Note: As you read the materials below, you will find many web
sites listed. Some are to give you an idea of some on-line
for the material below, and others are there for your future reading if
you are interested. While I have not updated this recently, it
will give you a good idea of corporate welfare (and if anything, the
situation has only gotten worse, not better).
In class and in the text, we’ve talked a bit about corporate welfare. But do we really know what it is, and how extensive? Begin by taking this Corporate Welfare Trivia Quiz (adapted from http://www.progress.org/banneker/cw.html), below. Answers appear at the bottom of the quiz.
1. Is the tax code a scoop with just a few holes in it? If so,
collected revenue (how much tax money the treasury collects) should
the amount of taxes not paid due to exemptions. Or, is the tax code a
line whose loops snare only the small incomes while letting large ones
lumber by? If so, exempted income should exceed collected revenue. What
do IRS figures for 1992, a typical year, show? With $560 billion
the amount exempted was:
2. Can the very rich avoid the income tax? Completely? They
and do, say Pulitzer Prize winners Don Bartlett and Jim Steele in
Who Really Pays the Taxes? (1994). After the Reagan "reduce loopholes"
tax reform of 1986, the number of millionaires paying no tax at all
from 659 to how many three years later?
3. Taxes tend to make products more costly. The US tariff on
cars raises the price of all new cars how much per unit?
4. According to the General Accounting Office, what percent of
U.S. corporations paid no income tax for the year 1995?
5. According to columnist Molly Ivins in 1996, the Pentagon
how many people selling and servicing weapons to other countries?
6. According to both Worldwatch Institute and the
Institute for Sustainable Development, corporate welfare each year
amounts to this total:
7. According to World Resources Institute, the USDA gave 15%
its largesse to 70% of farmers, those who need help the most. To the
5% of "farmers", those who need it least (and many of whom live not in
Kansas but in Beverly Hills), it gave what percent?
8. According to the 1994 House Natural Resources Committee,
stewards of our public lands, sells or leases our pasturage, timber,
oil, electricity, and national park concessions at amounts that,
to market value, are:
a little below
1. It's $710 billion exempted. Loopholes reduce the tax take
more than half.
2. The correct answer is 1,081.
3. It's $1,000.
4. 61%--almost two-thirds—paid no taxes at all.
5. 6,500 people are funded by tax dollars to help private companies make sales to foreign interests.
6. $1.5 trillion.
7. The answer is 30%, a nice situation for big agribusiness and land speculators.
8. "Way below" is the answer.
I. What is Corporate Welfare?
Corporate welfare can be defined to include two major types. First, corporate welfare includes any government spending program that provides unique benefits or advantages to specific companies or industries. That includes programs that provide direct grants to businesses, programs that provide research and other services for industries, and programs that provide subsidized loans or insurance to companies. There are more than 100 such corporate subsidy programs in the federal budget today, with annual expenditures of roughly $75 billion. For the five-year period 2000-2004, the government will spend more than $394 billion on corporate tax subsidies.
The second type of corporate welfare includes targeted corporate tax loopholes, also known as tax expenditures. The notion of tax "expenditure" refers to revenue losses due to preferential tax provisions such as special exclusions, exemptions, deductions, credits, deferrals or tax rates (source: http://www.nader.org/releases/63099.html)
Over the last three decades, Congress has cut the tax rate for the wealthiest taxpayers by more than half. Further, in the 1980s, the U.S. tax code was rewritten to drastically reduce corporate income taxes. In the 1950s and '60s, corporate taxes provided 25 percent of all federal government revenues. By 1991, that figure was only seven percent. The theory behind the tax cuts was that corporations would take the money they saved in taxes and invest it back into their businesses. This rarely happens, however. In 1989, Citizens for Tax Justice surveyed 44 major American companies. All 44 paid no federal taxes; this despite a collective total profit of $53.6 billion. All had reduced their capital spending and reduced their work forces. The extra money instead went for higher stock dividends, higher pay for CEOs (an average pay hike of 54 percent) and to pay for corporate mergers and acquisitions. That pattern continues today. Concrete examples of some of these tax breaks and their effects can be found in part of an investigative series by the Boston Globe, found at: http://www.corporations.org/welfare/globe3.html
Federal corporate tax expenditures -- special
exemptions, deductions, credits, deferrals or tax rates -- totaled more
than $76 billion in fiscal year 1999, according to conservative
by the Office of Management and Budget (sources include above, and
II. Corporate Welfare Vs. “Social Welfare”
The figures reported above give us some basis for
assessing how corporate welfare matches up with “social”
for the needy, such as TANF, food stamps, and the like—in terms of
The nation's largest corporations and richest citizens receive more welfare money than our social welfare programs. In 1994, the United States spent $104.3 billion on corporate welfare, while spending only $14.4 billion on Aid to Families with Dependent Children (AFDC; now TANF). If we add together recent federal monies spent on AFDC/TANF, food stamps and Medicaid, it comes to about $85 billion annually. The total cost of the corporate tax breaks and subsidies is hundreds of billions of dollars.
Federal aid to corporations and wealthy individuals include bailouts, export promotions, loans, loan guarantees, debt forgiveness, below cost sales, interest free financing and other benefits. Barrett and Steele (1998) estimate that in 1998 corporate welfare cost the federal government $125 billion a year (note: estimates often vary, as these depend on exactly what one counts as corporate welfare; you will read precise definitions and estimates when you access the Boston Globe link a bit later).
In general, social welfare programs account for a small amount of the national budget. AFDC [the program prior to TANF] is less than 1% of the federal budget and, on average, no more than 2% of each state's fund. (http://www.feminist.org/other/budget/welfare/welfare.htm)
III. Examples of Corporate Welfare
(sources: http://www.cato.org/pubs/pas/pa241es.html, http://www.citizen.org/congress/corwel/hitlist99.htm, and http://www.feminist.org/other/budget/welfare/welfare.htm)
A. Direct Grants to Businesses
In 1994, Texas Instruments got a $13 million handout from the Defense Department's Technology Reinvestment Project. This money was used in research and development on "Field Emissive Displays"--part of the manufacturing of televisions and computer monitors.
Charles A. Heimbold,Jr., President & CEO,
By 1991, Bristol-Myers Squibb had been paid $32 million in taxpayer money to develop Taxol, an anti-cancer drug. Although the cost of developing the drug was already covered out of ordinary citizens' pockets, Bristol-Myers Squibb, with a monopoly on the drug, sold it at $1,320 for a monthly supply--a mark up of 6 - 8 times the drug's production cost.
1992, Sunkist Growers received $10 million in taxpayers' money from the U.S. Department of Agriculture. This money was allocated to the well-known citrus company to help advertise its products abroad.
During fiscal year 1995, the Pentagon agreed to pay Lockheed Martin $850 million in "consolidation costs." The Pentagon also paid $100 million in bonuses to top executives of Lockheed and Martin Marietta for successfully completing the merger of the two giant military contractors.
Michael Eisner and Disney Co.
Taxpayers forked over $300,000 in 1995 to help Disney Co. put on a bigger and brighter nightly fireworks show. Through a Department of Energy program called "Cooperative Research and Development Agreements," the research took place at Sandia National Laboratories in Albuquerque, New Mexico. Disney gets the commercial benefit of this publicly funded research, and if applicable, shares developments with the armed forces.
From 1990 - 1994, General Motors (GM) received more than $110.6 million in federal technology subsidies as part of a program that was supposed to create jobs. GM benefitted from this program; in 1994 they netted $4.7 billion in profits. Yet during those four years, GM slashed 104,000 jobs--25% of their U.S. workers were laid off.
Perhaps the most
example of corporate welfare is the Agriculture Department's $100
a year Market Access Program (formerly Market Promotion Program).
in 1985, MAP gives taxpayer dollars to exporters of food and other
products to offset the costs of their overseas advertising campaigns.
there is an amendment offered to defund this program every year, it has
somehow managed to survive.
Another example is the Commerce Department's Advanced Technology Program ($200 million a year), which gives research grants to consortiums of some of the nation's largest high-tech companies. Those grants allow private companies to use taxpayer dollars to help them develop and bring to market profitable new products.
B. Programs That
Research and Other Services for Industries
The Agriculture Department's Agricultural Research Service ($700 million a year) conducts research focused on increasing the productivity of the nation's land and water resources, improving the quality of agricultural products, and finding new uses for those products. Those activities enhance the profitability of one specific private industry, the agricultural industry.
The Energy Department's Energy Supply Research and Development Program ($2.7 billion a year) aims to develop new energy technologies and improve on existing technologies. Its activities include applied research-and-development projects and demonstration ventures in partnership with private-sector firms.
The Commerce Department's National Oceanic and Atmospheric Administration ($1.9 billion a year) provides services such as mapping, charting, and weather forecasting that are beneficial to specific private industries. Furthermore, those services are already being provided by the private sector.
under the U.S. Forest Service timber program, logging companies are
to build roads that allow them to cut and remove timber. Not only are
picking up the timber industry's business costs--to the tune of over
million a year--but these publicly financed roads are environmentally
causing serious soil erosion, water pollution and disruption of
To date, there are 440,000 miles of roads built through National Forest
Service lands; 95% of the new roads built in public forests are logging
roads, while only 5% were for recreation and public use.
Cost to taxpayers: $31.4 million annually
C. Programs That Provide Subsidized
or Insurance to Businesses
The Export-Import Bank ($700 million a year) uses taxpayer dollars to provide subsidized financing to foreign purchasers of U.S. goods. Its activities include making direct loans to those buyers at below-market interest rates, guaranteeing the loans of private institutions to those buyers, and providing export credit insurance to exporters and private lenders.
Similarly, the Overseas Private Investment Corporation ($70 million a year) provides direct loans, guaranteed loans, and political risk insurance to U.S. firms that invest in developing countries.
D. Tax Expenditures
Colombia/HCA Healthcare Corporation
In April 1995, Colombia/HCA Healthcare Corporation received a $90 million tax break as a reward for locating its corporate headquarters in Nashville,TN. The Regional Medical Center in Memphis, TN used to get supplemental payments from Tennessee's Medicaid program. But in January 1993, the payments stopped and the Regional Medical Center immediately lost $42 million due to the allocation seta aside for Colombia/HCA. Health services at this public hospital have been cut and the quality of treatment has declined due to lack of funding.
Archer Daniels Midland (ADM)
“The supermarket to the world,” Archer Daniels Midland (ADM) receives several different forms of Corporate Wealthfare. A federal law requiring automobile fuel to contain 30% ethanol (a corn derivative) also grants a $.54 per gallon tax credit kickback to ethanol producers. ADM controls 60% of the ethanol markets and siphons off about $550 million a year.
If you are interested, the welfare received by Archer Daniels Midland—and other corporations—is further chronicled at http://www.cato.org/pubs/pas/pa241es.html
E. Other Examples
Below-Market Timber Sales: U.S. Forest Service "commodity" timber sales provide timber to logging companies at below-market prices. Private timber companies end up paying only $5 per tree for timber taken from public lands. In fact, the federal timber sales program actually loses money because the amounts paid to the government by the companies buying the timber do not even cover all of the costs associated with preparing and administering the sales. The program resulted in a $111 million net loss to taxpayers in 1997 and has damaged many old growth forests and wildlife habitats. Cost to taxpayers: $111 million annually
Mining Giveaways: An archaic 1872 law allows big mining corporations to pay no royalties on the billions of dollars worth of minerals they extract from public lands; these royalties would come to an average of more than $200 million each year (based on an 8% royalty rate). Furthermore, mining companies are able to acquire public lands at only $5 an acre, paying 1872 prices for land that is today worth billions of dollars. In addition, taxpayers have been saddled with the financial burden of cleaning up the destruction left by private mining on federal lands, estimated at $32 billion to $72 billion. Legislative efforts to enact a mineral royalty and create a mine reclamation program have all been blocked in Congress. Cost to Taxpayers: $200 million annually
Oil Royalties: the Department of Interior's Mineral Management Service estimates that oil companies underpay by an estimated $66 million annually for oil extracted from public lands. Oil companies participate in an elaborate pricing scheme to undervalue the oil -- sometimes by as much as $2 per barrel from the actual market price -- to avoid paying the full royalties due. Attempts to end this situation and institute a market-based valuation program have been repeatedly thwarted in Congress. Cost to Taxpayers: $66 million annually
IV. Summaries of Recent Investigations into Corporate
For a summary of corporate welfare—what it is, assumed benefits and real costs—visit and read the information found on the following links.
Special Time Magazine report on Corporate Welfare:
Part 1 of the investigative series by the Boston Globe:
V. Final Note: The Cato Institute on Problems with
Welfare for Capitalism and Democracy:
Corporate welfare programs are often purported to be pro-business. In the opinion of the Cato Institute, they are not. According to CI, such programs do nothing to promote a freer economy, but instead make it less free. Here are some reasons why the Cato Institute maintains such policies are misguided and dangerous:
1. Corporate welfare is a huge drain on the federal treasury. Every year $75 billion of taxpayer money is spent on programs that subsidize businesses.
2. Corporate welfare creates an uneven playing field. By giving selected businesses and industries special advantages, corporate subsidies put businesses and industries that are less politically well connected at a disadvantage.
3. Corporate welfare fosters an incestuous relationship between business and government. All too often, the firms and industries that contribute the most to political campaign coffers are the largest recipients of government handouts.
4. Corporate welfare programs are anti-consumer. For instance, the Commerce Department has estimated that the sugar subsidy program costs consumers several billion dollars a year in higher prices.
In summary, because they provide special treatment for politically
industries, special corporate tax breaks (tax expenditures) run counter
to the notion that all taxpayers should be treated the same.
targeted tax breaks create distortions in the workings of the economy;
it impedes competition. Government steps in and creates an uneven
field by granting tax breaks to particular industries. As a result, our
economy's resources do not go toward their most efficient use, which
it more difficult for America's businesses to be successful.
Extra Credit: If you are interested in reading more on corporate welfare, read one of the below, and write a short summary (2 pages, double-spaced) relating what you have learned to class. :
1. You can read the entire Boston Globe Series on Corporate Welfare:
There are four articles in this series (you’ve read two of them already); the link to the next is located at the bottom of each article.
2. You can read the entire San Francisco Bay Guardian
series on “the real welfare cheats: corporate welfare recipients.
On Corporate property tax breaks: http://www.sfbg.com/News/34/01/1real.html
On public assistance money given to developers: http://www.sfbg.com/News/34/01/1give.html
On lack of competition, and the effects:
On welfare reform and poverty:
On multimillion dollar training programs that don’t work:
3. For a lengthy and detailed discussion of the definitions of corporate welfare, its history, and possible solutions, see http://www.nader.org/releases/63099.html
For #4-6, read two of the three:
4. On corporate taxes (or lack thereof) and unemployment
5. Welfare Reform vs. corporate welfare—Dollars and Sense,
6. Testimony of Robert S. McIntyre, Director, Citizens for Tax
Justice Before the House Committee on the Budget Regarding Unnecessary
Business Subsidies June 30, 1999