Ladies and gentlemen, presenting lady Vermont, with her rolling green hills and soft snowy peaks. She likes to sample Vermont sharp cheddar cheese, gander up and down the Green Mountain trails and take a dip in Lake Willoughby Sunset. Her other favorites activities include touring one of the many wind farms, made possible by the all too guaranteed, corporate welfare-approved SPEED Program. Tax credits and guaranteed success? Ladies and Gentlemen, twin number one, Miss Speedy Vermont!
(View all the states in our subsidy pageant here.)
Crony Chronicles has five posts lined up starring North-eastern state corporate welfare queens. Watch out for the contestants and be sure to read their bios! Here’s our first contestant.
Ladies and gentlemen, meet Madame Maine. Set sail off her jagged coastline, dine on her fabulous lobsters and join her as she strolls through Vacationland. Her favorite activities include napping by the fire in one of her many snow dusted cabins, moose watching and picking Maine’s very own wild blueberries. You can also find her trying out her business savvy with Maine’s BETR program. 20% of your state budget to business subsidies anyone? Lads and gals, Miss “Maine stay” Corporate Welfare!
(View all the states in our subsidy pageant here.)
Nick Sorrentino from Against Crony Capitalism has recently reported about the egregious case of corruption and cronyism that surrounded the government and presidency of Hugo Chavez in Venezuela. Apparently, the now deceased ruler, while spreading ‘socialism’ and ‘equality’ amassed near $2 billion for his personal wealth. Cronyism appears to be the easiest choice for despotic governments to become wealthy.
According to Jerry Brewer, president of CJIA, “the personal fortune of the Castro brothers has been estimated at a combined value of around $2 billion.” “The Chávez Frías family in Venezuela has amassed a fortune of a similar scale since the arrival of Chávez to the presidency in 1999,”
David Harsanyi writes at Human Events about the recent Super Bowl ad romanticizing farmers, and takes the opportunity to explain how the agricultural industry has become heavily dependent on government support:
Taxpayers spend about $7 billion a year on crop insurance alone, the largest farm subsidy, as if the industry apparently has the God-given right to operate in certainty. The Department of Agriculture hands out from $10 billion to $30 billion in cash to farmers every year – depending on the vagaries of the world around them.
Only 10 percent of farmers collect 75 percent of all subsidies. More than 90 percent of agriculture subsidies go to farmers of just five crops – wheat, corn, soybeans, rice and cotton. Government does not subsidize almost any of the fruits and vegetables we eat (also grown under the threat of unpredictable weather) or flat screen TVs we watch (also produced in a highly competitive marketplace) yet you can find any of them without worrying too much about serious fluctuations in price.
Mercatus research senior fellow Matthew Mitchell writes an article about the recent State of the Union address, and response. He recognizes that economic jargon and political discourses are most of the time intended to hide the real meaning and practical impacts of public policies; this post on US News is Mitchell’s attempt to clarify the politicians’ message in plain English, and the truth about special interest favors:
Obama: “We must stop pandering to the fat cats on Wall Street that got us into this mess.”
Translation: “We must continue to berate the people that I and my predecessor have bent over backwards to privilege.
It doesn’t matter that, as senator, I voted for the taxpayer bailout of hundreds of private firms or that I extended the bailout beyond the financial industry. Nor does it matter that my much-heralded financial overhaul bill was completely silent on ending the extraordinary privileges afforded Fannie Mae and Freddie Mac in the run-up to the financial crisis, including: explicit federal backing, an exclusive line of credit at the Treasury, an exemption from state and local taxation, an exemption from SEC filing requirements, and lower capital requirements.”
When you go to the movie theater, do you go to watch a movie or to buy BBQ sauce? That sounds like a strange question, but consider the following story.
Warren Theaters in Wichita, Kansas, is now selling Brewer’s Best BBQ Sauce. Why? It may not be coincidence that the sauce company is owned and operated by the Mayor.
Rewind to 2010 when Mayor Brewer championed Warren’s application for incentives suggesting other cities where waiting to jump if Wichita didn’t put its taxpayers on the hook to support Warren’s IMAX theater. Industrial Revenue Bonds were approved, saving Warren from paying $630,000 in sales taxes and an estimated $136,099 a year in property taxes. Three years later the theater is now selling Brewer’s BBQ sauce to movie goers. One is left wondering if the theater plans on expanding its line of grocery items.
Stories like this mark a growing trend of all too cozy relationships between local and state governments. The film industry has jumped on the bandwagon of incentives. There are currently 44 states (plus DC and Puerto Rico) that offer some sort of movie production incentive. Whether it’s $1 million to train film industry employees in North Carolina or $100 million to “pay Hollywood to stay in Hollywood,” filmmakers across the country are benefitting from the “arms race” for movie locations among the states.
If you think that movie production incentives are good for the economy, you might want to consider the overwhelming cost. States offered $1.3 billion in film incentives in 2011.
Nearly all filmmakers are enticed by these credits, even ones making substantial profits. Consider Disney, which took $183 million in tax credits in 2011 despite making $40.9 billion in revenue.
To the extent that government remains in the business of handing out cash to its friends, lobbying the government for special favors is rational, even if it is harmful to taxpayers. So the next time you ruin your alignment on a pothole or are complaining about not having enough teachers in your child’s school, don’t get upset – you can always go watch a taxpayer-subsidized movie and check out the selection of sauces made by your local elected officials.
Alex Knapp at Forbes writes a humorous article about the economics in the children’s show Thomas the Tank Engine, and in particular identifies Sir Topham Hatt as a crony:
There’s clearly a bit of cronyism on the Island of Sodor helping to line the pockets of Sir Topham Hatt. Although reference is frequently made to elected officials such as a Mayor, Sir Hatt seems to be in charge of virtually everything on the island. In addition to running his own railroad, he’s often in charge of projects – like building a Search and Rescue station in Misty Island Rescue – that should properly be the purview of government. Indeed, the Island of Sodor bears no small resemblance to Boss Hogg’s Hazzard County, with Hatt seeming to own most of the businesses around and able to get the government to back those industries.
Usually, though, this type of cronyism leads to massive inequalities of wealth (like in povery-stricken Hazzard County) as established businesses use the power of government to thwart competition. On the other hand, the Island of Sodor seems to have a thriving middle class is generally prosperous. It’s not clear how this is possible.
The Illinois Policy Institute has just published a comprehensive report, which highlights Illinois’s wasteful spending at the state level. The 2012 Illinois Piglet Book put special emphasis on spending occurring at the local level in Illinois. This will help local citizens to realize the current level of aggregate waste in their communities.
Bonus: The Illinois Piglet video, here
In 2011, Illinois increased its state income tax rate by 67 percent. This tax increase, the largest in state history, cost the average family about $1,500 in additional taxes. Across school districts, municipalities and other local levels of government, taxpayers have faced myriad other tax increases – from gas and sales taxes to congestion fees and excise taxes. Governments keep crying poor and going to taxpayers for more and more, but they should instead look within their own budgets and cut out wasteful spending.”
“Illinois’ fiscal nightmare is here. Overspending and a penchant for borrowing have led to an unsustainable pension liability and a $9 billion stack of unpaid bills. The state’s credit rating, already the worst in the nation, faces further downgrades. Many local government entities are also in the red.
Bill Frezza writes an article at the Huffington Post, taking the position that cronies have been using the guise of ‘green’ to sell their products to government planners:
So ask yourselves, saviors of the planet, why do you fall so easily, time and again, for crony capitalists’ too-good-to-be-true schemes designed to feast on public dollars? Wouldn’t a wee bit of skepticism be in order when setting public policy? Don’t you want this technology to actually work? For all our sakes, when doing your due diligence can you at least pretend that the money being flushed down a rathole is your own?
Quiz time! Do you know which special tax provision was not included in the fiscal cliff deal?
The answer? Unfortunately, it’s a trick question. All of the provisions listed above were in the deal.