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http://www.time.com/time/magazine/1998/dom/981109/cover1.htmlhttp://www.time.com/time/magazine/1998/dom/981109/cover1.html
Corporate Welfare
A TIME investigation uncovers how hundreds
of companies get on the dole--and why it
costs every working American the equivalent
of two weeks' pay every year
By DONALD L. 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 their face.
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 each job.
This kind of arithmetic seldom adds up. Let's say
the Philadelphia job pays $50,000. And each new
worker pays $6,700 in local and state taxes. That
means it will take nearly a half-century of tax
collections from each individual to earn back the
money granted to create his or her job. And that
assumes all 950 workers will be recruited from
outside Philadelphia and will relocate in the city,
rather than move from existing jobs within the
city, where they are already paying taxes.
All this is in service of a system that may
produce jobs in one city or state, thus fostering
the illusion of an uptick in employment. But it
does not create more jobs in the nation as a
whole. Market forces do that, and that's why 10
million jobs have been created since 1990. But
most of those jobs have been created by small-
and medium-size companies, from high-tech
start-ups to franchised cleaning services.
FORTUNE 500 companies, on the other hand,
have erased more jobs than they have created
this past decade, and yet they are the biggest
beneficiaries of corporate welfare.
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
any benefits.
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." They
call it "economic incentives" or "empowerment
zones" or "enterprise zones."
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. In the next story, and
those that follow in the coming weeks, you will
meet the beneficiaries of corporate welfare--and
the people who pay for it.END
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