President Obama or the bipartisan commission he appointed to recommend how to cut the national debt.

So far, the Democratic tax agenda is focused on ending subsidies for big oil companies, a hugely popular proposal involving what Democrats see as a prime example of wasteful giveaways in the tax code. By raising the issue, Democrats are trying to force Republicans either to drop their rigid stance against new taxes or to defend taxpayer subsidies for some of the world’s most profitable corporations, including Ex­xon Mobil, Shell, BP, Chevron and ConocoPhillips.

The proposal came in response to remarks Tuesday by House Speaker John A. Boehner (R-Ohio), who said raising taxes is “off the table.” A day earlier, he gave a speech demanding more than $2 trillion in spending cuts in exchange for GOP support for an increase in the legal limit on government borrowing through the end of next year.

Where am I confused, you ask? On almost everything a libertarian ought to care about. I’ll explain.

One of the key aspects of any good law is generality—that is, equality before the law. As F. A. Hayek put it:

[T]hough government has to administer means which have been put at its disposal (including the services of all those whom it has hired to carry out its instructions), this does not mean that it should similarly administer the efforts of private citizens. What distinguishes a free from an unfree society is that in the former each individual has a recognized private sphere clearly distinct from the public sphere, and the private individual cannot be ordered about but is expected to obey only the rules which are equally applicable to all….

The general, abstract rules, which are laws in the substantive sense, are… essentially long-term measures, referring to yet unnkown cases and containing no references to particular persons, places, or objects. Such laws must always be prospective, never retrospective, in their effect (The Constitution of Liberty, chapter 14, section 2).

Now, with every passing day our government stomps all over this generality requirement again and again, chiefly in the economic sphere. But is it doing so on the front page of today’s Washington Post? That’s a good question.

I can think of lots of ways we might deny a tax break to a certain five oil corporations. Some are decidedly better than others in their generality. Consider the following, ranked from least general to most:

  1. “The corporations known as Ex­xon Mobil, Shell, BP, Chevron and ConocoPhillips are hereby denied tax break X. All others still qualify, or not, as they did before.”
  2. “Oil corporations with an annual revenue above $198 billion are denied tax break X.”
  3. “We find that tax break X itself is lacking in generality. It is hereby repealed, and the overall corporate tax rate is increased accordingly.”

Which one are they proposing? From the story’s first paragraph, we could easily conclude that it was (1). Many people on the left would be happy with (1), because big corporations are anathema to them, and everything they do is evil, and punishing them—generality be damned—is just great.

But then, it could also be (2), and this measure is somewhat more general, even if ConocoPhillips—the smallest company on the list—just so happens to have an annual revenue of $198.655 billion. As Hayek noted, “[C]lassification in abstract terms can always be carried to the point at which, in fact, the class singled out consists only of particular known persons or even a single individual” (ibid., section 4). Hypocrisy is the tribute vice pays to virtue.

And finally, there’s (3), clearly the winner in terms of generality. Is that in fact the proposal being discussed by members of Congress? Or is it still more general than that—something perhaps as described by my colleagues Jerry Taylor and Peter Van Doren earlier this month?

Last week President Barack Obama responded to rising public anger over soaring gasoline prices by banging the drums for the elimination of various tax breaks enjoyed by the oil and gas industry…

[L]et the record show that President Obama is right… about these tax breaks. They make the economy less — not more — efficient and do nothing to reduce prices at the pump.

Rigging the tax code to make investments in manufacturing artificially more attractive than investments in something else is an enterprise designed to harm non-manufacturers for the benefit of … manufacturers. Conservatives who want government to leave markets alone have no business throwing their political bodies in front of this tax break. If their political rhetoric means anything, they would see the president’s bid and raise him by calling for total repeal of this tax break for everyone, not just for oil and gas companies.

If only we were so lucky! Getting back to the Post, we learn much later in the story—in the fifteenth paragraph —that the congressional proposal “would close several long-standing tax loopholes, yielding roughly $2 billion a year in savings to be applied to lowering the deficit. It would affect only the five largest oil companies, excluding smaller producers.”

This is confusing to the point of deception. Does it really “close” a loophole to take a few entities and exclude them from the prior exclusion from the tax? By my understanding, it makes the law less general, more convoluted and more arbitrary, than it was before. Close the loophole—or just don’t close it, I think a Hayek might say. Don’t make companies play human Tetris to figure out whether they aren’t not un-disincluded.

One day I think people will look back on our era—from roughly the civil rights movement to the present—and marvel. They will be amazed at how, while the law grew much more general regarding many non-economic matters, it became increasingly partial and favoritist when it came to running a business. At times our journalism and even our language seemed blind to this contradictory development, which only encouraged it. Even thinking about the generality of our laws is made difficult when it’s just not a topic on the national media’s radar.

But equality before the law should apply, well, equally. Shouldn’t it?

Sen. Rand Paul Proposes Serious Cuts

Freshman Sen. Rand Paul (R-KY) has raised the bar in Washington by releasing a bill that would make substantial, specific, and immediate cuts in federal spending. While policymakers on both sides of the aisle have largely paid lip service to stopping Washington’s record run of fiscal profligacy, Paul’s proposal makes good on his campaign promise to seriously tackle the federal government’s bloated budget.

Paul’s bill would target $500 billion in cuts for fiscal 2011 alone. While audacious by Washington standards, cutting federal spending by that amount would still leave us with a projected $1 trillion deficit this year. Nonetheless, the federal government’s scope would be dramatically curtailed, which would pay dividends in coming years as the economy is unshackled from numerous failed federal interventions.

A description of Paul’s proposed cuts can be viewed here, but some of the bolder ideas merit a comment or two.

First, Paul would eliminate most Department of Education spending, with the exception of higher education subsidies. He correctly notes that the federal government’s increased involvement in education has been “detrimental” and that “the mere existence of the Department of Education is an overreach of power by the federal government.”

Second, the Department of Energy, which is becoming a chief source of corporate welfare, would be zeroed out. Paul would eliminate subsidies for all energy industries – from fossil fuels to so-called “green” energies. He notes that the government’s interference in energy development should be ended and the free market allowed to “start taking the reins.”

Third, the Department of Housing and Urban Development – one of most visible examples of government failure – would be eliminated. Among the HUD programs that Paul singles out, it is his criticism of housing vouchers that deserves the most applause as they remain popular in some Republican and conservative quarters.

Paul deserves credit for proposing cuts at the Department of Defense, although the savings would be relatively small. However, his proposal would cut the Department of Homeland Security almost in half, and would zero out billions of dollars in foreign aid. The latter is well-timed given the situation in Egypt, a major recipient of U.S. foreign aid dollars.

Finally, Paul would chop a quarter of the Department of Health and Human Service’s budget, although he doesn’t take on Medicare or Medicaid. He is reportedly at work on separate legislation that would address Medicare and Social Security. Because Paul’s proposal is focused on immediate cuts, his decision to tackle the big mandatory spending programs separately shouldn’t be viewed as a cop out.

Thus far, the spending cut bar in Washington has been set pretty low. Policymakers from both parties and varying ideological backgrounds have been timid in spelling out precisely what they would cut. By getting specific, Paul has raised the bar, which will hopefully put pressure on others – in particular, the congressional Republican leadership – to move beyond a vague, myopic fixation on nondefense discretionary spending.

State Corporate Welfare Programs Under Fire

One positive outcome of the recession, as the states struggle to find revenue to spend, is that state subsidies to businesses are facing increased scrutiny.

This week the New York Times reported that states are looking at reducing or ending programs that hand out taxpayer money to television and movie producers. In Pennsylvania, some last-minute handouts from outgoing governor Ed Rendell are under fire, including a $10 million state grant to rehabilitate a former Sony plant for new tenants. According to the Commonwealth Foundation’s Nate Benefield, this is the fourth time Pennsylvania taxpayers have subsidized the site:

Sony moved out in 2007, despite getting more than $40 million in corporate welfare under Gov. Robert P. Casey to come to Pennsylvania, then another $1 million grant under Rendell to stay in the state—a mere two years before shutting down its plant.

Before Sony, the site was occupied by Volkswagen, which got $70 million in state aid in the 1970s under Gov. Milton Shapp. This was touted as a great success – until Volkswagen moved out in 1987, after 10 years of operation.

Pennsylvania is merely renting jobs with this “economic development” spending, burdening other businesses with higher taxes. Hopefully, Gov. Tom Corbett can learn from the failed policies of the past and work on improving the state’s economic climate rather than trying to pick winners.

New Pennsylvania governor Tom Corbett could learn a lesson from the Indiana Economic Development Corporation, which received another black eye this week. I’ve written previously on problems with the IEDC, which is the state’s corporate welfare arm. As a former budget official with the State of Indiana, I can attest that the IEDC’s string of embarrassments is as unsurprising as it is appalling.

On Tuesday, investigative report Bob Segall of WTHR-TV in Indianapolis released the latest in a series of reports on the IEDC’s exaggerated job creation claims. (Intrepid journalists take note: Bob and his team just received a prestigious Alfred I. duPont–Columbia University Award for their investigatory work on the IEDC.)

Bob took the findings of a recent audit and ascertained that Indiana governor Mitch Daniels and the IEDC haven’t been giving Hoosiers the full story.

From the report:

The “Summary of Incentive Program Review” prepared by audit firm Crowe Horwath examined 597 job-creation projects outlined in IEDC annual reports from 2005 to 2009. The projects were listed as “Indiana Economic Successes” that would bring new jobs to Indiana.

According to the report, those projects were expected to create 44,208 jobs by late 2010 and, based on the most recent information available to auditors, have so far resulted in 37,640 actual jobs — a realization rate of 85%.

But the state’s job realization rate is actually much lower than 85%, according to additional data reviewed by WTHR.

The numbers cited above are based solely on data for “reporting companies,” and they do not include job data for 200 other projects also listed as “Indiana Economic Successes” in IEDC annual reports. Including those projects, as well, the number of newly-created jobs the agency had anticipated to materialize by the end of 2010 is 57,088 (not 44,208), according to the report. Using that figure, IEDC’s job realization rate is 66%.

And nowhere does the audit report mention the 98,683 total new job commitments announced by IEDC from 2005 to 2009. Using that number — which IEDC and the governor have repeatedly promoted in their press releases, speeches and annual reports – the audit data suggests, so far, only 38% of jobs announced by IEDC have resulted in actual jobs. While that percentage is expected to increase in coming years (some of the companies are not expected to fulfill all of their job commitments for several more years), the overall numbers show IEDC’s real job realization statistics are much lower than the agency portrays to the public by citing far more limited data.

Two words in this selection from the report stand out: “press releases.” My observations of the IEDC from within the Daniels administration led me to coin the phrase “press release economics” to describe what Indiana government officials were really practicing.

Programs that hand out taxpayer money to businesses to lure or retain jobs are popular with state politicians, and Governor Daniels is no different. Better policies, like cutting business taxes across the board, require a willingness to expend substantial political capital without an immediate payoff. (I recently read that Daniels would sign a cut in the state’s high corporate tax rate if a proposal in the state legislature makes it to his desk. Daniels had turned down the idea of cutting the corporate rate while I was there, so the change of heart is curious but nonetheless welcome.)

Targeted business subsidies, on the other hand, are cheaper and generate immediate, favorable press. Unfortunately, this form of central planning is unsound as it merely transfers economic resources from taxpayers – including businesses – to businesses favored by government officials. And because government officials are inherently inferior to the market when it comes to directing economic activity, the results are far from ideal – and often downright counterproductive.

Happy National Entrepreneurs’ Day?

President Obama has proclaimed today to be National Entrepreneurs’ Day. The president who has brought us regime uncertainty, more regulations, more government intrusion into the economy, more debt, and is proposing to raise taxes on productive businesses and individuals wants to celebrate entrepreneurship?

I was alerted to National Entrepreneurs’ Day via an email (not online) from the Department of Commerce’s Economic Development Administration. The EDA email makes it clear that the administration wishes to celebrate political entrepreneurship, not market entrepreneurship.

In his book, The Myth of the Robber Barons, historian Burton Folsom explains the difference:

A key point about the steamship industry is that the government played an active role right from the start in both America and England. Right away this separates two groups of entrepreneurs — those who sought subsidies and those who didn’t. Those who tried to succeed in steamboating primarily through federal aid, pools, vote buying, or stock speculation we will classify as political entrepreneurs. Those who tried to succeed in steamboating primarily by creating and marketing a superior product at a low cost we will classify as market entrepreneurs. No entrepreneur fits perfectly into one category or the other, but most fall generally into one category or the other. The political entrepreneur often fits the classic Robber Baron mold; they stifled productivity (through monopolies and pools), corrupted business and politics, and dulled America’s competitive edge. Market entrepreneurs, by contrast, often made decisive and unpredictable contributions to American economic development.

As Obama administration achievements, the EDA touts increased Small Business Administration subsidies and a smorgasbord of industrial planning contained in last year’s stimulus package:

The American Recovery and Reinvestment Act served as the cornerstone for this new foundation by pumping $100 billion into the economy to help us tackle some of the grand challenges of the 21st century in diverse fields from healthcare IT and health research, to clean energy, to smart grids, and high speed trains. Recovery Act investments are creating a virtuous cycle of investment, innovation, and job creation that have so far led to the creation of 3 million new jobs.

Wrong. The stimulus has fueled an unvirtuous cycle of political entrepreneurship in which business interests chase federal hand-outs for endeavors sanctioned by inside-the-Beltway planners. Political entrepreneurs have less incentive to innovate and are naturally reluctant to criticize the government because they don’t want to bite the hand that’s feeding them. As Chris Edwards puts it, they become “tools of the state.”

If the administration were really interested in promoting entrepreneurship, it would repudiate the anti-market policies it has pursued thus far. That’s obviously not going to happen, so it’s going to be up to congressional Republicans to repudiate their own history of supporting federal subsidies. In other words, the GOP’s re-found fondness for limited government rhetoric is going to have to actually be matched by action.

The Big Government-Big Business Health Care Plan

Ross Douthat at the New York Times, with help from Reihan Salam and Tim Carney, explains how the Senate health care bill can be both a government takeover and a huge subsidy to the insurance industry:

We’ve achieved an unusual left-right convergence in the health care debate: Both conservatives and liberals are attacking the current version of reform as an egregious giveaway to the insurance industry. (Both sides sound an awful lot like Tim Carney, in other words.) Suddenly, it’s hard to tell the difference between the right’s Yuval Levin (“The bill is basically a massive subsidy to the insurers — it is not a reform of the system”) and the left’s Markos “Daily Kos” Moulitsas (“it’s unconscionable to force people to buy a product from a private insurer that enjoys sanctioned monopoly status”).

Ed Kilgore argues that the two sides’s concerns, while superficially similar, are actually contradictory:

… on a widening range of issues, Obama’s critics to the right say he’s engineering a government takeover of the private sector, while his critics to the left accuse him of promoting a corporate takeover of the public sector. They can’t both be right, of course, and these critics would take the country in completely different directions if given a chance.

He’s right about the gulf between the critics’ prescriptions, but I think he’s wrong about the incompability of their critiques. Here’s Reihan, explaining why:

Actually, it is entirely possible for both sets of critics to be correct. The concern from the right isn’t that the Obama approach will literally nationalize for-profit health insurers. Rather, it is that for-profit health insurers will continue evolving into heavily subsidized firms that function as public utilities, and that seek advantage by gaming the political process. Profits, including profits governed by medical loss ratios, can and will then be cycled into political action, which leads to the anxiety concerning a “corporate takeover of the public sector.” Again, progressives don’t literally believe that such a takeover is happening. Instead, they believe, rightly, that subsidies without effective cost containment represent a massive windfall for the private insurance sector, including non-profit insurers that generate salaries for large numbers of politically active middle and upper middle class professionals.

So yes, Obama does not intend to nationalize the private insurance industry and then turn around and auction off the new nationalized health agency to Rupert Murdoch or Monsanto. But the anxieties of critics on the left and right are, to italicize for a moment, perfectly compatible.

The point is that the more intertwined industry and government become, the harder it is to discern who’s “taking over” whom — and the less it matters, because the taxpayer is taking it on the chin either way. Or to put it another way: The creatures outside looked from pig to man, and from man to pig, and from pig to man again; but already it was impossible to say which was which …

Tim Carney will discuss his book, Obamanomics: How Barack Obama Is Bankrupting You and Enriching His Wall Street Friends, Corporate Lobbyists, and Union Bosses, at a Cato Book Forum on January 12.

The Week in Government Failure