Instead of cutting corporate welfare spending, the Clinton administration has proposed closing corporate tax loopholes. Such targeted tax breaks allow certain politically favored companies or industries to receive favorable treatment in the tax code. Those loopholes run counter to the notion that all taxpayers should be treated the same, and they create inefficiencies and distortions in the marketplace.
Loopholes are bad policy, but they are not a form of corporate welfare. After all, tax loopholes merely allow businesses to keep more of their own earnings. Corporate welfare spending programs take someone else’s earnings and hand them over to private corporations.
If corporate tax loopholes are to be closed, which they should be, corporate tax rates should be reduced proportionately. Otherwise, by definition, the result would be a tax increase. Businesses are certainly oversubsidized, but they are also overregulated and overtaxed. The fight against corporate welfare should not result in higher taxes. Increasing taxes on businesses would make U.S. industry less competitive, not more competitive.
The Clinton administration’s 1998 budget calls for closing $34 billion worth of corporate tax loopholes (over five years) without any reductions in corporate tax rates. They call that an attack on corporate welfare. In one sense, they are right. It represents a serious attack on the well being of private industry. Putting billions of additional dollars into the hands of the federal government, as the proposed loophole closings would do, is the wrong approach.
Reducing the deficit — and balancing the budget by 2002 –will be difficult, if not impossible, to achieve without dramatic reductions in the corporate safety net. Last year Congress passed reforms in social welfare intended to save $55 billion over six years. Now, Congress should aim to save at least that much in corporate welfare as well. The 20 programs listed in the table provide a good place to start.
Corporate Welfare Increases in President Clinton’s FY98 Budget Proposal (millions of dollars) |
Program/Agency |
1997 Estimate |
1998 President’s Proposal |
Percent Change |
1) Payments to Air Carriers (Essential Air Service) |
$24 |
$40 |
66.7% |
2) Maritime Security Program |
$64 |
$90 |
40.6% |
3) Agriculture Dept./National Research Initiative |
$94 |
$130 |
38.3% |
4) Manufacturing Extension Partnership |
$95 |
$129 |
35.8% |
5) Solar and renewable energy R&D |
$266 |
$343 |
28.9% |
6) Defense Dept./Dual Use Applications program |
$181 |
$225 |
24.3% |
7) Advanced Technology Program |
$225 |
$275 |
22.2% |
8) National Agricultural Statistics Service |
$100 |
$120 |
20.0% |
9) Commodity Credit Corporation Export Loans program |
$434 |
$518 |
19.4% |
10) Energy Dept./Industries of the Future initiative |
$119 |
$140 |
17.6% |
11) National Oceanic and Atmospheric Administration/nonweather activities |
$1,332 |
$1,546 |
16.1% |
12) Construction and building technology research |
$176 |
$203 |
15.3% |
13) NASA/Aeronautics and Space Transportation Technology activities |
$1,276 |
$1,463 |
14.7% |
14) Foreign Agricultural Service |
$131 |
$147 |
12.2% |
15) Rural Utilities Service |
$114 |
$126 |
10.5% |
16) High Performance Computing and Communications initiative |
$1,025 |
$1,128 |
10.0% |
17) Agricultural Marketing Service |
$47 |
$51 |
8.5% |
18) Rural Community Advancement Program |
$635 |
$689 |
8.5% |
19) Partnership for a New Generation of Vehicles |
$263 |
$281 |
6.8% |
20) National Institutes of Health/Applied biomedical research & clinical development |
$4,281 |
$4,394 |
2.6% |
TOTAL |
$10,882 |
$12,038 |
10.6% |
Source: Cato Institute Fact Sheet, based on Budget of the United States Government, Fiscal Year 1998. |