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2/21/02: The following is an investigation that TIME magazine ran in 1998
that uncovered how hundreds of companies get on the dole--and why it costs every
working American the equivalent of two weeks' pay every year. With cruise lines
in Miami-Dade having terminals built for them; Broward snatching Delta from Miami-Dade
with publicly financed incentive packages; luxury hotels in West Palm Beach applying
for loans backed by antipoverty monies, and the state of Florida doling out tax
abatements to every organized business interest while simultaneously cutting education
and housing programs; it's high time for an airing of this issue.
By Donald Barlett and James B. Steele
How would you like to pay only a quarter of the real estate taxes you owe on your
home? And buy everything for the next 10 years without spending a single penny in
sales tax? Keep a chunk of your paycheck free of income taxes? Have the city in
which you live lend you money at rates cheaper than any bank charges? Then have
the same city install free water and sewer lines to your house, offer you a perpetual
discount on utility bills--and top it all off by landscaping your front yard at
no charge?Fat chance. You can't get any of that, of course. But if you live almost
anywhere in America, all around you are taxpayers getting deals like this. These
taxpayers are called corporations, and their deals are usually trumpeted as "economic
development" or "public-private partnerships." But a better name
is corporate welfare. It's a game in which governments large and small subsidize
corporations large and small, usually at the expense of another state or town and
almost always at the expense of individual and other corporate taxpayers.
Two years after Congress reduced welfare for individuals and families, this other
kind of welfare continues to expand, penetrating every corner of the American economy.
It has turned politicians into bribery specialists, and smart business people into
con artists. And most surprising of all, it has rarely created any new jobs.
While corporate welfare has attracted critics from both the left and the right,
there is no uniform definition. By TIME's definition, it is this: any action by
local, state or federal government that gives a corporation or an entire industry
a benefit not offered to others. It can be an outright subsidy, a grant, real estate,
a low-interest loan or a government service. It can also be a tax break--a credit,
exemption, deferral or deduction, or a tax rate lower than the one others pay.
The rationale to curtail traditional welfare programs, such as Aid to Families
with Dependent Children and food stamps, and to impose a lifetime limit on the amount
of aid received, was compelling: the old system didn't work. It was unfair, destroyed
incentive, perpetuated dependence and distorted the economy. An 18-month TIME investigation
has found that the same indictment, almost to the word, applies to corporate welfare.
In some ways, it represents pork-barrel legislation of the worst order. The difference,
of course, is that instead of rewarding the poor, it rewards the powerful.
And it rewards them handsomely. The Federal Government alone shells out $125 billion
a year in corporate welfare, this in the midst of one of the more robust economic
periods in the nation's history. Indeed, thus far in the 1990s, corporate profits
have totaled $4.5 trillion--a sum equal to the cumulative paychecks of 50 million
working Americans who earned less than $25,000 a year, for those eight years.
That makes the Federal Government America's biggest sugar daddy, dispensing a range
of giveaways from tax abatements to price supports for sugar itself. Companies get
government money to advertise their products; to help build new plants, offices
and stores; and to train their workers. They sell their goods to foreign buyers
that make the acquisitions with tax dollars supplied by the U.S. government; engage
in foreign transactions that are insured by the government; and are excused from
paying a portion of their income tax if they sell products overseas. They pocket
lucrative government contracts to carry out ordinary business operations, and government
grants to conduct research that will improve their profit margins. They are extended
partial tax immunity if they locate in certain geographical areas, and they may
write off as business expenses some of the perks enjoyed by their top executives.The
justification for much of this welfare is that the U.S. government is creating jobs.
Over the past six years, Congress appropriated $5 billion to run the Export-Import
Bank of the United States, which subsidizes companies that sell goods abroad. James
A. Harmon, president and chairman, puts it this way: "American workers...have
higher-quality, better-paying jobs, thanks to Eximbank's financing." But the
numbers at the bank's five biggest beneficiaries--AT&T, Bechtel, Boeing, General
Electric and McDonnell Douglas (now a part of Boeing)--tell another story. At these
companies, which have accounted for about 40% of all loans, grants and long-term
guarantees in this decade, overall employment has fallen 38%, as more than a third
of a million jobs have disappeared.
The picture is much the same at the state and local level, where a different kind
of feeding frenzy is taking place. Politicians stumble over one another in the rush
to arrange special deals for select corporations, fueling a growing economic war
among the states. The result is that states keep throwing money at companies that
in many cases are not serious about moving anyway. The companies are certainly not
reluctant to take the money, though, which is available if they simply utter the
word relocation. And why not? Corporate executives, after all, have a fiduciary
duty to squeeze every dollar they can from every locality waving blandishments in
State and local governments now give corporations money to move from one city to
another--even from one building to another--and tax credits for hiring new employees.
They supply funds to train workers or pay part of their wages while they are in
training, and provide scientific and engineering assistance to solve workplace technical
problems. They repave existing roads and build new ones. They lend money at bargain-basement
interest rates to erect plants or buy equipment. They excuse corporations from paying
sales and property taxes and relieve them from taxes on investment income.
There are no reasonably accurate estimates on the amount of money states shovel
out. That's because few want you to know. Some say they maintain no records. Some
say they don't know where the files are. Some say the information is not public.
All that's certain is that the figure is in the many billions of dollars each year--and
it is growing, when measured against the subsidy per job.
In 1989 Illinois gave $240 million in economic incentives to Sears, Roebuck &
Co. to keep its corporate headquarters and 5,400 workers in the state by moving
from Chicago to suburban Hoffman Estates. That amounted to a subsidy of $44,000
for each job.
In 1991 Indiana gave $451 million in economic incentives to United Airlines to
build an aircraft-maintenance facility that would employ as many as 6,300 people.
Subsidy: $72,000 for each job.
In 1993 Alabama gave $253 million in economic incentives to Mercedes-Benz to build
an automobile-assembly plant near Tuscaloosa and employ 1,500 workers. Subsidy:
$169,000 for each job.
And in 1997 Pennsylvania gave $307 million in economic incentives to Kvaerner ASA,
a Norwegian global engineering and construction company, to open a shipyard at the
former Philadelphia Naval Shipyard and employ 950 people. Subsidy: $323,000 for
...To be sure, some economic incentives are handed out for a seemingly worthwhile
public purpose. The tax breaks that companies receive to locate in inner cities
come to mind. Without them, companies might not invest in those neighborhoods. However
well intended, these subsidies rarely produce lasting results. They may provide
short-term jobs but not long-term employment. And in the end, the costs outweigh
And what are those costs? The equivalent of nearly two weekly paychecks from every
working man and woman in America--extra money that would stay in their pockets if
it didn't go to support some business venture or another.
If corporate welfare is an unproductive end game, why does it keep growing in a
period of intensive government cost cutting? For starters, it has good p.r. and
an army of bureaucrats working to expand it. A corporate-welfare bureaucracy of
an estimated 11,000 organizations and agencies has grown up, with access to city
halls, statehouses, the Capitol and the White House. They conduct seminars, conferences
and training sessions. They have their own trade associations. They publish their
own journals and newsletters. They create attractive websites on the Internet. And
they never call it "welfare."...
Whatever the name, the result is the same. Some companies receive public services
at reduced rates, while all others pay the full cost. Some companies are excused
from paying all or a portion of their taxes due, while all others must pay the full
amount imposed by law. Some companies receive grants, low-interest loans and other
subsidies, while all others must fend for themselves.
In the end, that's corporate welfare's greatest flaw. It's unfair. One role of
government is to help ensure a level playing field for people and businesses. Corporate
welfare does just the opposite. It tilts the playing field in favor of the largest
or the most politically influential or most aggressive businesses.