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January 03, 2005

Corporate Welfare

Steven Shiffrin: January 3, 2005

Almost ten years ago, the Boston Globe estimated that $150 billion in the form of subsidies and tax breaks was funneled to American companies. The $150 billion figure (presumably much larger now) was then greater than the annual deficit of $130 billion (definitely much larger now). It was greater than the program aiding families with dependent children, student aid, housing, food and nutrition, and all direct public assistance taken together (excluding Social Security and medical care). Politicians from right (Pat Buchanan) to left (Robert Reich) have condemned “corporate welfare.” The theme that we should take back America from the dominant grip of corporate greed was a pervasive theme of the progressive movement.

If the left wants to appeal to the right without abandoning its integrity, it should campaign on behalf of core democratic values, values that make the voice of the people more important than corporate contributions. It is more possible to do this now than ever before. For many years, corporate contributions (through PACs or otherwise) were necessary to finance campaigns. The internet has now made it possible to gather vast sums of money while circumventing the corporate establishment. I am not suggesting that the left press for an anti-business agenda. (Many pro-business measures are consistent with a progressive ideal, and corporate contributions consistent with that ideal are entirely acceptable). I am suggesting, I am not the first, that taking back America from the grip of corporate power is a powerful theme that is attractive not only to the left, but also to right-leaning, gun-owning patriotic populists all over the country.

 

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» Empty Rhetoric from Psuedo-Polymath
Left2Right is a blog by a swarm (conspiracy?) of left wing academics who feel that they need to start to persuade those of us on the right of the error of our ways using arguments instead of insults. Now this is an admirable idea, but on the other ha... [Read More]

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» Economics Gets Short Shrift From Shiffrin from Sound and Fury
What's missing from this Huey Long-ish proposal is any mention of what corporations do when the government raises their taxes or reduces their subsidies: they dexterously hand the cost right off to their customers and employees. (This simple, but appar... [Read More]

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» Taking Back the Democrat Party from Moonage Political Webdream
Steve Shiffin of Left2Right opines:If the left wants to appeal to the right without abandoning its integrity, it should campaign on behalf of core democratic values, values that make the voice of the people more important than corporate contributions. It [Read More]

Tracked on Jan 4, 2005 9:48:01 AM

» Economics Gets Short Shrift From Shiffrin from Sound and Fury
What's missing from this Huey Long-ish proposal is any mention of what corporations do when the government raises their taxes or reduces their subsidies: they dexterously hand the cost right off to their customers and employees. (This simple, but appar... [Read More]

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Comments

Posted by: Shag from Brookline

In addition to corporate welfare there is the matter of federalism as it impacts corporate law. The State of Delaware has for a long period of time accommodated and insulated the managers and directors of large public corporations against lawsuits brought by shareholders primarily because Delaware is the state of incorporation, even though the corporation may have its principal office and conducts it business primarily outside of Delaware. The legal profession has been at the forefront in getting Delaware to accommodate these managers and directors. Just think of the ongoing Disney lawsuit. This may not be corporate welfare in the sense of your post, but it does provide great protection to these managers and directors at the expense of the stockholders.

Posted by: Shag from Brookline | Jan 3, 2005 5:58:14 PM


Posted by: Luka Yovetich

I would also think that righties in general (not just the gun-toting populist kind) would be against corporate welfare. Usually thay are against gov't provided welfare of any kind. And while the left might not be able to join the right in their mission to abolish all forms of welfare it should be able to find common cause on this issue.

Great idea!

Posted by: Luka Yovetich | Jan 3, 2005 6:06:52 PM


Posted by: Bernard

I fully agree on this. I also think that any reforms in this direction should be part of a wider push toward corporate (and government) transparency and a much simpler set of corporate accounting and tax regulations.

Of course, certain key interest groups would lose out in a big way, but this is an issue on which cross-party consensus should be acheivable if the message and the benefits are sufficiently clearly stated.

Posted by: Bernard | Jan 3, 2005 6:20:03 PM


Posted by: Michael

Professor Shiffrin's post is an admirable attempt to find common ground between Left and Right, but it lacks an accurrate understanding of the "Right" in America today. The Right that won the election this November has marginalized Pat Buchanan and his "populists" to the point where they have left the Republican party. Today's Right, an alliance of "neoconservative" foreign policy hawks and socially conservative suburbanites, has an ideological and financial interest in supporting corporate America. Neoconservatives would say that reduced support for corporations would mean slower economic growth and thus a reduced standing for America globally, especially in relation to China. Social conservatives in fast growing southern and western cities are often employed by large corporations, which are in turn growing more socially conservative. To really reach out to the relevant "Right," Professor Schiffler would need to present the issue in a way that interests these two groups. While it may be more convenient to reach out to the Right of one's choosing, Professor Schifflin's "patriotic populists" are unlikely to swing elections any time soon.

As a final note, as evil as corporate welfare sounds on its face, specific instances of corporate welfare give a much more complex picture that may in fact be consistent with "progressive ideals." I come from San Antonio, where the city government recently voted to give the Toyota corporation a moderate tax benefit so that they would build a manufacturing plant on the depressed, mostly Hispanic south side of town. The Toyota plant will generate thousands of jobs directly, and is already spurring large development projects in an area that sorely needs them. While I understand and to an extent share the aesthetic concern that the phrase "corporatization of America" generates, there can be little doubt corporations improve the quality of life in America in material terms; that's why cities and states want to attract corporations with tax breaks.

Posted by: Michael | Jan 3, 2005 6:27:34 PM


Posted by: Terrier

What constitutes corporate welfare? If the supermarket in southern San Antone makes more money from the new plant workers then is the government their benefactor? If I sit on my lazy and buy their stock am I on the dole? Do we really need a missle defense shield or is their an economic reason to build it? Does buying B2 bombers put bread on the table for ambulance chasing lawyers in Arkansas?

The unpopular truth is that our government early on decided to become involved in many things that many now regret though they still enjoy the fruit. The Federalists thought we needed a standing Navy, the Republicans were for the canal, the Corps of Engineers directed the rivers, Brown and Root built the interstate highways, and the breadbasket was open for all to feast.

Some people around here are fond of reminding us how easy it is to advocate for more taxes when others have to pay them also but will they advocate less corporate welfare when the know it will cost them money?

Posted by: Terrier | Jan 3, 2005 7:28:45 PM


Posted by: arbitrary aardvark

"subsidies and tax breaks"
This blog is called left2right, rather than say, preach2thechoir. If you want to have any credibility with the right, don't lump in subsidies and tax breaks as if they were the same thing.
Subsidies are when the government takes from A to give to B. Generally A is a powerless class, unable to protect itself from predation, while B is powerful, able to lobby the government to get special favors.
Tax breaks are when A gets to keep some of A's stuff. Say you have an income of $50K a year, and last year I gave you a tax break by not burglarizing your house. Should I end that tax break this year, or continue it?
The left tends to see government as either rational, acting according to some thought out plan, or as allpowerful allknowing and allgood.
The right tends to see government as more like a parasite, cancer, or primitive organism, growing in the direction of the food supply, shrinking away from defensive measures by others.
The right tends to see stuff as belonging to the workers who have produced it (directly with labor or indirectly with capital, stored labor) where the left tends to see stuff as belonging to the government. The right rightly regards this as unjust appropriation by an elite.
As a previous commenter mentioned, there is not one monolithic right. Like feminism, there are frameworks of conservative thought, not always in consensus about what to do or what things mean.
But there are those on the right who oppose corporate welfare, who would be happy to work with the left as an ally in ending it, or at least exposing it. In order to earn our trust as folks we could work with at least as a temporary coalition, learn to sort out what is and what isn't corporate welfare.

Posted by: arbitrary aardvark | Jan 3, 2005 7:29:34 PM


Posted by: Matt

I feel that this post is a good example of how the left fails to understand the right, which I understand to be the idea behind this blog. When a corporation receives a tax break that money goes to shareholders and employees. Now it is likely that this money will disproportionately benefit the wealthy, but this is not necessarily so (and is true of many tax breaks regardless). Anyhow, it is simple to observe that we could balance the budget by sufficiently increasing taxes for corporations or the wealthy, but the concern is that it would have a greater negative effect on our economy. By comparing the corporate tax break w/ the deficit you are mischeviously implying that we can harmlessly balance the budget simply by reclaiming these funds. Obviously, this is not the case and I think the apparent deception is what causes the message to fail to influence conservatives. I think that corporations do unduly influence policy-making to the detriment of the public, but it is not the sum total of tax breaks that is the concern, it is their allocation that benefits the influential instead of simply economically or publicly beneficial activities. If the left wishes to advocate taking America back from the grip of corporate power w/o appearing to advance an anti-business theme, they need to abandon analysis such as advanced by the Globe.

Posted by: Matt | Jan 3, 2005 7:30:46 PM


Posted by: No Labels Please

This is a good and relevant issue for this blog, as opposed to the inaguration party non-issue which has morphed into the equivalent of Dick Cheney's Daughter over the past few days.

A few thoughts:

1. A lot of what is labeled corporate welfare in these $150 bn type totals is in the form of big business agricultural subsidies. Supporters of eliminating corporate welfare will have to lose any illusions of protecting the "small farmer" to make a big impact here.

2. Corporate welfare also is sometimes targeted at areas of the country with low employment - ie at promoting business activity in low-income areas. Is this a bad idea?

3. Above comments aside this is a good middle ground issue - eg it's supported by the Cato Institute:

http://www.cato.org/pubs/pas/pa225.html

4. The ability to raise individual money through the internet [as well as strict full dislcosure rules] is the right way to proceed with equalizing political influence as opposed to attempting to regulating political speech which is probably doomed to failure.

5. It's good to hear that some academics recognize that corporations actually employ a few more people in this countrty than philosophy or political science departments.


Posted by: No Labels Please | Jan 3, 2005 7:35:27 PM


Posted by: Brian Weatherson

The aardvark above is being rather arbitrary. It seems (s)he is distinguishing the following two cases, which seem much of a muchness to me.

Case 1
X Inc has a tax bill of $6 million. Govt says that if they do project Y, govt will give them a $2 million subsidy, though they'll still have to pay $6 million in taxes.

Case 2
X Inc has a tax bill of $6 million. Govt says that if they do project Y, govt will give them a tax break so their tax bill is cut to $4 million.

As far as I can see, aardvark says we should complain about the govt in case 1, and applaud the govt in case 2. I'm with Professor Shiffrin and the Globe writer in treating these like cases alike.

Having said that, I think the other commentators are right when they stress that this is a lot easier in theory than principle. Right now there are tax breaks/subsidies for buyers of hybrid cars. I think (though I'm no tax lawyer) that fleet buyers, i.e. corporations, get the same tax breaks. So these are corporate tax breaks. Should we be scrapping those? No, we should be increasing them, because we want to reward car use with fewer negative externalities. Targetted tax breaks can be a nice easy way to promote good behaviour, and punish bad (or at least costly to other people) behaviour. How many such tax breaks are so targetted, and how many are just giveaways to people's friends, is something that has to be argued out case-by-case.

Posted by: Brian Weatherson | Jan 3, 2005 7:42:00 PM


Posted by: john weschler

We can insult, hate and despise so called corporate welfare, BUT, they (corporate America) are the driving engine of our robust economy.

Progressives can look to the people for an evolutionary change that does not include corporations. But in the long run, profit and providing people what they want in an economy like ours drives us all.

Unless the progressives can generate enough anarcy in intersested people, their will be no relief from the misnamed corporate welfare.

The progressives, in this case, present a slanted (not really true) set of "facts" and rely upon the immature emotions of genuinely interested people to rely upon those "facts" I would urge anyone reading this or any other information forum to look for all views, not just those that seem to fit ones sense of idealism.

Posted by: john weschler | Jan 3, 2005 7:43:50 PM


Posted by: D.A. Ridgely

Okay, let's stir the pot. Ideally, I'd prefer corporations to be neither taxed nor subsidized. The taxes are largely passed on to consumers as a business cost and the subsidies are more often than not protectionism or mere pork. By the same token, for-profit corporations should be forbidden from making charitable contributions of any sort (that's not their purpose) and equally forbidden from providing employee benefits other than leave and earnings (let's get them the hell out of being health insurance providers, for example.) Corporations are only 'persons' as a legal fiction and should not be involved in politics, per se, either, including either hard or soft political contributions (again, that's not their purpose.) They should be permitted to lobby regarding legislation that affects their business, and that significantly muddies the waters; but, then again, I would prefer so little regulation in the first place that such lobbying would be largely unnecessary. So, what are my chances of getting a Left/Right consensus on this agenda?

Posted by: D.A. Ridgely | Jan 3, 2005 7:46:26 PM


Posted by: right-wing, conservative, gun-toting nutjob

How about ending all taxes on wages so that workers can afford to buy securities and become capitalists.

How about ending all corporate welfare and fram subsidies.

90% of US firms are corporations. The rest are sole-proprietorships and partnerships. How about ending much of the burdensome regulations which keep sole-proprietorships and partnerships from operating, because they can't raise the funds for all the necessary lawyers and human resources department (unless they incorporate, which is the problem in the first place).

How about ending zoning regulations, which artificially raise the value of commercial land (to its owners benefit) and cause high entry barriers to small firms.

Posted by: right-wing, conservative, gun-toting nutjob | Jan 3, 2005 7:48:00 PM


Posted by: Mona

I will simply add that, depending on what one means by "corporate welfare," the libertarians no less than the populists in the GOP would largely sign on to abolishing it. Indeed, likely more so. One imagines that organized labor favored the Chrysler bail out.

Posted by: Mona | Jan 3, 2005 8:03:32 PM


Posted by: Jim Hu

While I'm sympathetic to the tax cuts aren't giving money argument when applied to taxes that are generally applied evenhandedly, when a specific company* gets a specific exemption from the normal corporate or property tax rate, as is often the case when cities make deals to land companies or sports teams...then I don't have a problem lumping that kind of tax break together with outright subsidies.

As others have pointed out, this is the kind of thing that is easy to be against in principle, but hard to get rid of in practice, especially since pork seems to be a form of currency in vote trading in Congress. Less frequently, but also important, are situations like the Chrysler bailout, or the bailout of Long-Term Capital Management...and we what we may see with Fannie Mae (I admit that I don't know enough about these to know how much the taxpayers were involved, if at all - can the economists here enlighten me?). Letting the market discipline the affected entities may be the right thing to do, but it's very hard politically. I'm not even sure that bailing LTCM out was not the right thing to do, once the situation was got to that point.

For many years, corporate contributions (through PACs or otherwise) were necessary to finance campaigns. The internet has now made it possible to gather vast sums of money while circumventing the corporate establishment.
I'm curious...was this really new money, or did the usual suspects just figure out new, and in some cases better (from their pov) channels?

*I'd lump this sort of thing together for non-corporate entities too. Aren't some farm subsidies tax breaks? While composing this post I had the frightening thought that maybe cities could somehow give special breaks to individuals...headline: NYC signs special tax deal with Carlos Beltran as part of Yankee deal (shudder)

Posted by: Jim Hu | Jan 3, 2005 8:12:11 PM


Posted by: rtr

First, the term "Corporate Welfare", in an assault on State Monopoly protection will need to be dropped to increase the marketing ability of the campaign, as its previous advocates attacked on dated intellectually refuted Marxist grounds. Something like "Monopoly Subsidization”, perhaps “M.S. Free” in a drawing of swords toward Microsoft, is much better. Corporate taxation needs to be addressed secondarily and separately.

The two biggest protectionist barriers currently existing are Patent and Copyright. The software industry is in shambles over petty squabbles showing the basic absurd nature of Patent protection. I believe software patents are now dwarfing the number of filed drug patents. Patents and copyrights do not protect scarce tangible material circumscribable property but protect non-scare non-tangible immaterial ideas at the expense, the theft of, others’ property. The effect is that consumers generally, and many extremely needy communities, are screwed by this in much higher costs for AIDs drugs for instance. I’m not sure what the overall profits of the pharmaceutical industry were last year but the $21 billion in subsidies needs to be killed. The pharmaceutical industry will be especially weak in 2005 after their attack on drug reimportation, which is fundamentally anti-free trade. There's enough Republicans to build coalitions with on reimportation issues, so they might be willing to go along with an assault on patents. A catchy slogan such as “No Tax Reimportation” should suffice as a start. Start by focusing on industries that are ripe for populist tearing down: software and pharmaceutical. “Insource” the Patent subsidies. The Republicans will adapt quickly or face landslide losses the way the Democrats did in 1994. Stay focused and let the principles of the attack work their way later onto other industries in the future. Marginalize the defendants with publicity of drug company PAC donations. Who’s being bought and with how much?

Put the patent free prices of drugs on ballots in comparison to the drug company patented prices and put them up on State ballots across the country, California proposition style. This will generate a groundswell of support that will silence the hoping to be quiet behind the scenes bought representatives and start the appellate court processes. Use the publicly available legal costs paid by the industry, including the legal firms they use. Use no holds barred hardcore imagery of Africans dying from AIDs and the drug companies attempting to have arrested small businesses trying to sell cheap drugs. Put some stupid egregiously callous drug commercial music and smiles of executives in the background showing the drug companies “celebrate, celebrate…” This should overwhelm cheap, though not inexpensive, marketing attempts of the drug industry portraying itself as charitable.

What primarily needs to be debunked is the idea of “incentives” being circulated by proponents of protectionism. This can be easily done by adhering to the principles of free trade.

This also ties into the corporatization of academia, particularly troubling in some of the “harder” sciences. Information flow is hindered and flies in the face of the emancipation of information freely available on the internet.

The first thing the left needs to do is revisit its erroneous, ideologically slanted history of American business. They need to find the specific State caused instances of Monopoly and attack them on free market grounds.

The future of American technology will get ever weaker if businesses are allowed to keep their heads in the sand in the false hope that Patent and Copyright protection lazily allow companies to rest on the laurels. And this has enormous wealth enhancing benefits for the third world. The trickle down benefits would dwarf foreign aid, bringing the costs of information toward zero, enabling all equal access, much greater competition, and much lower prices. The myth that innovation and development will cease without copyright and patent protection needs to be torn to shreds.

As a libertarian I’d gladly trade an impotent leftist congress of 2007 for the death of Patent and Copyright. It’s an issue that would be historically tremendous and cause shock and awe waves around the world. It’s the type of thing, that once it got rolling could avalanche the corporately bought lobbyist Washington D.C. class. Just stick to the free market economic principles, and stay away from the Marxist demonization of them on classist “rich” grounds. I don’t know how “progressive” that is but it would be very practical. It would come “out of left field” so to speak and be very costly, politically and economically, to defend.

Posted by: rtr | Jan 3, 2005 8:17:56 PM


Posted by: Steven Horwitz

Time to return the favor to Mona: what she said. Corporate welfare, by any name, is certainly an issue where libertarians and the left can find real common ground, and perhaps some members of the right as well. Cato has long been consistent on this issue, even working with the Urban League (if I recall correctly) a few years ago on a joint project. Two additional points:

1. Corporate welfare is the issue to help make the distinction between being "pro-business" (which I am not) and "pro-market" or "pro-competition" (which I am). For me, the reason to be the latter is that it, in my view, it largely serves the interest of the masses in the form of consumers. The former, including corporate welfare, serves the interests of the (relatively) rich, powerful, and few.

2. I agree with the earlier posters who distinguished between generalized tax breaks and targeted ones. A tax break for all firms is *not* the same as a subsidy, but tax breaks for specific firms in specific circumstances is, and I would object to them. (I would add, this issue is one place where left and libertarian can likely find common ground with respect to Wal-Mart. I happen to think Wal-Mart is largely a net gain for most Americans, but I object to local communities using tax dollars to lure Wal-Mart to their areas. Let Wal-Mart stand or fall on its own capital.)

Posted by: Steven Horwitz | Jan 3, 2005 8:39:37 PM


Posted by: sierra

I'd love to see an end to corporate subsidies, but I share the skepticism about pulling it off. Liberals need to understand that means an end to most farm programs, a lot of alternative-energy research, and no more propping up uncompetitive industries in the export market. So be prepared to deal with the shipping-jobs-overseas rhetoric, especially from unions. For dems to embrace such reform, they should be prepared to lose a lot of their core constituencies. Also raises the question of programs that use "corporate welfare" as a mechanism to achieve seemingly unrelated ends, such as minority set-asides. So understand what you're getting into politically.

Posted by: sierra | Jan 3, 2005 9:18:56 PM


Posted by: Alina

Even liberal orgs like the Center for Public Integrity report that the Democrats receive corporate donations at a level like that of Republicans.

The astonishing difference between the two parties is how much more the Republicans rely on large numbers of large donations from individual donors (contrasted, for example, with Howard Dean's MASSIVE numbers of small and medium donations).

As far as comparisons between the PARTIES go, I think that the story is still to be told there, more than with their relative succombing to corporate control.

This does not detract from Mr. Shiffrin's point in the least, however, except as to raise the question of where the left is to be found as far as running campaign finiance reform candidates is concerned. The campaign finance reform story of the last two election cycles was Bush's trouncing of McCain. Can we find someone (unlike McCain) that the left can stomach? Should we bite the bullet and get on that bandwagon?

Posted by: Alina | Jan 3, 2005 10:25:34 PM


Posted by: Bill

That last post (about McCain etc.) was by me not by 'Alina'

Posted by: Bill | Jan 3, 2005 10:27:16 PM


Posted by: sierra

While I agree ending various corporate subsidies is a desirable end, I think saying it will help us "take back America from the dominant grip of corporate greed" is way, way over the top. Imagine if I were to refer to "the dominant grip of organized labor," and you get an idea how that rhetoric comes off. Subsidies are clumsy, unfair, penurious, corrupt, spurious, and downright perverse. Still, their main effects are subtle: higher prices and fewer choices, which I doubt has much to do with the sort of anti-corporate animus that makes kids in Seattle lob bricks through the windows of their local Gap or Starbucks. Leftists have got to understand that even if you get rid of all subsidies, corporations are still going to be around, just as strong and gripping and ever. So get that straight. If I want to stop subsidizing corporations, it's not because I hate corporations, but because I think subsidies are stupid. And also, what do corporate political contributions have to do with it? Isn't that an independent question?

Posted by: sierra | Jan 3, 2005 11:33:07 PM


Posted by: Terry J

"Corporate Welfare" is such a delightfully non-specific term.
Is it the tax code and the corporate deductions? Is it subsidies unrelated to the tax code? Are there other things that qualify?

One of the problems of attempting to raise such an issue in an unqualified and inclusive manner is that it opens up a line of defense, even counterattack. The left can be portrayed as believing that all income belongs to the government. It is the only coherent basis for terming a deduction from income to arrive at the Taxable income a "Tax Expenditure."

The tax code contains a lot of specific tax breaks for specific companies and industries, and a lot more quite generic deductions. Which ones are included in "corporate welfare?" Are any of them included? None of them? Lacking specificity, we can all spend a lot of time and energy tossing out gratuitous insults and such, but without specificity we have nothing to discuss.

In a 1995 paper by The Cato Institute (http://www.cato.org/pubs/pas/pa225.html) and referenced by an earlier commentor, they categorize $85MM as business subsidies. They set forth a number of arguments why various forms of corpoate welfare are counterproductive. They disagree with the assertion that corporate welfare is equal to all other forms of welfare, but agree that it could be in the future. The paper is available online and supports some of your argument, though it is a bit more specific. Read the whole ting.

Now, fair is fair. Since the Cato paper came out many Universities have become quite adept at Patents and Copyrights and intellectual property, and have become rent-seekers in commerce (they want license fees), and their research grants have been "academic welfare." The taxpayer subsidizes the research and the academic and university reap the reward.

In the case of corporations, it is customary to chaaracterize this as GREED, while for academics it is the reward for excellence. Same process, same result, but a bit of prostitution in the characterization.

"(Many pro-business measures are consistent with a progressive ideal, and corporate contributions consistent with that ideal are entirely acceptable)." Would anyone, preferably the poster, care to explain this observation? What would be a progrssive ideal? I'll refrain from suggesting the more obvious ones and beg, just BEG, Steve Shiffrin to explain what he had in mind. I realize it is out of character for the poster to offer clarity in the comments, but perhaps just this once?

One other obvious pitfall in the theme has to do with raw politics. When a business in the Congessional District asks for specific help and says jobs are at stake, the Incumbent tends to jump. Whether Moonbat or Wingnut, they work hard to get the proposal included in the next round of pork. See Military, Closure of Bases. See also Silicon Valley.

Much of the Corporate Welfare complained of was enacted when the Congress was controlled by the Democrats. When the references go back to 1995, you know this has to be true. The new Congess had not taken office when Secretary Reich made his comments in December 1994.

Please offer your readers a specific proposal. Methinks you would flunk a student for exhibiting the level of support you provided for the argument you have advanced. Happy New Year!

Posted by: Terry J | Jan 4, 2005 1:13:46 AM


Posted by: pashly

Those of us who post at the bottom have only slim pickings to add, so simply for what has not been stated

"Corporate greed/corporate welfare" say much more about the speaker than the object. The implication of the words are that corporations are uniquely antisocial and antimoral in our society. Sadly, there are many who hold this, when the most obvious review of the evidence, and consensus would be that corporations are necessary agents for prosperity and economic life. Until the left can pry themselves away from the flaying corporations and market incentives, they can't be trusted on areas of "corporate welfare".

Similarly, the Left, the faction of government, must pry themselves away from subsidies for their own favorite economic units (like alternative energy subsidies), but also need to do the hard work of developing a theory of regulation of business that limits the reach of government. The Left is quite good at thundering from the pulpit, but what of a realistic and long-term policy of taxing, regulating, and promoting corporations? Until they develope a philosophy that both structures and limits their reach, they are not viable partners for a discussion on "corporate welfare/corporate greed".

Posted by: pashly | Jan 4, 2005 1:23:42 AM


Posted by: Jim Hu

Terry J, I get the base closures. I don't see your point about Silicon Valley, but it's been many years since I lived there.

Posted by: Jim Hu | Jan 4, 2005 1:28:46 AM


Posted by: sierra

Terry J says: " 'Corporate Welfare' is such a delightfully non-specific term. Is it the tax code and the corporate deductions? Is it subsidies unrelated to the tax code? Are there other things that qualify?" Given the vagueness of the term, one could even argue that regulations are often a form of corporate welfare because they increase the cost for challengers to go up against established players who can better absorb the cost.

Posted by: sierra | Jan 4, 2005 1:30:15 AM


Posted by: OldMountainGoat

We might be able to find some common ground here but ***HOLY COW!*** Steve needs help with his delivery. Here it goes, assuming that Steve wants to reach out to the right and isn't just preaching to the choir...

Steve says:

Almost ten years ago, the Boston Globe estimated that $150 billion in the form of subsidies and tax breaks was funneled to American companies. The $150 billion figure (presumably much larger now) was then greater than the annual deficit of $130 billion (definitely much larger now).

Steve loses credibility right off the bat by implying a quick fix to the deficit problem. Joe-Talk-Radio-Aficionado is thinking to himself, "this idiot doesn't understand the law of unintended consequences." I'm sure that Steve knows that his comparison of figures is an oversimplification but his target audience will only see the fingerprint of a stereotypical liberal. The sore point comes from the liberal track record of causing harm while shunning accountability (only with the very best of intentions of course). Steve should start by acknowledging some unintended consequences of past legislation as an olive branch.

Steve says:

The theme that we should take back America from the dominant grip of corporate greed was a pervasive theme of the progressive movement.

When America is wrested from the terrible grip of corporate greed it will end up in the even more terrible grip of big government. Corporations are suspect but so is government. The healthy mistrust of government is the birthright of all Americans. Steve may not agree with this sentiment. Fine. But please, know your audience. Recommendation: tone down the rhetoric of envy.

Steve says:

The internet has now made it possible to gather vast sums of money while circumventing the corporate establishment.

The libertarian in me says, "the problem solved itself."

Steve says:

I am suggesting, I am not the first, that taking back America from the grip of corporate power is a powerful theme that is attractive not only to the left, but also to right-leaning, gun-owning patriotic populists all over the country.

I appreciate the use of "gun-owning" rather than the expected put down of "gun-toting". Extra points to Steve if this is first draft text rather than an edit. But what oppresses me is the horrible complexity of the tax code. I recommend that Steve emphasize the economic benefit of tax simplification. We spend a staggering amount of money navigating a labyrinth of our own making. Let's unmake it... together :-)

Posted by: OldMountainGoat | Jan 4, 2005 1:43:12 AM


Posted by: Terry J

Jim Hu:

It somewhat annoys me to debate the commentors rather than the poster, but you raise a point.
Again, please see http://www.cato.org/pubs/pas/pa225.html I know that this is a crappy way to cite a link,but we all deal with limitations, and it is worth the read, 1975 and all. Here is an excerpt:
# Corporate welfare creates an uneven playing field. Business subsidies, which are often said to be justified because they correct distortions in the marketplace, create huge market distortions of their own. The major effect of corporate subsidies is to divert credit and capital to politically well-connected firms at the expense of their politically less influential competitors. Those subsidies are thus inherently unfair. Sematech, for example, was reportedly launched to promote the U.S. microchip industry over rivals in Japan and Germany. In practice, Sematech has become a cartel of the large U.S. chip producers -- such as Intel -- that unfairly handicaps the hundreds of smaller U.S. producers.[24] Farm subsidies create another arbitrary distortion. Agricultural price supports are alleged to be critical to the survival of American farmers. The truth is that of the 400 classified farm commodities, about two dozen receive more than 90 percent of the assistance funds.[25] Over 80 percent of the subsidies enrich farmers with a net worth of more than half a million dollars.[26]

sierra:
Yes one can argue that and I think I would agree

Jim, I hope this explains what I meant.

World:
Feel free to use the search engine of your choice to find earlier articles to support your position. Remember, the earlier, the more uassailable


Posted by: Terry J | Jan 4, 2005 2:36:04 AM


Posted by: Yehudit

"In practice, Sematech has become a cartel of the large U.S. chip producers -- such as Intel -- that unfairly handicaps the hundreds of smaller U.S. producers.[24]"

Actually Sematech was just a technology-sharing consortium with a tiny fab for proving out experiments, and its budget was tiny compared to that of any of its chip mfr members. FWIW Sematech downsized severely in the last chip mfr. downcycle. (I know, I did an internship there 8 years ago.)

Most corporations are publically traded, so are really owned by vast numbers of individuals. 60% of the American public holds stock now. Not only that, even more Americans have pension funds through their jobs and other savings which in turn invest in the markets. So corporations are owned by the American people. The robber baron caricature is really out of date.

Posted by: Yehudit | Jan 4, 2005 4:44:03 AM


Posted by: christy

I sure wish you would make a distinction between a subsidy and a tax break, the latter being NOT taking something that belongs to another while the former is giving something that belonged to another. Conflating the two is like suggesting that a traveller is being being given something by not being robbed.

Posted by: christy | Jan 4, 2005 4:47:02 AM


Posted by: Bernard

'I sure wish you would make a distinction between a subsidy and a tax break, the latter being NOT taking something that belongs to another while the former is giving something that belonged to another. Conflating the two is like suggesting that a traveller is being being given something by not being robbed.'

Not being taxed while receiving the same public services as those who are being taxed is a clear form of welfare. I see no practical purpose in making a distinction.

Posted by: Bernard | Jan 4, 2005 5:22:13 AM


Posted by: John Ray

Do you have anything more authoritative and examinable than a Boston Globe "estimate"?

You will be quoting Krugman next -- and you know how impressed conservatives would be by that!

Posted by: John Ray | Jan 4, 2005 5:45:08 AM


Posted by: Shag from Brookline

Tax policy as it has evolved post WW II on employee stock options is a part of corporate welfare. Public corporations benefit by conferring benefits upon their managers. Look how long it has taken (assuming it will actually take) for stock option grants to be reflected properly on financial statements. Corporations protect their managers and the managers protect their corporations, completing the circle of greed. Yes, the business of America is business; but business functions through the efforts of many with the rewards going to so few. Here's a thought: Why not a welfare state for individuals as well as corporations?

Posted by: Shag from Brookline | Jan 4, 2005 8:12:34 AM


Posted by: Shag from Brookline

Tax policy as it has evolved post WW II on employee stock options is a part of corporate welfare. Public corporations benefit by conferring benefits upon their managers. Look how long it has taken (assuming it will actually take) for stock option grants to be reflected properly on financial statements. Corporations protect their managers and the managers protect their corporations, completing the circle of greed. Yes, the business of America is business; but business functions through the efforts of many with the rewards going to so few. Here's a thought: Why not a welfare state for individuals as well as corporations?

Posted by: Shag from Brookline | Jan 4, 2005 8:12:59 AM


Posted by: sierra

Bernard says: "Not being taxed while receiving the same public services as those who are being taxed is a clear form of welfare. I see no practical purpose in making a distinction." I agree with prior comments that what matters is whether tax breaks are targeted to achieve a particular outcome. But in the interest of conceptual clarity, we must guard against the temptation to mislabel any broad tax reduction affecting businesses (e.g., capital gains) as a "subsidy," as that implies the money initially belongs to the government. Systematically identifying targeted tax breaks may be difficult, and perhaps beyond the scope of this discussion. E.g., how would we regard a reasonably broad tax reduction that favors exporters over importers, or manufacturers over farmers, without any reference to specific firms?

Posted by: sierra | Jan 4, 2005 8:55:05 AM


Posted by: sierra

Shag asks: "Why not a welfare state for individuals as well as corporations?" Gee, didn't we try that, and didn't it cause all sorts of problems? How about a welfare state for neither?

Posted by: sierra | Jan 4, 2005 8:58:53 AM


Posted by: John F. Opie

Sigh.

I'm an economist working in the private sector, doing largely risk management and industrial forecasting.

I'm going to say what is to me the obvious: that at least some of the posters here don't really understand what they are talking about.

First, let's define terms as they are used legally and in the economics jargon outside of academia, ie the real world.

Subsidies take many forms, but they all aim at a fundamental interference in the local intersection of supply and demand. Hence a subsidy might provide direct cash payment; it might finance the acquisition of expensive equipment by guaranteeing that the government will always buy a set amount regardless of whether it needs it or not; it might be simply a guarantee that the government will be the buyer of last resort, regardless of actual demand. But the fundamental fact is that a subsidy will result in a market distortion. It might be a market distortion in order to compensate for other market distortions - here is where corporate lobbyists excel at making their cases for government aid - but the market remains distorted whatever you do.

Now, business in general, regardless of their size or constitution, live in the tax world. Companies invest in equipment and plant in order to manufacture their widgets or provide their services, and these investments are depreciated over time according to basic rules of accounting in order to take into account the fact that these investments are worth less of over time because they are either used up or become technologically obsolete, requiring them to be replaced in order to maintain a constant rate of capital in the production process.

Now, this is **not** a market distortion: it is part and parcel of how capitalism works. If company A is in a business requiring large amounts of investment, it gets to write off its capital costs according to set depreciation schedules. These are set not by some magic fairy, but rather by government accountants who have an awfully good feel for what it means to buy a machine tool and then use it up over a 15-year period. If I'm in the oil business, I write off my machinery investments at a different rate than if I'm in the textiles business, not because I have a better lobbyist, but because the machinery is different and gets used up more quickly.

But you aren't giving the oil industry a subsidy when you let it write off its investments in (say) five years instead of ten; all companies operating in the oil industry get to do it. When you compare the oil industry and the textiles industry, whose machinery gets written off in (say) 10 years, you are comparing apples and cucumbers. Not the same thing.

Now, is depreciation a tax break? Sure: it allows income over costs to be deducted from taxable income, per definitio a tax break. But here's my point: it's the way that modern accounting, the basis for modern capitalism, works.

If companies can't depreciate their investments over time, then they either won't invest or they will pass on these costs to their customers. Letting them depreciate their costs this way places a legal requirement on all firms operating in the legal regime: it regulates one single aspect of how companies operate within the market.

It doesn't distort the market as such. Subsidies do: they favor one company over another, even within just one industry. "Tax breaks" aren't subsidies: they favor all companies equally, with a single caveat, that it is left to the individual company to decide whether it invests, modernizes or whatever.

Now, the government can certainly try and manipulate company behavior by fiddling with depreciation rates in order to do industrial policy. If you allow an accelerated depreciation for a certain kind of equipment in order to modernize the industrial base, this can best be achieved via changing the depreciation rates for the machinery in question. It's also a better tool for the government to use, since it doesn't intrude on the market directly, as a subsidy would.

I think that at least some here need to be more precise in their thinking about what they are appear to be talking about: "corporate welfare" is a lovely slogan, but at the end of the day rather sloppy thinking.

John

Posted by: John F. Opie | Jan 4, 2005 9:51:11 AM


Posted by: Bernard

Sierra, I may not have been as clear as I could be, but we look to be in agreement.

Preferential tax-breaks for some companies over their competitors represent a clear form of welfare, and as this is the context of the original post I'm in broad agreement with it.

An across the board tax cut, decreasing the size of government, would not be a welfare issue, and my ideal policy change would involve a decreased rate of tax across the board with fewer exemptions. As you say, any practical implementation would involve wrinkles (and there would be much haggling over it), but my ideal would be the flat rate, and the compromises I might accept would depend on what was on offer.

Posted by: Bernard | Jan 4, 2005 9:54:25 AM


Posted by: Scott Schaefer

To: DA
Re: Agenda Consensus

1. ideally, I'd prefer corporations to be neither taxed nor subsidized. The taxes are largely passed on to consumers as a business cost and the subsidies are more often than not protectionism or mere pork.

Agreed.

2. By the same token, for-profit corporations should be forbidden from making charitable contributions of any sort (that's not their purpose) and equally forbidden from providing employee benefits other than leave and earnings (let's get them the hell out of being health insurance providers, for example.)

Huh ? Do you seriously mean to suggest that government prohibit corporations from these activities ??? Or was this a test to ensure everyone was listening ?? I would agree that shareholders may forbid a corporation from these activities, but I read your post as arguing that these activities be legally proscribed. Are you seriously arguing that the legal fiction of personhood extends to the state prohibiting voluntary transfer of property and/or voluntary contracts ???

Posted by: Scott Schaefer | Jan 4, 2005 10:17:21 AM


Posted by: sierra

John Opie: I appreciate your expertise and I agree with you that the kind of routine write-offs you describe cannot be credibly described as a "subsidy." Still, there are still many instances of special tax breaks targeted at specific firms or even industries, which have the same market-distorting effects you attribute to subsidies. To take a random example from the news, wind farms in Kansas.

Posted by: sierra | Jan 4, 2005 10:45:07 AM


Posted by: sierra

Make these italics stop.

Posted by: sierra | Jan 4, 2005 10:46:02 AM


Posted by: Terrier

right-wing, conservative, gun-toting nutjob - how about me building a pig farm next door to your house?

Posted by: Terrier | Jan 4, 2005 10:49:10 AM


Posted by: D.A. Ridgely

Mr. Schaefer:

I would restrict for-profit corporate charters to prevent charitable contributions as a matter of law for several reasons. For-profit corporations exist to capitalize enterprises. They encourage equity investors because such investors, who will not be personally and substantially involved in the daily management of the corporation, can limit their legal liability to the extent of their direct investment. The purpose of such corporations is legal profit maximization, not charitable activity, and I would therefore prefer it if charitable contributions and such were expressly declared ultra vires (beyond the corporate charter.) Moreover, corporate executives and directors should abide by their fiduciary responsibilities to maximize profits to be used either to grow the business or be returned as dividends to investors. Unfortunately, corporate charters are very broadly written and applicable case law and a convoluted tax code permit these corporations to “buy” good will through charitable contributions and get tax deductions, to boot.

It’s too messy. If the tax consequences were a wash (as I would have them be), far better for the corporations to be forbidden by statute to play the charity game (so none could “buy” good will that way) and let the investors make whatever contributions to their own charities they wish with the dividends.

Posted by: D.A. Ridgely | Jan 4, 2005 11:56:58 AM


Posted by: David Velleman

Kevin Drum has a relevant piece up today.

Posted by: David Velleman | Jan 4, 2005 12:06:38 PM


Posted by: Daniel M.

Bernard: Your comments on "I sure wish you would make a distinction between a subsidy and a tax break, the latter being NOT taking something that belongs to another while the former is giving something that belonged to another. Conflating the two is like suggesting that a traveller is being being given something by not being robbed."

By saying:

"Not being taxed while receiving the same public services as those who are being taxed is a clear form of welfare. I see no practical purpose in making a distinction."

is incredibly obtuse and ignorant. With a quick sleight of hand, you added the two together (giving a tax break to someone receiving a subsidy) and conflated yet again.

Posted by: Daniel M. | Jan 4, 2005 4:11:31 PM


Posted by: sierra

On Kevin Drum's piece: Enrich isn't explicit about the legal reasoning, but it appears to be that states must offer tax breaks to compete, and find it difficult to opt out. Perhaps that results in an unlevel playing field that favors richer states, a situation that would arguably "interfere" with interstate commerce.

Still, I'm not sure what to make of this. Does this only apply when siting new businesses? If firms apply only a 1% importance to local tax levels, isn't that another way of saying the competition leading to this case doesn't matter much at all? Aren't there any legitimate occasions for states to offer tax breaks? Isn't this a federal encroachment on the prerogatives of the states?

Posted by: sierra | Jan 4, 2005 4:26:40 PM


Posted by: Scott Schaefer

Mr. Ridgely:

I find your argument plausible, but unconvincing. I realize what you have presented here is of necessity incomplete, but I read your argument as being based on an implicit premise, namely: profit maximization and charitable activity are mutually exclusive.

Both of yout statements: 1) The purpose of such corporations is legal profit maximization, not charitable activity, and 2) corporate executives and directors should abide by their fiduciary responsibilities to maximize profits to be used either to grow the business or be returned as dividends to investors, are based on accepting this premise. You recognize this, and allude to a solution in your final statement that far better .. [to].. let investors make whatever contributions to their own charities they wish with the dividends.

I admit that the tax codes' (precise punctuation -- there are often multiple authorities' codes) consequences present all manner of distorting influences, and it is difficult to even analyze policy choices in the environment where this is not the case. However, your argument calls for legal constraints on individuals to organize their activities in a manner which they see fit, and I see no compelling reasons to permit it [your legal constraint].

Related is the fact that you did not choose to address your second point (i.e. corporations should be equally forbidden from providing employee benefits other than leave and earnings), which I see as even less compelling.

Posted by: Scott Schaefer | Jan 6, 2005 7:51:06 AM


Posted by: D.A. Ridgely

Mr. Schaefer:

I’m only committed to the position I outlined as a matter of pragmatism based on historical experience with tax codes and corporate charters. Let’s put it this way. While I agree in principle that private parties should be as free as possible to arrange their affairs voluntarily however they see fit, I don’t think it follows that every sort of legal instrument should be available to them to pursue those objectives. We may want to restrict certain sorts of legal instruments (here, corporate charters) in order to avoid undesirable and unintended consequences of the sort we have in fact experienced with the status quo. If individuals wish to pursue charitable activities collectively as well as invest in for-profit activities collectively, there should certainly be separate legal instruments available to them for both purposes. There is no reason in principle as a matter of fundamental fairness why those legal instruments must be permitted to combine such activities, however; and there are a number of reasons I’ve already mentioned in passing which suggest that we are better off if we enforce their separateness.

My concerns about employee compensation are similar and no less (but admittedly no more) pragmatic. Aside from a general desire for maximum transparency in public companies, the history of non-monetary benefits has led me to conclude that it is more trouble than it is worth. I think, for example, that much of the mire we find ourselves in with our present system of health insurance is a direct consequence of WW II wage and price controls leading to employers seeking such non-monetary incentives. Couple that with the different tax treatment of such benefits as opposed to direct monetary compensation to employees and the system gets out of hand. Nice if you’re a tax attorney, not so nice if you’re either a businessman or an employee stuck with this particular devil’s bargain. Tax reform would go a long way to addressing these particular problems, so I wouldn’t press the point too hard, but my mere preference would be a system in which neither employees nor employers felt the need to structure the employment contract beyond leave and direct monetary compensation to employees.

Posted by: D.A. Ridgely | Jan 6, 2005 10:31:23 AM


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