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CATO Handbook for Congress: Corporate Welfare

CATO Handbook for Congress: Corporate Welfare

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Published by Beverly Tran
CATO Institute recommendations to the 108th Congress on Corporate Welfare
CATO Institute recommendations to the 108th Congress on Corporate Welfare

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Published by: Beverly Tran on Apr 11, 2012
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04/11/2012

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CATOHANDBOOK
FOR
CONGRESS
P
OLICY
R
ECOMMENDATIONS FOR THE
108
TH
C
ONGRESS
Washington, D.C.
 
33. Corporate Welfar
Congress should 
end programs that provide direct grants to businesses,
end programs that provide marketing and other commercialservices to businesses,
end programs that provide subsidized loans and insurance tobusinesses,
eliminateforeigntradebarriersthattrytoprotectU.S.industriesfrom foreign competition at the expense of U.S. consumers,
eliminatedomesticregulatorybarriersthatfavorparticularcom-panies with monopoly power against competitors, and
create financial transparency with a detailed listing in the fed-eral budget of companies that received direct business subsi-dies and the amounts received.
In fiscal year 2002, the federal government spent about $93 billion onprograms that subsidize businesses. There have been numerous efforts tocut these wasteful and unfair uses of taxpayer money, but total corporatewelfare spending keeps rising. A serious attempt was made after theRepublicans took control of both houses of Congress in the 1990s toeliminate corporate welfare, but those efforts met with few successes.The Bush administration has promised a renewed attack on corporatewelfare. Indeed, Budget Director Mitch Daniels stated that it was ‘‘notthe federal government’s role to subsidize, sometimes deeply subsidize,private interests.’’ While taxpayers wait for reforms, the government con-tinues to subsidize private interests
directly
through such programs as aidtofarmersandsubsidizedloansforexporters.Andprivateinterestscontinueto receive billions of dollars of 
indirect 
subsidies through programs suchas those for federal energy research. With the federal budget again indeficit by more than $100 billion, corporate welfare is the perfect placeto start cutting excess spending.337
 
C
ATO
H
ANDBOOK FOR
C
ONGRESS
What Is Corporate Welfare? 
Corporate welfareconsists of governmentprograms thatprovide uniquebenefits or advantages to specific companies or industries. Corporate wel-fare includes programs that provide direct grants to businesses, programsthat provide indirect commercial support to businesses, and programs thatprovide subsidized loans and insurance.Many corporate welfare programs provide useful services to privateindustry, such as insurance, statistics, research, loans, and marketing sup-port. Those are all functions that many industries in the private sector dofor themselves. If the commercial activities of government are useful andefficient, then private markets should be able to support them withoutsubsidies.In addition to spending programs, corporate welfare includes barriersto trade that attempt to protect U.S. industries from foreign competitionat the expense of U.S. consumers and U.S. companies that use foreignproducts.Corporatewelfarealsoincludesdomesticlegalbarriersthatfavorparticular companies with monopoly power over free-market competitors.Corporatewelfaresometimessupportscompaniesthatarealreadyhighlyprofitable.Suchcompaniesclearlydonotneedanyextrahelpfromtaxpay-ers. In other situations, corporate welfare programs prop up businessesthat are failing in the marketplace. Such companies should be allowedto fail because they weigh down the economy and reduce overall U.S.income levels.
Which Agencies Dish It Out and Who Receives It? 
Thefederalbudgetsupportsabroadarrayofcorporatewelfareprograms.The leading corporate welfare providers are the Departments of Agricul-ture,HealthandHumanServices,Transportation,andEnergy(Table33.1).Many smaller independent federal agencies, such as the Export-ImportBank, also dole out corporate welfare.Corporate welfare is a multiagency problem, so any one congressionalcommittee cannot reduce the corporate welfare budget across the board.Indeed,congressionalcommitteestry tomaximizecorporatewelfarehand-outs within their jurisdictions. For example, the agriculture committeesappeal to farm voters with farm pork. Leadership to cut corporate welfarein the broader public interest must come from the budget committees, thesenior congressional leadership, and the president.338

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