Finance:Corporate welfare

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Short description: Government grants, tax breaks, or other special favorable treatment for corporations


Corporate welfare is a phrase used to describe a government's bestowal of money grants, tax breaks, or other special favorable treatment for corporations.

The definition of corporate welfare is sometimes restricted to direct government subsidies of major corporations, excluding tax loopholes and all manner of regulatory and trade decisions.

Origin of term

The term "corporate welfare" was reportedly coined in 1956 by Ralph Nader.[1][2]

Alternative adages

"Socialism for the rich, capitalism for the poor"

Believed to have been first popularised by Michael Harrington's 1962 book The Other America[3][4] in which Harrington cited Charles Abrams,[5] a noted authority on housing.

Variations on this adage have been used in criticisms of the United States ' economic policy by Joe Biden,[6] Martin Luther King Jr.,[7][8] Gore Vidal,[9][10][11] Joseph P. Kennedy II,[12] Robert F. Kennedy, Jr.,[13] Dean Baker,[14] Noam Chomsky,[15] Robert Reich,[16] John Pilger,[17] Bernie Sanders,[18] and Yanis Varoufakis.[19]

"Privatizing profits and socializing losses"

"Privatizing profits and socializing losses" refers to the idea that corporations want to reserve financial gains for themselves and pass along losses to the rest of society, potentially through lobbying the government for assistance. This practice was criticized in the Wall Street bailout of 2008.[20]

By country

United States

Transfer payments to (persons) as a percent of Federal revenue in the United States
Transfer payments to (persons + business) in the United States

Background

Subsidies considered excessive, unwarranted, wasteful, unfair, inefficient, or bought by lobbying are often called corporate welfare.[21] The label of corporate welfare is often used to decry projects advertised as benefiting the general welfare that spend a disproportionate amount of funds on large corporations, and often in uncompetitive, or anti-competitive ways. For instance, in the United States, agricultural subsidies are usually portrayed as helping independent farmers stay afloat. In actuality, the majority of income gained from commodity support programs has gone to large agribusiness corporations such as Archer Daniels Midland, as they own a considerably larger percentage of production.[22]

Alan Peters and Peter Fisher, Associate Professors at the University of Iowa,[23] have estimated that state and local governments provide $40–50 billion annually in economic development incentives,[24] which critics characterize as corporate welfare.[25]

Multiple economists have considered the 2008 bank bailouts in the United States to be a form of corporate welfare.[26][27] U.S. politicians have also contended that zero-interest loans from the Federal Reserve System to financial institutions during and after the financial crisis of 2007–2008 were a hidden, backdoor form of corporate welfare.[28] The term gained increased prominence in 2018 when Senator Bernie Sanders introduced a bill, singling out Amazon and Walmart in particular, to require a company with 500 or more employees to pay the full cost of welfare benefits received by its workers.[29][30][31][32]

Comprehensive analyses

Independent

Daniel D. Huff, professor emeritus of social work at Boise State University, published a comprehensive analysis of corporate welfare in 1993.[33] Huff reasoned that a very conservative estimate of corporate welfare expenditures in the United States would have been at least US$170 billion in 1990.[33] Huff compared this number with social welfare:

In 1990 the federal government spent 4.7 billion dollars on all forms of international aid. Pollution control programs received 4.8 billion dollars of federal assistance while both secondary and elementary education were allotted only 8.4 billion dollars. More to the point, while more than 170 billion dollars is expended on assorted varieties of corporate welfare the federal government spends 11 billion dollars on Aid for Dependent Children. The most expensive means tested welfare program, Medicaid, costs the federal government 30 billion dollars a year or about half of the amount corporations receive each year through assorted tax breaks. S.S.I., the federal program for the disabled, receives 13 billion dollars while American businesses are given 17 billion in direct federal aid.[33]

Huff argued that deliberate obfuscation was a complicating factor.[33]

Good Jobs First has a Subsidy Tracker database.

United Kingdom

In 2015, Kevin Farnsworth, a senior lecturer in Social Policy at the University of York published a paper in which he claimed that the government was providing corporate subsidies of £93 billion.[34][35] This amount includes the role of the government in increasing trade, tax relief for businesses that invest in new plants and machinery (estimated by Farnsworth at £20 billion), not charging fuel duty on fuel used by railways or airlines, green energy subsidies, a lower corporation tax rate for small companies, regional development grants and government procurement for businesses (which Farnsworth suggests often favours British businesses even when these are not the best value option available).[34] However, The Register wrote that Farnsworth's figure for tax relief for investment was incorrect and that he had made mistakes in his calculations, noting that he was not an accountant. It also stated that not charging businesses taxes under certain circumstances (when the reliefs applied) was not the same as giving them a subsidy.[36] Fuel duty is not charged on airlines due to the Convention on International Civil Aviation[37] (a United Nations ) which specifies that aeroplanes should be exempt from fuel duties.[38]

Political discussion

In 2015, Labour Party leader Jeremy Corbyn said he would "strip out" the £93bn of "corporate tax relief and subsidies" Farnsworth referred to and use the proceeds for public investment.[39] Corbyn did not say which specific policies he would change. The Guardian wrote the policy "sounds wonderful, but careful scrutiny of 'corporate welfare' shows that it includes capital allowances designed to persuade companies to invest, regional aid to boost growth in rundown parts of the UK, and subsidies to keep bus and rail routes open – none of which Corbyn would presumably like to see stopped."[40]

Canada

The New Democratic Party in Canada picked up the term as a major theme in its 1972 federal election campaign. Its leader, David Lewis, used the term in the title of his 1972 book, Louder Voices: The Corporate Welfare Bums.[41]

The Reform Party and its successor the Canadian Alliance were known for opposing most business subsidies, but after their merger with the Progressive Conservative party, they dropped their opposition.[42]

India

It was observed by The Wire that the effective tax rate was low for the larger corporations which meant companies making smaller profits are competing in an unequal environment against bigger companies with substantial taxation benefits, with the gap in effective tax rates widening over the years.[43] Prime Minister of India Narendra Modi criticised this practice, saying:

"Why is it that subsidies going to the well-off are portrayed in a positive manner? Let me give you an example. The total revenue loss from incentives to corporate tax payers was over Rs 62,000 crore... I must confess I am surprised by the way words are used by experts on this matter. When a benefit is given to farmers or to the poor, experts and government officers normally call it a subsidy. However, I find that if a benefit is given to industry or commerce, it is usually an 'incentive' or a 'subvention'."[44]

See also

References

  1. ↑ Ralph Nader on Corporations, OnTheIssues, https://www.ontheissues.org/Celeb/Ralph_Nader_Corporations.htm, retrieved September 3, 2014 
  2. ↑ Chapman, Roger (2010). Culture Wars: An Encyclopedia of Issues, Viewpoints, and Voices. M.E. Sharpe. pp. 119. ISBN 9780765617613. https://archive.org/details/culturewarsencyc00chap. 
  3. ↑ Harrington 1962, p.170, quote: "socialism for the rich and private enterprise for the poor"
  4. ↑ Engvall, Robert P. (June 1996). "The connections between poverty discourse and educational reform: When did 'Reform' become synonymous with inattention?". The Urban Review 28 (2): 141–163. doi:10.1007/BF02354382. 
  5. ↑ Michael Harrington (1962) The Other America, p.58, quote: This is yet another case of "socialism for the rich and free enterprise for the poor," as described by Charles Abrams in the housing field
  6. ↑ Stein, Sam (March 18, 2010). "Biden On The Bailout: 'Socialism For The Rich And Capitalism For The Poor'". The Huffington Post. https://www.huffingtonpost.com/2009/11/18/biden-on-the-bailout-soci_n_361900.html. "Pointing to the hundreds of billions of government dollars that have been spent to keep banks from failing, he recalled a "great expression" of his grandfather, Ambrose Finnegan: "It's socialism for the rich and capitalism for the poor,"" Biden said." 
  7. ↑ Dyson, Michael Eric (January 18, 1993). "Opinion | King's Light, Malcolm's Shadow". The New York Times. https://www.nytimes.com/1993/01/18/opinion/king-s-light-malcolm-s-shadow.html. 
  8. ↑ Jackson, Thomas F. (2007). From Civil Rights to Human Rights: Martin Luther King, Jr., and the Struggle for Economic Justice. p. 332. ISBN 9780812239690. https://books.google.com/books?id=B8k6btUYR68C&pg=PA332. 
  9. ↑ Vidal, Gore (1969). Reflections Upon a Sinking Ship. Little, Brown. ISBN 9780434829576. https://archive.org/details/reflectionsupons0000vida_e6t0. 
  10. ↑ Gore Vidal: Imperial America, September 1, 2004
  11. ↑ "'Free enterprise for the poor, socialism for the rich': Vidal's claim gains leverage". September 20, 2008. http://www.irishtimes.com/newspaper/opinion/2008/0920/1221835126413.html?via=mr. 
  12. ↑ Kennedy: U.S. oil companies profit; Citgo helps the poor , MetroWest Daily News, January 24, 2007
  13. ↑ Mark Jacobson: American Jeremiad, New York Magazine, February 5, 2007, see page 4
  14. ↑ Baker, Dean (2006). The Conservative Nanny State: How the Wealthy Use the Government to Stay Rich and Get Richer. Washington, D.C.: Center for Economic and Policy Research. ISBN 978-1-4116-9395-1. https://archive.org/details/conservativenann00dean.  Reviewed in: Scott Piatkowski: Socialism for the rich , rabble.ca, May 25, 2006
  15. ↑ Noam Chomsky, "The Passion for Free Markets", Z Magazine, May 1997. Reproduced on Chomsky's official site .
  16. ↑ Interview with Jon Stewart, The Daily Show, October 16, 2008: Available at The Daily Show Site
  17. ↑ Full transcript of the John Pilger speech at the Sydney Opera House to mark his award of Australia's human rights prize, the Sydney Peace Prize: "ITV - John Pilger - Breaking the great Australian silence". http://www.johnpilger.com/page.asp?partid=555. 
  18. ↑ "Sen. Sanders Held a Tax Cut Filibuster | C-SPAN". January 18, 2014. http://www.c-span.org/Events/Sen-Sanders-Held-a-Tax-Cut-Filibuster/20338/. 
  19. ↑ Daniel, Will (August 2, 2022). "This hipster economics professor turned rebel Greek finance minister says corporations are experiencing 'lavish socialism' while workers face 'harsh austerity.' Inflation is just the latest twist in the saga". https://fortune.com/2022/08/02/yanis-varoufakis-inflation-economy-socialism-for-corporations-austerity-for-consumers/. "Governments were cutting public expenditure, jobs, and services. It was nothing short of lavish socialism for capital and harsh austerity for labor. Wages shrunk, and prices and profits were stagnant, but the price of assets purchased by the rich (and thus their wealth) skyrocketed. Thus…capitalists became both richer and more reliant on central-bank money than ever." 
  20. ↑ Staff, Investopedia (April 15, 2012). "Privatizing Profits And Socializing Losses". https://www.investopedia.com/terms/p/privatizing-profits-and-socializing-losses.asp. 
  21. ↑ Kristof, Nicholas (March 27, 2014). "A Nation of Takers?". The New York Times. https://www.nytimes.com/2014/03/27/opinion/kristof-a-nation-of-takers.html. 
  22. ↑ "USDA: American Farms". United States Department of Agriculture. http://www.usda.gov/factbook/chapter3.htm. 
  23. ↑ Fisher, Peter S.; Peters, Alan H. (March–April 1997). "Tax and Spending Incentives and Enterprise Zones". New England Economic Review. Boston: Boston Fed. pp. 109–137. https://www.bostonfed.org/-/media/Documents/neer/neer297f.pdf. 
  24. ↑ Fisher, Peter; Peters, Alan (March 2004). "The Failures of Economic Development Incentives". Journal of the American Planning Association 70 (1): 27–37. doi:10.1080/01944360408976336. http://www.crcworks.org/cfscced/fisher.pdf. Retrieved April 13, 2018. 
  25. ↑ Reutter, Mark (July 13, 2011). "Tax breaks for developers – economic development or corporate welfare?". https://baltimorebrew.com/2011/07/14/tax-breaks-for-developers-economic-development-or-corporate-welfare/. 
  26. ↑ Stiglitz, Joseph (December 8, 2010). "US could cut deficit and gain, but that's unlikely". Sydney Morning Herald. https://www.smh.com.au/business/us-could-cut-deficit-and-gain-but-thats-unlikely-20101207-18oew.html. 
  27. ↑ Folbre, Nancy (April 20, 2009). "Welfare for Bankers". The New York Times. https://economix.blogs.nytimes.com/2009/04/20/welfare-for-bankers/. 
  28. ↑ Schroeder, Peter (December 1, 2010). "Sanders uses 'jaw-dropping' Fed disclosures to call for further inquiry". The Hill. https://thehill.com/policy/finance/131487-sanders-uses-fed-disclosures-to-call-for-further-inquiry. 
  29. ↑ Robertson, Adi (September 5, 2018). "Bernie Sanders introduces "Stop BEZOS" bill to tax Amazon for underpaying workers". https://www.theverge.com/2018/9/5/17819450/bernie-sanders-stop-bezos-amazon-worker-pay-corporate-welfare-tax-bill. 
  30. ↑ Gibson, Kate (September 5, 2018). "Bernie Sanders targets Amazon, Walmart with 100% tax". CBS. https://www.cbsnews.com/news/bernie-sanders-amazon-walmart-with-100-tax/. 
  31. ↑ Stewart, Emily (September 5, 2018). "Bernie Sanders's BEZOS bill takes aim at how Amazon pays workers". Vox. https://www.vox.com/policy-and-politics/2018/9/5/17822810/bernie-sanders-bill-bezos-amazon-ro-khanna. 
  32. ↑ Delaney, Arthur; Jamieson, Dave (September 5, 2018). "What the Bernie Sanders Amazon welfare fight is really about". HuffPost. https://www.huffpost.com/entry/bernie-sanders-amazon_n_5b8eecade4b0511db3dcfd55. 
  33. ↑ 33.0 33.1 33.2 33.3 Huff, Daniel D.; David A. Johnson (May 1993). "Phantom Welfare: Public Relief for Corporate America". Social Work 38 (3): 311–316. doi:10.1093/sw/38.3.311. http://web1.boisestate.edu/socwork/dhuff/Nasw.htm. Retrieved November 6, 2012. 
  34. ↑ 34.0 34.1 "The British Corporate Welfare State: Public Provision for Private Businesses". November 7, 2022. http://speri.dept.shef.ac.uk/wp-content/uploads/2015/07/SPERI-Paper-24-The-British-Corporate-Welfare-State.pdf. 
  35. ↑ "The £93bn handshake: businesses pocket huge subsidies and tax breaks". https://www.theguardian.com/politics/2015/jul/07/corporate-welfare-a-93bn-handshake. 
  36. ↑ "Taxpayers are NOT giving businesses £93bn". https://www.theregister.co.uk/2015/07/12/political_memes_economics_corporate_welfare/?page=1. 
  37. ↑ "Convention on International Civil Aviation". http://www.icao.int/publications/pages/doc7300.aspx. 
  38. ↑ "Does the government subsidise airlines by £10 billion?". January 24, 2012. https://fullfact.org/factchecks/airline_industry_subsidies_green_taxes-3256. 
  39. ↑ Grice, Andrew (August 3, 2015). "Jeremy Corbyn allies accuse Chris Leslie of deliberately misrepresenting Labour frontrunner's economic policies". The Independent (London). https://www.independent.co.uk/news/uk/politics/jeremy-corbyn-allies-accuse-chris-leslie-of-deliberately-misrepresenting-labour-leader-contenders-economic-policies-10436258.html. 
  40. ↑ Elliott, Larry (August 20, 2015). "Jeremy Corbyn has the vision, but his numbers don't yet add up". The Guardian. https://www.theguardian.com/commentisfree/2015/aug/20/jeremy-corbyn-labour-leader-tory-economy-plans. 
  41. ↑ Lewis, David (1972). Louder voices: the corporate welfare bums. Toronto: James Lewis & Samuel. ISBN 9780888620316. 
  42. ↑ Milke, Mark (January 14, 2010). A Nation of Serfs: How Canada's Political Culture Corrupts Canadian Values. John Wiley & Sons. ISBN 9780470675175. https://books.google.com/books?id=zxjshaowfeYC&pg=PT66. 
  43. ↑ "Why 52,911 Profitable Indian Companies Pay 0% Tax". https://thewire.in/economy/why-52911-profitable-indian-companies-pay-0-tax. 
  44. ↑ "Modi calls for targeted subsidies, questions corporate tax breaks" (in en). Hindustan Times. 2016-01-30. https://www.hindustantimes.com/business/modi-calls-for-targeted-subsidies-questions-corporate-tax-breaks/story-IP1WX17PvJeyOfyLf0ZXxJ.html. 

Further reading

  • Johnston, David Cay. Free Lunch (The Penguin Group, New York, 2007.)
  • Jansson, Bruce S. The $16 trillion mistake: How the U.S. bungled its national priorities from the New Deal to the present (Columbia University Press, 2001)
  • Mandell, Nikki. The corporation as family : the gendering of corporate welfare, 1890-1930 (University of North Carolina Press, 2002).
  • Glasberg, Davita Silfen. Corporate welfare policy and the welfare state: Bank deregulation and the savings and loan bailout (Aldine de Gruyter, NY, 1997).
  • Whitfield, Dexter. Public services or corporate welfare: Rethinking the nation state in the global economy (Pluto Press, Sterling, Va., 2001.)
  • Folsom Jr, Burton W. The Myth of the Robber Barons (Young America)
  • Rothbard, Murray N. Making Economic Sense, Chapter 51: Making Government-Business Partnerships ISBN:0-945466-18-8 (1995)

External links



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