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What Is Corporate

make government subsidies to corporations

Welfare?

in the defense sector the exception rather than

the rule. Exceptions for corporate-targeted

Where you stand on corporate welfare

payments, subsidized loans, carefully target-

depends on where you sit. Or, as Willard

ed tax breaks, price subsidies, and preferen-

Workman of the U.S. Chamber of Commerce

tial regulatory relief should be permitted only

put it, "One man's corporate welfare is anoth-

when they can be demonstrated to fulfill an

er man's paycheck."5 At a July 1998 Cato

important national security objective that

Institute Forum, Joel Johnson, vice presi-

could not have been fulfilled without government

dent­international of the Aerospace In-

assistance. As part of such a policy, all subsi-

dustries Association, similarly described the

dies for the defense sector should be reviewed

billions of dollars in well-documented govern-

annually to see if they are meeting their stat-

ment subsidies for U.S. arms-exporting firms

ed objectives. If they are not, the subsidies

as nothing more than "payment for goods and

should be repealed.

services." If you take the positions of

We have a long way to go before corporate

Workman and Johnson to their logical con-

welfare becomes only an occasional tool of

clusions, no form of government support for

federal government policy instead of "busi-

One of the most

industry--no grant, no industry-specific tax

ness as usual." A review of the corporate sub-

lucrative sources

break, no targeted regulatory relief, no market-

sidies in the Pentagon and foreign aid bud-

distorting price subsidy--would be classified

gets provides a good indication of how far we

of government

as corporate welfare.

have to go.

support for arms

Luckily for the taxpaying public, such

Some recent analyses of corporate welfare

contractors comes

extreme positions don't hold up to scrutiny.

excluded national security programs entirely,

There have been numerous independent

either because national security is considered

in the form of

studies in recent years that have documented

a "special case" or because taking on the

taxpayer-backed

massive corporate welfare programs in the

Pentagon budget was seen as too controver-

loans, grants, and

federal budget. The estimates of the total cost

sial.8 Those sentiments, while understand-

of those programs range from tens of billions

able, are not justifiable. If corporate welfare

promotional activ-

of dollars to more than $150 billion a year.6

consists of inefficient subsidies for unneces-

ities that help the

sary goods and services, then it is especially

All forms of government interaction with

important to ensure that funds for the

corporations are not illegitimate, of course.

contractors sell

national defense are not squandered on ques-

When there are specific national objectives

their wares to for-

tionable pork for private companies.

that can be most effectively advanced by con-

eign customers.

This paper is an attempt to describe the

tracting with the private sector, it may make

billions of dollars of corporate welfare that

sense to use taxpayer funds to pay qualified

are in our military and foreign aid budgets. It

companies for necessary goods and services.

is hoped the paper will be a starting point for

Which payments are necessary investments

a serious national debate on reducing corpo-

and which are corporate welfare? To cite an

rate welfare in the military and foreign aid

oft-used phrase, "the devil is in the details."

budgets and on finding more efficient meth-

It may be difficult to establish hard-and-

ods for accomplishing national security

fast rules for determining which government

objectives.

expenditures are corporate welfare. However,

clear cases would include buying unnecessary

or excess goods and services as a result of spe-

Welfare for Weapons

cial-interst lobbying, overpaying for widely

Dealers

available equipment, and providing tax

breaks or subsidies to "encourage" or "sup-

port" activities that would occur without

One of the most lucrative sources of gov-

those subsidies.7 The best policy would be to

ernment support for arms contractors comes

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