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Big Business Subsidies Escape Budget Cuts

Wed., May 31, 1995

Republicans in Congress say balancing the federal budget is so important that the nation no longer can afford to spend $1.6 billion a year helping poor people pay their winter heating bills.

Likewise, House Republicans say, the nation no longer can afford to spend $1.6 billion a year helping old and disabled poor people pay their rent; or $377 million on lawyers for poor people in legal trouble; or $281 million on tuition grants for volunteers in President Clinton’s national service program.

But both the House and Senate budget plans agree that America can still afford to spend $1.4 billion a year subsidizing prices for big sugarcane farmers. It can still spend $2 billion a year helping high-tech companies build a space station. And oil companies can still keep a tax break to offset their “intangible” drilling expenses, which costs the Treasury about $1 billion a year, if Republican plans prevail.

The point is that GOP plans to balance the budget would not spread the pain of sacrifice evenly. The House and Senate GOP plans are political documents. They target winners and losers. Winners would tend to be big businesses and the rich, who tend to support Republicans. Losers would be the poor and the less educated, who tend to vote Democratic.

Subsidies to business - both through direct federal spending and indirectly through targeted tax breaks - would escape largely unscathed under the GOP plans. Labor Secretary Robert Reich defined such subsidies as “corporate welfare” in a widely noted speech last fall.

“Since we are committed to moving the disadvantaged from welfare to work, why not target corporate welfare as well …” Reich suggested.

Since then many of Washington’s most famous think tanks, both conservative and liberal, have responded to Reich’s challenge by documenting what they see as “corporate welfare,” “pork,” or “waste” in the budget.

The libertarian Cato Institute, which favors minimal government and maximum freedom for both individuals and markets, recently detailed 129 federal programs that will channel $87 billion of taxpayers’ money in subsidies to private businesses this year.

Perhaps the most memorable one is a Department of Agriculture program that spends $110 million a year helping to advertise abroad such U.S.-made products as McDonald’s chicken McNuggets, Pillsbury muffins and Sunkist oranges.

“The program even tried to peddle Gallo wine to the French,” noted another pork-watchdog outfit, Citizens Against Government Waste. “No one has been able to determine if the (USDA) program works. But even if it did, why should private citizens pay for it?”

The Progressive Policy Institute, think tank for the centrist Democratic Leadership Council, recently listed trims in direct-spending subsidies that could save taxpayers $131 billion over five years. PPI also urged chopping back separate tax breaks for business that could yield the Treasury another $134 billion over that period.

Two examples: Simply cutting agriculture price supports by 3 percent a year could save $11 billion over five years, PPI noted. And eliminating the tax break for makers of alcohol fuels - which chiefly benefits the Archer Daniels Midland Corp. - could net the Treasury $3.6 billion over five years.

Citizens for Tax Justice, a liberal advocacy group whose analyses are widely respected for accuracy, recently detailed 128 tax breaks for corporations and the wealthy. Closing those tax loopholes alone could net the Treasury billions per year, CTJ said, more than enough to balance the budget without killing any spending programs.

Under one popular loophole, for example, businesspeople deduct half the cost of their meals at fancy restaurants as a business expense. Closing that loophole could net the Treasury $29 billion over five years, CTJ said.

“A Congress that is eager to challenge low-income welfare entitlements ought to be at least as tough - if not tougher - on welfare entitlements for the well-heeled and politically powerful if it truly wants to bring the budget deficit under control,” said Robert S. McIntyre, CTJ’s director.

The House and Senate GOP budg et plans do not prescribe closing any tax loopholes. They aim to balance the federal budget over seven years by spending cuts alone, but they would not chop deeply into subsidized spending for business.

“They do take perhaps a little under one-third of the (direct) spending subsidies,” said Robert Shapiro, author of PPI’s study, referring to the House GOP plan, which is far more detailed than the Senate’s.

“They focus on subsidies for technology firms and trade-related subsidies. These happen to be closely associated with the Clinton administration,” Shapiro observed.

Stephen Moore, author of the Cato Institute’s study “Ending Corporate Welfare As We Know It,” gave the GOP slightly more credit.

“One of the major themes of the (House GOP) budget blueprint is to attack corporate welfare. It doesn’t go nearly as far as I would like, but it is the first time in a quarter-century that Congress has aimed to shrink corporate welfare rather than expand it.”

The most egregious examples of corporate welfare left untouched by the GOP budget plans are farm price-support subsidies totaling more than $10 billion a year, said both Shapiro and Moore. But each cited other high-profile examples as well.

The Export-Import Bank, for instance, costs $613 million this year. It exists to promote U.S. exports - and “benefits almost exclusively Fortune 500 companies,” said Moore.

“You have to remember, these corporate subsidies have strong political constituencies in Washington. Many are Fortune 500 companies with strong ties to members of Congress. That hasn’t changed fully this year.”


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