Corporate Welfare: How Big Business Lives Off Government Subsidy

Are your taxes funding public works projects or America’s biggest companies?

What is Corporate Welfare?

Government subsidies, tax breaks, and other assistance intended to support struggling markets or encourage certain business practices. According to a 2012 Cato study the U.S. government spends $100 billion on corporate welfare annually.

Arguments For Corporate Welfare

“Corporate welfare stabilizes the economy”

The 2008 bank bailout might have been unpopular, but it may have averted global financial meltdown. Some estimate much of the borrowed money has actually been returned to taxpayers

“Assists programs that keep U.S. businesses competitive”

Advanced Technology Program (AFT) – Promotes research into innovative products at companies such as GM and IBM

Export-Import Bank – Provides loans to export companies to support U.S. goods in foreign markets

Arguments Against Corporate Welfare

“Corporate welfare rewards companies that move overseas to avoid taxes”

2000-2015, Eaton Corp, based in Ohio, received $31.9 million in U.S. government subsidies — reincorporated in Ireland

2000-2015, McDermott International, based in Texas, received $12 million from the Energy and Defense Departments – reincorporated in Panama

“Funds projects that never live up to promises”

In 2010, a developer in D.C. got a $46 million tax credit to create 300 construction jobs—by 2016, only 90 were created. In 2011, North Carolina awarded $30 million in tax credits to Hollywood producers—only 55-70 new jobs were created. Per job, that comes out to $428,571 – $600,000

Who Takes Home the Cash?

Corporate welfare disproportionately favors big business

Boon for Big Business

Grants and allocated tax credits

$68 billion awarded between 2000 and 2015

⅔ went to less than 600 large companies

The biggest recipients were:

Iberdrola: $2.2 billion

NextEra Energy: $2 billion

NRG Energy: $1.7 billion

Loans, loan guarantees, and bailout assistance

An estimated $18 trillion awarded between 2000 and 2015

99% went to large companies

78% went to only 12 large U.S. and foreign banks

Biggest recipients

Bank of America: $3.5 trillion

Citigroup: $2.6 trillion

Morgan Stanley: $2.1 trillion

Assistance to federal contractors

Since 2000, of 30 of the top 100 federal contractors received loans, loan guarantees, or bailout assistance.

Contractors with most loans, loan guarantees, and bailout assistance

Boeing: $64.4 billion

General Electric: $28.5 billion

Bechtel: $5 billion

Bust for Small Business

Small businesses are valuable to the economy

Sales

Small businesses account: for 54% of U.S. sales

Jobs

Small businesses provide: 55% of jobs & 66% of net new jobs. Since 1990, small business has beaten big business in job growth.

Big business -4 million jobs

Small business +8 million jobs

Small Businesses are eligible for federal funding through the Small Business Administration

In 2016, SBA budget was $1.4 billion—that’s about .03% of the federal budget

Limited Options

SBA only provides grants to nonprofits or educational institutions in specific areas (e.g. medicine, science, technology)

SBA does not provide direct loans

Instead sets particular requirements and guidelines for commercial loans to businesses

Some subsidies benefit little guys: The Affordable Care Act includes a $8 billion health fund law that pays low-income Americans’ insurance deductibles and copayments

Some industries benefit more than others from corporate welfare programs

Finance

In 2008, banks received $700 billion from the Troubled Asset Relief Fund (TARP)

Possible Problems: Sets precedent for reckless spending

2014 study found that banks started making riskier loans and investments after being approved for bailouts. Favors banks with political ties. A 2009 study found banks with connections to Federal Reserve boards and congressional finance committees were more likely to receive TARP funds.

Agriculture

According to U.S. GAO, in 2011 $20 billion per year in farm subsidies and insurance

Possible Problems: Doesn’t Benefit Average Farmers

Largest 15% of farms take 85% of subsidies. 50 people on the Forbes 400 list of wealthiest Americans received farm subsidies before the 2014 Farm Bill was implemented

Harms the Environment: Subsidies lead farmers to overproduce and use land that might be diversified or preserved.

Higher Education

In 2014, private university endowments in the form of tax deductions totaled $550 billion

Potential Problems: Gives hefty charitable tax breaks to donors. One donor gave $30 million to Princeton and received a $10 million tax break.

Favors the most elite private institutions

Harvard:received $32 billion

Yale:received $20.8 billion

Stanford:received $18.6 billion

Private Security

Every year, police responses to false home alarms cost $1.8 billion

Possible Problems: Benefits private alarm companies. Provides companies with free, state-funded response teams to verify burglaries. Diverts police from patrolling neighborhoods and solving crimes. Police respond to 36 million false alarms every year

Big businesses might be benefiting more than you think—-know where the money is going.