Commentary

There’s No Conceivable Reason to Preserve Corporate Welfare

This article appeared in Copley News Service.

To listen to Washington officials, you’d think cutting the budget was impossible. In their view, every program, no matter how inconsequential, has played a critical role in America’s past success and must be preserved to ensure the nation’s future progress. You don’t have to look far into the budget to find spending for which there is no conceivable justification. Consider welfare for business. And despite a majority supposedly devoted to fiscal frugality, last year Congress actually increased program outlays by $14.5 million annually.

Every year Uncle Sam spends $75 billion, roughly half the current deficit, on 125 different programs to directly enrich business.

To these, the 104th Congress made only modest reductions. Cato Institute analysts Stephen Moore and Dean Stansel reported that many corporate subsidy programs were reduced minimally, or not at all.

Business subsidies deserve to go on the chopping block simply as a matter of priorities. Deficits continue to accumulate at billions of dollars a year, and, unless further cuts are made, will soon start rising again. Thus, every low-priority program should be eliminated, and enriching some of the largest and most profitable businesses in America should be considered the lowest priority of all.

Nor are loans and loan guarantees a cheap means to achieve the same ends. Loans that are repaid are not cheap, since they divert credit from more productive uses elsewhere in the economy. That is, money is not free, so if Uncle Sam is providing subsidized loans to politically favored interests he is inevitably directing money away from more deserving, but less well-connected, businesses and individuals.

There is a more fundamental principle at stake, however. The problem isn’t just that we can’t afford to subsidize corporate America. It is that we shouldn’t do so. It isn’t right to take money from average taxpayers for the benefit of business interests. Put bluntly, the role of government is to fulfill critical common goals that can’t be achieved privately, not to redistribute wealth among private parties based on the size of their campaign contributions.

The fact that major corporations don’t have to pay their own way, and instead are able to enlist legislators to rip off common citizens— and businesses with more modest political connections— deforms the entire political system.

Of course, advocates of corporate welfare are rarely foolish enough to admit that their goal is self-enrichment. Rather, they argue that the programs generate countervailing benefits— usually jobs. Of course, in practice far more jobs are destroyed.

The Energy Department devotes billions of dollars to research and statistical activities that primarily benefit the energy industry. The Transportation Department is another agency that benefits business more than the public.

Moreover, Congress has established a number of independent agencies with no function other than the enrichment of business.

Some corporate welfare is delivered indirectly. The U.S. government imposes restrictions, like quotas and tariffs, on more than 8,000 products, including autos, computer parts, mushrooms, steel and textiles. Estimates of the cost of protectionism, which primarily enriches domestic producers, run as high as $80 billion annually.

The Jones Act requires that private companies use U.S. flag vessels to ship products between U.S. Ports. Military goods and half of other government cargoes (furnished under federal contract, for instance) must go on more expensive American carriers. This simple regulatory directive, which cost the Department of Defense alone $436 million in 1995, acts as a huge windfall for corporate America

Even a decade of huge budget deficits has changed nothing. Over time Congress eliminated two truly egregious programs, the Synthetic Fuels Corporation (which subsidized the production of high-cost synthetic energy) and Urban Development Action Grants (which paid businesses to invest in particular regions). But the rest continue, though occasionally with different names (Congress turned the Rural Electrification Administration into the Rural Utilities Service). And new ones, like Sematech, continually arise.

It is time to kick corporate America off of the dole. The federal budget has long been filled with waste. But few expenditures are more obnoxious than those for business welfare. Policy makers should be able to agree that there is at least one thing government should not do— soak taxpayers to enrich corporate interests. If legislators won’t cut this kind of abusive spending, what programs will they kill?

Doug Bandow is a senior fellow at the Cato Institute