Corporate welfare is meant to stabilize market volatility, prevent economic collapses, and encourage growth in certain sectors. Unfortunately there are plenty of corporations that take full advantage of things like tax breaks and tax credits and subsidized loans when they are doing just fine financially, and some of them even take the money and run. These practices end up hurting small businesses by making them less competitive while at the same time hurting the people of the United States by depriving them of tax revenues that could be used for infrastructure improvements.
In 2012 Eaton received nearly $32 million in government subsidies and promptly relocated to Ireland to avoid paying taxes in America. McDermott incorporated in Panama in 1983, but nevertheless received $12 million in government subsidies between 2000 and 2015. In that same time period ? of the $68 billion in grants and tax credits went to only 600 companies, while 78% of the $18 trillion in loans, loan guarantees, and bailout assistance went to 12 banks.
The banking sector is not the only sector to receive government assistance. Agriculture, private security, private colleges, healthcare, and finance are all on the public dole. Learn more about corporate welfare from this infographic. Would it be better for the economy to shift some of that spending to small businesses?
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
? 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
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
Small businesses account: for 54% of U.S. sales
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
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
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.
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.
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
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.