Tag Archives: corporate welfare

Indiana–Always Last

The Hill recently reported on a number of states where 2018 will see raises in the minimum wage. Indiana, of course, was conspicuously absent from their list.

The lowest wage workers in 18 states will get a boost in their paychecks starting on New Year’s Day, as minimum wage hikes take effect.

Many of the wage hikes are phased-in steps toward an ultimately higher wage, the product of ballot initiatives pushed by unions and workers rights groups over the last few years.

The minimum wage in Washington state will rise to $11.50 an hour, up 50 cents and the highest statewide minimum in the nation. Over the next three years, the wage will rise to $13.50 an hour, thanks to a ballot measure approved by voters in 2016.

Mainers will see their minimum wages rise the most, from $9 an hour to $10 an hour, an 11 percent increase. Voters approved a ballot measure in 2016 that will eventually raise the wage to $12 an hour by 2020.

Arizona, California, Colorado, Hawaii, New York, Rhode Island and Vermont will see their minimum wages increase by at least 50 cents an hour. Smaller increases take effect in Alaska, Florida, Michigan, Minnesota, Missouri, Montana, New Jersey, Ohio and South Dakota.

Our overlords at the Indiana Statehouse like to brag that keeping Indiana a “low wage” “right to work” state means we are attractive to businesses looking to relocate. What they don’t seem to understand is the flip side of the equation, beginning with the state’s inability to provide the quality of life amenities (not to mention smooth highways)  that appeal to businesses proposing to relocate. Higher wages would generate more tax dollars. Higher wages would also reduce the number of people who–despite working full-time–must depend upon social welfare programs funded by tax dollars simply to make ends meet.

I have posted before about the ALICE study, conducted a couple of years ago by Indiana’s United Ways. That study found

  • More than one in three Hoosier households cannot afford the basics of housing, food, health care and transportation, despite working hard.
  • In Indiana, 37% of households live below the Alice threshold, with some 14% below the poverty level and another 23% above poverty but below the cost of living.
  • These families and individuals have jobs, and many do not qualify for social services or support.
  • The jobs they are filling are critically important to Hoosier communities. These are our child care workers, laborers, movers, home health aides, heavy truck drivers, store clerks, repair workers and office assistants—yet they are unsure if they’ll be able to put dinner on the table each night.

Here in Indiana, we don’t seem to find ALICE poverty problematic or immoral, despite the fact that virtually all of us who are more privileged depend upon the services these people provide.

Even more immoral, in my humble opinion, is having my tax dollars effectively paying a portion of the wages of Walmart, McDonalds and other big employers’ workers. As I have previously posted,

Walmart generates nearly $500 billion in revenue annually; over the past five years, its yearly profits have averaged $15.5 billion dollars, and the family that owns it has a net worth of $129 billion dollars.

Despite its obvious ability to do so, the company declines to pay its employees a living wage, instead relying upon government programs–taxpayer dollars– to make up the difference between its workers’ paychecks and what they need to make ends meet. In essence, when a Walmart employee must rely on food stamps or other safety-net benefits, taxpayers are paying a portion of that employee’s wages.

Walmart (including its Sam’s Club operation) is currently the largest private employer in the country–and one of the largest recipients of corporate welfare. Walmart employees receive an estimated $6.2 billion dollars in taxpayer-funded subsidies each year. Money not paid out in salary goes directly to the shareholders’ bottom line.

The Indiana legislature declines to offer even a modicum of help to the third of Hoosiers who are working for below-subsistence wages, but they are evidently happy to continue subsidizing the wealthy.

The Hoosier bottom line.

When It’s for Me, It Isn’t Welfare–It’s Economic Development

Welfare is an interesting word. Like so many other politically-charged terms, it means rather different things to the different people who use it.

To the self-defined “makers,” welfare is a “handout”–government takes tax dollars that have been paid by responsible, productive folks and gives them to needy people who may be unfortunate but are probably just lazy or unmotivated. These handouts breed dependency, and they’re morally suspect.

Of course, as many observers of government largesse have documented, when you look at the numbers, most of the “takers”–i.e., the recipients of most of the dollars redistributed by government– are corporations. Big ones, that pay their CEOs, other executives and shareholders extremely well.

The “handout” definition

..is what we’ve been trained to believe, largely by politicians who smirk patronizingly at poverty but pay billions of your dollars to corporations…

Welfare is a many-headed dragon, but you won’t comprehend how big corporate welfare is unless you mine the data.

The independent, nonpartisan watchdogs at www.goodjobsfirst.org compiled the data. Those facts detail 453,000 business subsidies handed out by 289,000 state and local governments, and 164,000 freebies from the federal government.

It’s a $70 billion a year pipeline of public money.

The Chicago Tribune has explained corporate welfare better than I ever could:

Illinois has given away $4 billion over the last few decades with little proof the investments actually produced more jobs, more independence in the hands of working people or even benefit to the state at large. That narrative plays well in Indiana, because the Illinois reputation as a wasteful, even corrupt, welfare black hole is enhanced.

Luckily, Indiana isn’t like that.

In fact, Indiana is far worse.

While Illinois was handing over $4.8 billion, Indiana was sweetening the pot with $7.2 billion. Only six states — including giant economic forces New York and Michigan — have spent more local money this way.

Indiana governments are frugal with you, but less so with big-bucks corporations. The state gives away this money as direct cash, indirect subsidies, publicly financed bonds at low or no cost and tax abatements on the theory that average Hoosiers benefit from priming the economic pump.

Here’s how hard you’ve been pumping.

Indiana has dispensed 7,758 of these welfare goodies since 1986, the vast majority since 2009. (Emphasis added)

So who are Indiana’s “takers”?

You have given $703 million to General Motors. Community Health Systems of Tennessee, which owns Porter Regional Hospital and eight other hospitals in Indiana, has gotten $403 million.

Michelin has 308 million of your dollars. Eli Lilly hauled off $200 million. Indianapolis even gave real estate giant Simon Properties $180 million to build a downtown shopping center. Duke Energy took $204 million. Nestle and its Edy’s Ice Cream operation took $199 million in property tax deferments. Honda got $166 million.

These welfare checks are necessary, as the theory supposes, because they guarantee jobs that otherwise would not exist, although no one much tracks the jobs or the provable tax benefit….

Sometimes the sweet deal does not even pretend to produce jobs.

I guess welfare dollars are only morally suspect and socially addictive when poor people use them to feed their children.



Rent Seeking 101

In our highly polarized political environment, we sometimes overlook areas of agreement between otherwise warring portions of the political spectrum. A recent post at Political Animal pointed to one such area between libertarians and liberals: opposition to “rent seeking” aka “corporate welfare.”

Those of us who genuinely value markets and market economies understand that much of what passes for capitalism these days is anything but, and that the influence of the “haves” is routinely used to ensure that they “have” even more. Libertarians protective of true capitalism and market economics see this state of affairs as undermining the integrity of the economic system; liberals note that it exacerbates the widening gap between the 1% and everyone else.

They are both right. Per a lengthy paper by John Teles of Johns Hopkins, a few examples:

Car dealers, for instance, have a sizable presence in the top 1% of earners, have a major lobbying presence in almost every state capital, and have made contributions to almost every member of Congress. That should not be surprising, because regulations (again, often at the state level) protect car dealerships from competition by limiting direct sales, restricting the termination of franchises, limiting the entry of new dealers, and preventing manufacturers from offering preferential pricing to larger franchisees. Together, these rules, economists Francine Lafontaine and Fiona Scott Morton found in a 2010 study, “almost guarantee dealership profitability and survival,” while simultaneously driving up costs to consumers…..

A concentration of high incomes also characterizes the field of government contractors, such as private-prison managers, defense contractors, and for-profit colleges. All these industries are characterized by dependence on government as a nearly exclusive source of revenue, by extraordinary levels of lobbying, and by asymmetries of power between firms and their government counterparts.

Or consider the field of management consulting, which attracts an extraordinary percentage of Ivy League college graduates. As Christopher McKenna shows in his book, The World’s Newest Profession, the outsized incomes of consultants do not come from their ability to recommend innovative practices to firms. Instead, they come from the rent they extract from performing a legally mandated due-diligence ritual for firms or from performing tasks that could otherwise be done at lower cost by public employees. These are not, in short, meaningfully “private” firms at all, despite their high profitability.

You should really read the whole thing….

There is a compelling case to be made for properly operating market economies—“properly operating” meaning markets operating in economic areas where buyers and sellers have equal access to relevant information (a characteristic that would exclude health care and other goods and services involving inescapable asymmetries of information), and where the sorts of creativity, hard work and entrepreneurial prowess that improve life for everyone are incentivized and rewarded.

There is no case—compelling or otherwise—to be made for the rent-seeking that characterizes American economic activity in the 21st Century.

Efficiency versus Transparency

A couple of days ago, a friend re-posted a FaceBook meme–one of those numerous sardonic messages on what appear to be digital postcards. The message was  “for all the taxes they take out of my paycheck, the least they could do is send me a picture of the ghetto family my tax money is supporting, to hang on my refrigerator.”

My friend’s response was perfect: “Here you go: Here are pictures of Walmart, Kaiser Permanente, Citibank, BP…”

Leave aside, for this discussion, the casual racism (we know what “ghetto” meant) and the mean-spiritedness, the implication that lazy “takers” are being supported by self-styled,  hard-working “makers.”

What the statement really reflected was a widespread lack of understanding of corporate welfare, and the magnitude of the tax dollars flowing to profitable companies through the tax code.

Let’s stipulate that some of these subsidies can be justified. (Others not so much.) Let’s also stipulate that it is more efficient to subsidize an activity through the tax code than through a grant. (Why send money to the federal government and then have that government send it back?)

Let’s also stipulate, however, that there are situations in which transparency should trump efficiency. This is one of those situations.

Every time lawmakers vote to make what CPAs call a “tax expenditure,” that credit or deduction represents money otherwise due to the federal government that it doesn’t take in. The process is more efficient, but the fiscal impact is no different from a payment out of the treasury.

What is different is the ability of the public to monitor the decision to subsidize and to evaluate the justification for the subsidy.

What the federal government pays out in TANF or SNAP is visible; what it pays to GE or Exxon or Walmart is buried in the bowels of the Internal Revenue Code.

If we insisted that all corporate welfare payments also be paid in cash, in the full light of day, we might be able to begin a reasonable discussion of the merits, magnitudes and justifications for those subsidies.

It probably would be news to the people who posted that vile Internet message, but they are supporting a whole lot of people who not only aren’t “ghetto,” but who are pulling down salaries most of us ordinary “makers” can only dream of.

Fiscal Responsibility Doesn’t Look Like This

The White House recently announced that the federal budget deficit will fall to 583 billion this year. That’s the smallest deficit since Obama became President, and it continues a widely-ignored trend of falling deficits during his tenure.

If you listened to the Republicans, you’d never know that the debt and deficit have both been declining (if you listened to Faux News, you wouldn’t know the difference between them), and you’d certainly get the impression that the GOP is the party watching out for the public purse. That impression would be wrong.

Very wrong.

The Washington Monthly notes that

The Republican House just voted for an inexcusable $287 billion supply-side corporate tax giveaway:

The GOP-led House of Representatives embraced a former stimulus measure Friday, voting to make it and another related tax cut permanent, adding $287 billion to the deficit over the next 10 years.

The largest part of the cut, worth more than $263 billion, is making permanent so-called bonus depreciation, which allows businesses to write off the cost of capital investments and improvements much more quickly.

It was enacted twice during the administration of President George W. Bush, and the most recent version expired last year. The idea behind it is that if lawmakers give businesses a break during tough economic times, they will speed up major equipment purchases and stimulate economic activity.

Those who support making such a stimulus measure permanent argue that it would give businesses the certainty to be able to plan their investments. But opponents — primarily Democrats — mocked the idea, pointing to Congressional Research Service reports that found the break was a weak stimulus to begin with, and that the stimulative effect is likely to fall even further if the break becomes permanent.

Not only is the GOP not party of fiscal responsibility, it has become the pro-redistribution party–a reverse Robin Hood cabal intent upon taking from the poor to give more and more to the rich. (Except, of course, when there is an advantage to doing otherwise.)

Welfare for the well-off. Bupkis for the poor. Welcome to dystopia.