Saturday, June 1, 2013

Corporate Welfare

Welfare for the Rich

            We seem to be hearing more and more these days about corporate welfare: what companies are getting what, who's paying for it, and who is benefiting. Unfortunately, very few are benefiting and those that are rake in millions. What exactly does corporate welfare do to our country?

            To start off, corporate welfare comes from our taxpayer dollars to help big business in our country. It comes in the form of tax breaks, tax holidays, and government subsidies. Corporations are supposed to be taxed at a flat rate of 35% in United States. These companies should be a great source of revenue for our country but they are increasingly becoming a huge cost to taxpayers.

            A recent article titled "Corporate Welfare Queens" in the National Review stated that "this marriage of Big Government and Big Business carries a price tag of $50 billion each year" (26). The article goes on to say that post-9/11 the federal government allocated $500 million to entice corporations affected by the disaster to remain in lower Manhattan. American Express got $25 million of this payout and then announced that they were planning to stay in Manhattan anyway – they'd already been there 150 years. Spokesman for American Express Tony Mitchell was quoted as saying: "Once those financial incentives became available, we chose to participate" (28).

Wal-Mart, the world's largest retailer, is the poster child for why corporate welfare is ridiculous.  Wal-Mart is one of the largest recipients of government subsidies, grants, and other public funds. According to an article by Jenna Wright, 90% of Wal-Mart's distribution centers have been subsidized by federal and local governments. These subsidies are estimated to total $1 billion dollars and change. Wright gave an example of the Wal-Mart in Sharon Springs, New York which made a deal with an industrial development agency so it could evade property taxes. This deal will save the Sharon Springs Wal-Mart $46 million dollars over the lifetime of that particular agreement.

            Why would Wal-Mart even need these types of deals? They are the largest corporation in the world and the largest private employer in the United States and Mexico. In 2006 alone, the company made a net income of $12.178 billion dollars. Why are we giving them money? Surely, they can afford to cover their own business costs. Sadly, government subsidies and evading taxes are not the only ways Wal-Mart chooses to bypass their responsibilities.

            Wal-Mart has become notorious for trying to cheat their employees on hours, wages, and healthcare. Wal-Mart pays its employees at or close to poverty level – which is just under $15,000 per year. Only 41-46% of Wal-Mart employees can afford the healthcare coverage provided. Other large firms have approximately 67% of their workers using their healthcare program.

"Instead of providing affordable health insurance, Wal-Mart encourages its employees to sign up for publicly funded programs, dodging its healthcare costs, and passing them off to taxpayers" says Jenna Wright (2).

This is a multi-billion dollar problem for taxpayers here in the United States. In California alone, providing government healthcare to Wal-Mart employees costs taxpayers an estimated $32 million dollars a year.
Due to media attention, the practices of Wal-Mart might not be such a big surprise. What might come as a shock is what is referred to as a "tax holiday".  According to a New York Times article:

"The United States' corporate tax policy gives companies a strong incentive to move their profits to low-tax havens, such as Ireland and Luxembourg. Once there, the profits are allowed to grow untaxed by the United States until they are repatriated."

In early 2005, our government gave American companies a tax-holiday which allowed them to repatriate foreign profits back to the U.S. and taxed those profits at a rate of 5.25% instead of the required 35%. An estimated $100-500 billion dollars found its way back to the U.S. Johnson & Johnson repatriated $11 billion, Hewlett-Packard had $14.5 billion, and the drug company Pfizer had a whopping $29 billion eligible for repatriation.

            Lou Dobbs, in his book War on the Middle Class, said that "fifty years ago, corporate income taxes made up a third of all federal revenues; now corporations account for just an eighth" (30). Dobbs also points out that these same companies that go abroad to save their profits from U.S. taxes come back and ask our government for federal contracts. He quotes Congresswoman Rosa DeLauro of Connecticut, an opponent of this practice, as saying "It's about 1.4 billion in contracts. And we lose about $5 billion in revenue every single year" (32). We are, in effect, paying these companies to not pay taxes.
Why is the federal government allowing this to happen? Congress' excuse for the 2005 tax holiday was that it would unleash money that would create new jobs. The New York Times pointed out corporations would likely use this extra money to buy other companies which would more likely lead to layoffs – not new jobs. The Multinational Monitor pointed out another rationale for awarding contracts while cutting taxes for rich companies is that the competitive marketplace is more efficient than government – "but now half of the contracts are awarded without a competitive, open-bidding process".
The corporations aren't the only ones to blame for this widespread misuse of government funds. Robert Pear and Michael Janofsky, writing for the New York Times, reported that:

"Tucked inside the Medicare bill is an assortment of provisions that have nothing to do with providing drug benefits to the elderly…big bills become larded with whatever bait it takes to get a majority to vote. A lot of money in the Medicare bill is spent on things that have nothing to do with a prescription benefit."

Incumbents use these bills for pet projects that help them get re-elected. The American taxpayers, eager to complain about paying taxes, must not be paying attention to what their money is being spent on. These corporations, with the help of Congress and other governmental agencies, are not paying their fair share – not even close.

So who's left holding the bag? The middle class who accounts for more than half of the United States' taxes is left holding the bag. Pensions are underfunded by $450 billion according to author Alan Greenblatt. Minimum-wage earners have lost 17 percent of their purchasing power to inflation since the last increase which was in 1997. Jobs are being shipped overseas by American companies looking for cheap labor. Meanwhile, executive compensation has tripled and our wealthiest citizens (and companies) are getting tax cuts – even free handouts.