The Common Good
May-June 1997

Between Pork and a Hard Place

by Anne Wayne | May-June 1997

Care needed in "corporate welfare."

What's the easiest way to balance the budget? Get rid of "wealthfare," the practice of granting subsidies and tax breaks to business. That message was delivered earlier this year by "Stop Corporate Welfare"--an unusually diverse coalition whose participants range from consumer advocate Ralph Nader to House Budget Committee Chair John R. Kasich (R-Ohio)--which named a "dirty dozen" of federal subsidies they believe should be amputated from the budget.

The call to chop business subsidies taps into public cynicism about politicians who empty the tables of poor families while heaping corporate pork on the plate of wealthy companies. Estimates of the annual cost of direct federal subsidies and tax breaks to companies vary from $87 billion (the conservative Cato Institute) to $150 billion (The Boston Globe, in a three-part series on corporate welfare last summer). Core social welfare programs, in comparison, cost $145 billion annually.

Trimming business subsidies, in line with other efforts to balance the budget and downsize government, garners popular support across the spectrum. It makes one wonder why the issue of corporate welfare has not been summarily dealt with. In practice, it’s not quite so easy.

Various definitions of corporate welfare have surfaced. Most agree that it includes direct grants and loans from government to businesses. Unlike the stringent accountability requirements for low-income recipients of welfare assistance, there are often no reporting requirements for these subsidies.

Politicians dissent, however, about other forms of subsidy. Conservatives balk at calling tax concessions a form of corporate welfare, even though these disproportionately benefit businesses. According to the Office of Management and Budget, the corporate share of taxes has declined to one-fourth the amount that individuals pay, with a parallel trend occurring at the state level.

The system of campaign finance offers further clues about the failure to deal decisively with corporate welfare. Former Labor Secretary Robert Reich said, "Companies and industries have managed to effectively lobby for their little piece of public largesse. Why have they been so effective? Because they support campaigns." The result is that programs that lack influence rather than value are the first to be excised.

IT’S OBVIOUS THAT the system of corporate welfare needs to be reformed. But we must consider why subsidy programs were set up in the first place. Ideally, government employs tax breaks and spending in order to persuade businesses to undertake efforts for the common good. The market knows the price of everything and the value of nothing, and so governments must offer enticements for companies to pursue externalities such as environmental conservation, research and development, and provision of services to rural areas or marginalized groups.

Rob Weissman of The Multinational Monitor believes that there is a flaw in the framework of the debate. "Although we shouldn’t be afraid of criticizing corporate welfare," Weissman said, "there is a danger that we slide into criticism of government intervention on principle." Often it’s hard to distinguish between corporate pork and a subsidy that encourages companies to contribute to the commonwealth, because the two may overlap substantially. Thus positive-sounding rhetoric about eliminating corporate welfare can mask a slash-the-government agenda.

The "dirty dozen" hit list put forward by Stop Corporate Welfare included the Rural Utilities Service, subsidized water supplies for farmers of low-value crops, and clean-coal technology programs. It did not mention subsidies to the oil or defense industries. Weissman explained that Nader did not endorse the list in its entirety because it included the Rural Utilities Service, which has been instrumental in providing electricity to poor rural areas. Although there are now instances of abuse, this type of subsidy has the potential of advancing the health of the whole community. As we work at cleaning up the murky bathwater of corporate welfare, we need to be careful that we retain the baby.

Instead of cutting subsidies altogether, organizations such as the Minnesota Alliance for Progressive Action offer suggestions on how to monitor corporate welfare for public gain and induce companies to meet their obligation to society. The widespread attention to this issue creates space in the public discourse for us to alter the shape of the debate. It can be a much-needed opportunity to ask questions about the role of public assistance, the power of corporations, and the responsibility of companies to their workers and communities.

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