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Calculating the Real Cost of Corporate Welfare


A popular new article from the far lefties at Common Dreams frighteningly warns that American families pay, on average, $6000 per year in corporate welfare to the dreaded “big business.”  There’s plenty to like in this article, and its general theme – hardworking American taxpayers forced by Big Government to line the pockets of large, well-connected corporations – certainly warrants more bipartisan attention (and criticism).  I’m also happy to see that not everyone on the left has abandoned their distaste for corporate subsidies now that their subsidy-loving guy is in the White House.

Perhaps unsurprisingly, Common Dreams’ criticisms and math do eventually veer into confused, anti-business mumbo-jumbo, but here’s what they get exactly right:

1.  $870 for Direct Subsidies and Grants to Companies.  The Cato Institute estimates that the U.S. federal government spends $100 billion a year on corporate welfare. That’s an average of $870 for each one of America’s 115 million families.

This is definitely (and depressingly) correct: as I noted in my 2012 Cato paper on global subsidy reform, the US government provides myriad taxpayer-funded benefits to agribusiness, green energy, automobile manufacturers, and whole host of other US businesses.  Even worse, the $100 billion figure is up significantly (about $10 billion) over the last two budget-strapped years.

2.  $696 for Business Incentives at the State, County, and City Levels.  A New York Times investigation found that states, counties and cities give up over $80 billion each year to companies… $696 for every U.S. family.

Again, 100% correct, and this is actually one area in which state competition harms taxpayers, as politicians from different states compete with each other to woo corporations by offering them buckets of other people’s money.

6.  $870 for Corporate Tax Subsidies….  [T]he Tax Foundation has concluded that their ‘special tax provisions’ cost taxpayers over $100 billion per year, or $870 per family. Corporate benefits include items such as Graduated Corporate Income, Inventory Property Sales, Research and Experimentation Tax Credit, Accelerated Depreciation, and Deferred taxes.

Yep, and they also include all those green energy tax breaks quietly thrown into last year’s Fiscal Cliff deal.  Wouldn’t you say it’s time for a simpler, fairer, more globally-competitive corporate tax code?

If you add these altogether, you see that federal, state and local governments force American families to give, on average, $2436 per year to companies that certainly don’t need the handouts (or shouldn’t be in business if they do). That $2436 could go a long, long way for most families, whether it was spent on food and clothing, vacation, a college fund, or whatever mom, dad and the kids most need.  Indeed, considering that the average American family spends around $6500 per year on food, eliminating these corporate subsidies and returning the savings to taxpayers could pay for about 4.5 months-worth of groceries.

As correct and important as these points are, however, the well-meaning lefties at Common Dreams go off the rails a bit when they try to add other line items to US taxpayers’ tab.  For example, they bemoan “$350 for Retirement Fund Bank Fees”, despite the obvious fact these management fees are the simple cost of the fund management services provided.  Investors have a choice as to whether to pay this fee or invest their money elsewhere, and government certainly isn’t forcing them to do so (unlike the subsidies above).  Lumping in together these voluntary transactions with government-forced wealth transfers is like comparing anti-cronyism apples and with anti-capitalism oranges. And any government-backed effort to end such fees would require laws and regulations from the same folks who happily provided all those subsidies to their Big Business buddies.  Think that’ll work out well for Mom, Dad and Timmy?  Yeah, I didn’t think so.

The Common Dreams folks also add in “$1,231 for Revenue Losses from Corporate Tax Havens” because “the average 2012 taxpayer paid an extra $1,026 in taxes to make up for the revenue lost from offshore tax havens by corporations and wealthy individuals”.  However, unlike the tax subsidies above, “tax havens” are actually a lawful check on, rather than a gift from, Big Government.  And tax offshoring is primarily the unintended consequence of bad tax policy (especially the United States’ high corporate tax rates and failure to follow most other industrialized nations by switching to a “territorial” tax system), rather than the intended result of misguided corporate welfare policies.  Indeed, the best way to stop tax offshoring it to create a simple system with rules and rates that don’t encourage such behavior.

Finally, there’s one glaring omission from Common Dreams’ list: protectionism, which, as I explained in a 2011 Cato paper, forces American consumers to subsidizes domestic corporations by taxing imports and raising domestic prices of the taxed goods and services:

At their core, trade barriers are the triumph of coercion and politics over free choice and economics. Trade barriers are the result of productive resources being diverted to achieve political ends and, in the process, taxing unsuspecting consumers to line the pockets of the special interests that succeeded in enlisting the weight of the government on their side. Protectionism is akin to earmarks, but it comes out of the hides of American families and businesses instead of the general treasury.

The US Customs and Border Patrol collected about $40 billion in duties, taxes and fees on imports in FY 2012 – translating to about $348 per US family in needless taxes on food, clothing and other items.  And, of course, this bill doesn’t include the higher prices that American families must pay due to these barriers.  Any list of corporate welfare is incomplete without this forcible redistribution of wealth from American consumers to a well-connected cabal of domestic manufacturers and unions.

That said, the fact that Common Dreams got a few things wrong shouldn’t overshadow the fundamental truth that corporate welfare is most definitely a real and important problem for the American families who are forced to provide it.  Subsidies are also an increasingly bipartisan issue which resonates with anti-corporatist folks on the left and limited government, free market folks on the right.  As such, a campaign against corporate welfare provides an excellent political opportunity for a free market populist politician to build a new left/right coalition to challenge corporatist/statist status quo that currently infects Capitol Hill and state houses across the country.  A necessary first step to any such endeavor, however, is properly distinguishing between real subsidy problems and misguided populist claptrap.  Only then can some smart politician develop policies and positions that will finally rid us of our self-interested “public servants” whose exit from government is long overdue.

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