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Briefing Paper No. 37

April 27, 1998

SILICON VALLEY VERSUS CORPORATE WELFARE

by T. J. Rodgers

T. J. Rodgers is president and CEO of Cypress Semiconductors in San Jose, California.

Introduction

Two hundred twenty-two years ago, American colonists declared independence: to

be free and to pursue their interests in free markets under a limited government.

Americans hated taxes. They listed as a cause for rebellion in the Declaration of

Independence "taxing us without our consent." Their new constitution limited

government and banned personal income taxes. The Revolution produced the American

Dream, during which the common man became better off more quickly than at any other

time in history. For our first 200 years, from 1776 to 1976, America's per capita income

grew at the rate of 458 percent per century, compared with the 3 percent per century

growth rate of the pre-American world.

Since 1976 the per capita growth rate of the gross domestic product has steadily

declined from 2.5 percent per year to 1.5 percent per year, and we hear people say,

"America needs a raise." In 1913 the Sixteenth Amendment made possible a federal

income tax, which began with a levy of 1 percent of GDP. Today, the American Dream is

being eroded by the ever-increasing burden of federal, state, and local taxes, which

consume a whopping 35 percent of our national output. Although we are at peace and the

Cold War is over, our government is currently spending at a higher rate than the peak 30

percent of GDP rate of World War I and nearing the record 50 percent of GDP rate of

World War II. There is a broad consensus that government spending must be cut.

Eliminating "corporate welfare" should be a priority in reducing government

spending. The risks are minimal. Savings could reach $275 billion over five years.1 And

there is a moral imperative: we should not be asking our senior citizens to tighten their

belts while our government is literally subsidizing the sale of Napa Valley Chardonnays to

the French.