Mike Milke, a senior fellow at the Fraser Institute, writes an editorial for the Calgary Herald about the dangers of corporate welfare. The article is Canada-centric but the problems he describes are universal and universally damaging to free markets:
If business leaders ever wonder why a chunk of the public disdains business, and calls for higher corporate taxes or sector-specific increases (higher royalty rates for energy and mining, higher stumpage fees in forestry), or just increased business taxation in general, here’s a clue: too many companies are addicted to corporate welfare.
Jared Pincin and Brian Brenberg write a column in USA Today about cronyism in the US foreign aid program:
Cronies never miss an opportunity to feast on taxpayer dollars — even if it means taking from those who are most vulnerable.
The United States is the largest donor of international humanitarian aid, contributing roughly $8 billion in emergency food aid over the past five years. But a significant portion of that food aid is “tied,” which means the food must be sourced from U.S. suppliers and transported on U.S. ships, even if cheaper alternatives exist. The benefits of tying go to politically-connected companies in the U.S. at the expense of aid recipients. It’s a prime example of cronyism at work.
A Wall Street Journal article highlights a specific tax break for…television program?
Empire State Governor Andrew Cuomo and the legislature have helped to grease the show’s eastward move with a special new tax credit available only to big-budget television programs that relocate to New York. According to the state’s new budget the credit is aimed at “a television production that is a talk or variety program that filmed at least five seasons outside the state prior to its first relocated season.” Oh, and the show has to be filmed in front of a studio audience of 200 or more and spend at least $30 million in annual production costs in New York. How’s that for a very specific special interest?
Matthew Mitchell and Christopher Koopman of the Mercatus Center wrote an article in US News about the tax preferences that benefits college athletic programs:
So why do politicians continue to hand out these privileges? One answer is that sports teams are well-connected and well-organized, giving them an inherent lobbying advantage over a multitude of unorganized taxpayers. Another explanation is that people love sports – especially their home team – and politicians are eager to associate themselves with anything popular.
This same explanation accounts for why politicians have gone out of their way in recent years to privilege another popular industry: Film production. The vast majority of states now offer a spate of tax credits, exemptions, and subsidies to production companies that film on location.
Thomas M. Hoening, the vice chairman of the Federal Deposit Insurance Corp. (FDIC), has written the following article, stressing the massive financial subsidies that Wall Street has been receiving. Mr. Hoening argues that our financial system is just a big scheme of corporate welfare in which too-big-to-fail banks get discounted loans from the Fed and make risky investments while backed by taxpayer’s money.
Financial firms can borrow money — their equivalent of fuel — more cheaply and with less market scrutiny when they have access to government guarantees of deposit insurance, loans from the Federal Reserve and, ultimately, taxpayer support such as we saw with the Troubled Assets Relief Program in 2008. This safety net was intended to stabilize the financial system by protecting the payments system that transfers money around the country and the world as well as the essential lending that commercial banks provide.
This form of corporate welfare allows the protected giants — those “too big to fail” — to profit when their subsidized bets pay off, while the safety net acts as a buffer when they lose, shifting much of the cost to the public.
David Malpass writes an article at Forbes about corruption scandals in the US and across the world:
Yet the corruption in New York and Europe pale in comparison with Washington’s. With its power growing rapidly, favors are worth millions of dollars, creating an uberboom in incomes and construction cranes. The Foreign Corrupt Practices Act strictly prohibits U.S. companies from buying political favors abroad but doesn’t apply to Washington, D.C. Borrowers of government funds get easy terms and pay the power brokers well.
Congress and its mammoth staff are exempt from the conflict-of-interest rules that apply to most of America. It’s commonplace for legislators to take campaign contributions and jobs from industries under their legislative and regulatory control. Ethanol, sugar, peanuts, windmills, trial lawyers, exporters, banks, hedge funds, the oil industry–the list is endless and global, and each has a lock on government largesse. The solution would be less government power. But no one believes that will happen.
Patrick Jenevein, CEO of Tang Energy Group wrote an opinion column in the Wall Street Journal concerning wind subsidies. Mr. Jenevein is in the green-energy business but he advocates for Washington to stop sending stimulus money to the green energy companies. He argues that easy accessible ‘stimulus funds’ make energy producers focus less on efficiency and cost reduction; they provide low efficiency and bad quality products which is the opposite of what Washington intends.
Since 2009, as part of the president’s stimulus, wind-farm developers have been able to get a federal cash grant or tax credit covering up to 30% of their capital investment in a new project. This is especially attractive compared with another tax credit that rewards wind farms based on how much power they actually produce. Through May 2012, according to the National Renewable Energy Laboratory, Washington spent some $8.4 billion on these cash grants.
Government subsidies to new wind farms have only made the industry less focused on reducing costs. In turn, the industry produces a product that isn’t as efficient or cheap as it might be if we focused less on working the political system and more on research and development. After the 2009 subsidy became available, wind farms were increasingly built in less-windy locations, according to the Department of Energy’s “2011 Wind Technologies Market Report.”
Daniel Henninger writes at the Wall Street Journal about what capitalism means, and how the new pope’s appointment presents an opportunity to message the term correctly:
The plight of the world’s poor can be summed up in three truly ugly C-words: corruption, collusion and cronyism. All three may be kissing cousins but each in any language makes a mockery of both capitalism and justice…
Corruption suppresses growth because citizens in time recognize that honest work produces a lower return than spending one’s energies gaming the system. And, they’ve also found, the vicious circle worsens when real productivity falls alongside an inexorably expanding public sector.
Global poverty persists because corruption kills capitalism.
Mark Milke at the Financial Post explains how our neighbor to the north is dealing with corporate welfare in their budget as well.
If there was a theme in the recent federal budget, it was how chock full it was with new corporate welfare. The underlying refrain was how big government will help big business with your tax dollars…
Corporate welfare is a politically created illusion with no visible means of support. Economists who study crony capitalism are clear about why it fails: Money is taken from taxpayers and from productive businesses. In the case of businesses, such money is sometimes transferred to businesses in the same sector at the expense of the “giving” business.
Kevin Palmer at the Franklin Center writes about a $10 million dollar Nevada incentive program:
By placing such great power in the hands of the Board of Economic Development, the fund allows the politicians and unelected bureaucrats who comprise the board to stack the deck in favor of businesses that have donated to their campaigns. Each of the nine members of the board — ranging from elected officials to six bureaucrats appointed by Carson City politicians — have deep ties to the corporate community, and can now use the powers of the fund to steer money to their preferred businesses.