Last month this column examined government intrusion into private banking and how the Export-Import Bank is an expensive, unnecessary fiefdom for a favored few. This month the broader issue is corporate welfare, an $89 billion political squandering of resources in the 2003 budget, down from $94 B in 2002. This estimate is not complete because government owned enterprises ($13.6 B), trade barriers ($12.4 B) and tax preferences ($1+B) are not included, meaning that corporate welfare amounts to at least a $115 B drain on the American economy. President Bush has "wimped out" on welfare reform, in spite of the fact that Mitch Daniels, OMB Director, noted that "it is not the federal government's role to subsidize¿rivate interests." The budget results in a call for better management of bad programs. Think of this: By eliminating corporate welfare, individual taxpayers could receive $1800 tax rebates, three times bigger than 2001 rebate checks. As former President Reagan said, "to say Congress is spending like drunken sailors is an insult to drunken sailors."
This welfare (Table I) is defined as government payments or benefits to specific companies or industries and is fostered by almost every elected Member of the House and Senate. There are many reasons to fault welfare practices because it is not in the national interest to encourage corporate dependency on government. Regardless of what politicians and beneficiaries say, there is no evidence of national economic gain from welfare: it does not protect industries from failure, does not preserve employment, does not fund useful work that industry would otherwise neglect, does not maintain industrial competitiveness and does not assist the disadvantaged. Protectionism never produces long-term benefits.
Government is not good at how it selects corporate welfare recipients because the subsidies create perverse incentives. As example, the House Budget Committee found that Small Business Administration loans have a delinquency rate of up to 15% in any given year compared to an average 2% commercial loan default rate. A $1.1B Maritime Administration loan guarantee for a bankrupt shipbuilder in Senator Lott's (R-MS) hometown is a scandal. Despite $1.5 B in subsidies to the U.S. automotive industry, not a single, U.S.-made, hybrid vehicle has been delivered while Japanese manufacturers, whose government dropped their subsidy program, sell two models in the U.S. (each one at substantial loss). Further, companies that do not receive welfare are taxed to pay for those that do, diverting credit and capital to politically connected but not necessarily efficient producers. Recall that 70% of U.S. agriculture is not subsidized, but Americans paid for the $940 million tax credit last year to support Archer Daniels Midland, which produces 40% of grain alcohol used in America. Simply stated, corporate welfare breeds political corruption, a condition existing in the U. S. Congress. Not all welfare is tainted but much is. The unholy alliance between Big Steel management and their unions with Congress is another well-known story.
Since the legal graft of corporate welfare is institutionalized, eliminating it is difficult. I suggest that the best chance to improve the system will come from enacting "sunset laws" to abolish agencies, regulations and programs on a regular basis, automatically terminating them unless specifically reauthorized. Sunset legislation is currently proposed (H.R.2373) by Kevin Brady (R-TX), but little chance for action is predicted. A sunset enforcement mechanism could come from a (CWRC) Corporate Welfare Reform Commission to study and recommend to Congress for a single up-down vote for each sunset event. This thought has broad political support in principle but, get real, rarely any action. Proponents for initiating sunset suggest that the CWRC cannot employ any Member of Congress, must propose a list of actions for sunsetting each two years, address only spending programs with everything on-the-table, and require vote by Congress within 60 days after release of recommendations.
Why not do your country a favor and tell your Congressman and Senators your views on this very important matter.