CUTTING CORPORATE WELFARE
Successfully ending corporate welfare as we know it will turn on a sustained campaign to educate, organize, and mobilize citizens. Merely documenting abuse is not sufficient to spark the national movement needed to trump corporate power. People need specific proposals to rally around, and a strategy which suggests our involvement.
With corporate welfare so pervasive at all levels of government, the campaign against it must be strategically savvy, multi-pronged and able to both create momentum and to take advantage of external events. After all, the looting of Uncle Sam is an ever-growing big business.
These are matters calling for creative thinking and approaches not only from legislators, but from law schools, political scientists, and economists. Unfortunately, a survey of law reviews and recent Ph.D. dissertations reveals a remarkable paucity of academic attention to the issue of corporate welfare; and until a June 1999 hearing of the House Budget Committee, there had never been a Congressional hearing devoted to a comprehensive assessment of the issue.
Here is an outline of proposals for discussion and reform. This list focuses on structural approaches, rather than itemizing programs that should be eliminated. The first set of proposals applies generally to corporate welfare, with the second being oriented around the categorization of corporate benefits outlined in this pamphlet in the spirit of trying to spark a flexible, multi-pronged campaign against corporate welfare. Some of the proposals overlap -- different approaches may appeal to different people, and different proposals may fit different political moments. In the same spirit, these initiatives are intended to he provocative and are certainly open to criticism and refinement. Their purpose is to jumpstart creative thinking, debate, and mobilization for cutting corporate welfare.
A Bill to Eliminate All Corporate Welfare. A simple bill written to abolish corporate welfare could provide a valuable tool for citizen education and organizing. Such legislation would not propose a permanent ban on corporate welfare, which in any case would always be vulnerable to subsequent legislative action, but would require proponents of particular programs to mobilize support for the affirmative re-commencement of their favored subsidies under both procedural safeguards and reciprocal obligations. Then the advocates of the 1872 Mining Act could make their case for why such an abomination should be reinstated after elimination.
The central operative language for such a bill might read:
Because of the complexity of the corporate welfare problem, such legislation would obviously need to incorporate considerable language amending existing laws. And even this approach would leave some corporate welfare problems unaddressed -- such as the need to eliminate pork-laden or other programs in which the government should not be engaged, or for non-monetary commitments from corporations receiving government supports) -- but it would be a very useful start.
Citizen Standing to Sue to Challenge Corporate Welfare Abuses. Citizens could be empowered to mount judicial challenges to runaway agencies that reach beyond their statutory powers. Taxpayers could be given standing to file such suits, by awarding a $1,000 "bounty" (plus reasonable attorneys' fees and court costs' for those who successfully challenge improper agency action. Consideration should he given to creating an incentive for such suits by awarding successful plaintiffs a percentage of the money saved through such suits, perhaps according to a sliding scale of declining percentage returns for higher savings and with a cap set at certain amount. Just as qui tam suits under the False Claims Act have helped curtail oil company underpayment of royalties owed the federal government, so such a measure would create a structural counterbalance to corporate influence over federal agencies.
Funding for Town Meetings. Small local, state or federal appropriations could fund dozens of town meetings across the country on corporate welfare and help educate the public.
Sunsetting Corporate Welfare. This would involve legislatures requiring that every program in which the government confers below-market-value benefits on corporations, including tax expenditures, automatically phases out in four years after initial adoption, and every five years thereafter. Under such a rule, the programs could of course be renewed, but only with affirmative Congressional or state or local legislative action. Sunsetting would overcome the problem of inertia by which both bad ideas and good ideas turned bad become entrenched corporate welfare programs protected from serious legislative review and challenge. The entrenchment problem is a particular problem for non-budgetary items, which are spared even the reviews accorded to appropriations.
Annual Agency Reports on Corporate Welfare. Every federal agency could be required to list every program under its purview which confers below-cost or below-market-rate goods, services or other benefits on corporations. They could also publish a list of every corporate beneficiary of those subsidies above a certain de minimis threshold, and the dollar amount of the subsidy conferred. This measure would spur much more news reporting on corporate welfare, and would generate public awareness by assigning proper names to the beneficiaries. Relevant state and local agencies could be required to make similar reports.
These reports should be published on the Internet, as should all other corporate welfare- related disclosures.
SEC Requirement for Corporate Welfare Disclosure. The Securities Exchange Act could be amended to require publicly traded corporations to list the subsidies (both by type and amount) they receive from governmental bodies, and to publish this information on the Internet. Alternatively, the SEC could mandate such disclosure through rulemaking. This disclosure requirement is easily justifiable as in the public interest, since corporate beneficiaries are in many ways better positioned to report on the benefits they receive from government than the government conferrers. It would serve a valuable public purpose by assembling in a single location the dollar amounts of public subsidies accorded to the nation's largest corporations; and thereby enabling the citizenry to assess properly the extent and desirability of the subsidies. The disclosure requirement is also appropriate as a disclosure of material interest to shareholders. Government subsidies are of central importance to many of the nation's largest corporations, and to assess fully the value and future prospects of corporate earnings, shareholders have a right to information on government subsidies.
Limits on Executive Compensation in Government-Supported Corporations. Where the government is conferring substantial, voluntarily received benefits on corporations, it could reasonably limit the scope of beneficiaries to those who do not engage in particular sorts of socially undesirable behaviors. One such behavior is excessive executive compensation, which heightens income and wealth inequalities, and tears at the nation's social fabric. Government subsidies, including tax expenditures, could be denied to corporations whose executives receive more than a predetermined level of compensation, say those whose ratio of executive-to-lowest-paid-employee compensation is more than a certain amount, perhaps 30-to-1.
Prohibition of Government Subsidies to Criminal Corporations. The federal, state, and local governments take away fundamental rights, including the right to vote, from convicted felons who are persons. Corporations convicted of crimes rarely experience deprivations of anything near that scale. A small and appropriate step might be to deny any form of corporate welfare, including tax expenditures, to any corporation convicted of a certain number of felonies and/or misdemeanors. If the government is to confer subsidies on corporations, surely they should not go to enterprises convicted of criminal wrongdoing.
Reciprocal Obligations. The government should seek non-monetary reciprocal obligations from corporate welfare beneficiaries. These must necessarily vary by category of corporate welfare program and beneficiary. But two types of obligations are of special importance.
First is the requirement that certain subsidies be conditioned on beneficiaries enabling consumers to band together in non-partisan, non-profit, democratically governed organizations. This can be accomplished by allowing government-chartered consumer organizations that are accountable to their membership to include an insert, at no cost to the company, in the corporate welfare beneficiary's billing envelope, or publishing information on the company's web site. The insert would invite consumers to join the organization, which would work to contain prices, improve product quality and service, advocate for reforms, etc. This mechanism would be particularly appropriate for banks, thrifts and other lending institutions, insurance companies, HMOs, cable TV systems, and utilities.
Second, allocation of rights to government lands or other natural resources could be conditioned on beneficiaries agreeing to abide by environmental regulations, or even to uphold environmental standards that exceed those required by existing regulation.
LOCAL, COUNTY, AND STATE CORPORATE WELFARE
Where state and local authorities feel compelled to provide corporate welfare packages, they should consider inclusion of "clawback" provisions -- mandating return of tax benefits if specific corporate promises are not kept -- in agreements with corporate welfare beneficiaries.
Regional and National Compacts. Congressional legislation should authorize anti-corporate welfare compacts between states, enabling them to enter into binding arrangements to refuse to enter a race to the bottom against each other in terms of using special tax breaks and related benefits or stadiums to influence business, including sports- team, location decisions.
Surtax on Local and State Corporate Welfare. Congress should consider requiring the IRS to treat local and state corporate welfare expenditures as income upon which federal taxes should be paid.
GIVEAWAYS, INCLUDING R&D GIVEAWAYS
Prohibition on Government Giveaways. Government properties, whether real or intangible, should presumptively be sold, leased or rented to corporations for market rates. Although there may be exceptions (such as where consumer pricing considerations are considered of more importance than taxpayer reimbursement), there is generally no reason for taxpayer assets to be given away to corporations at less than market value.
Promote Competition in Allocating Government Resources. The market value of a government asset will vary based on the terms of the property transfer. Depending on the circumstance, taxpayer revenues may be lower if resources are allocated on a non- exclusive basis. But there is an overriding broad public and consumer interest in promoting economic competition, and there should be a presumption that, where possible, when taxpayer assets are to be transferred to corporations they be conveyed on a non-exclusive basis.
Competitive Bidding. Especially where the government plans to transfer taxpayer assets to corporations on an exclusive basis, asset transfer prices should be established by auction.
Reasonable Pricing Provisions. Where there will be a consumer end-user from the transfer of government assets (as in the case of products brought to market utilizing government-controlled intellectual property rights), the terms of the transfer should require the corporate beneficiary to agree to reasonable pricing provisions -- a requirement abandoned by the National Institutes of Health in 1993. This is of primary importance for exclusive transfers, where transferees may gain monopoly power. Because federal agencies, especially NIH, have historically done a poor job in enforcing reasonable pricing provisions, serious consideration needs to be given to how such provisions should be administered and enforced. Required disclosure of private investment in product development, and correlating prices with amount and proportion of private investment, may offer one fruitful approach. It may also be possible to include reasonable pricing guarantees in the bidding process, with preference given to bidders making enforceable promises of lower prices.
End Fossil Fuel and Nuclear Power R&D. There is no justification for federal support for these environmentally hazardous, nonrenewable energy sources. As study after study has demonstrated, energy efficiency and renewable energies represent future priorities.
INSURANCE, LOANS, AND BAILOUTS
No Discount Insurance. Consideration should be given to a legislative presumption against below-market insurance for corporations, requiring a special waiver for exceptions.
No Liability Caps. There should be a legislated blanket prohibition on liability caps, which unjustifiably protect corporations from paying for any harms they perpetrate. Liability caps, such as those in Price Anderson, should not accompany governmental insurance schemes.
No Discount Loans. Consideration should be given to a legislative presumption against below-market loans or loan guarantees for corporations, requiring a special waiver for exceptions, or perhaps a special waiver for corporations over a certain size.
Payback For Bailouts. Bailout beneficiaries should generally be required to pay back loans and outright bailouts in full, with interest, with priority given to repayments to the government over other claimants.
Preventing Foreseeable Financial Bailouts. H.R. 10 has lifted the regulatory walls between banks on the one hand and insurance and securities firms on the other, paving the way for the creation of too-big-to-fail financial holding companies, with federal deposit insurance likely to be de facto extended, at no charge, to other financial affiliates. H.R. 10 should be amended to include a provision establishing, in advance of imprudent risk-taking leading to future bailout demands, that no federal assistance will be made available to financial holding companies or to their non-bank affiliates. This provision will induce more prudent risk-taking.
CORPORATE TAX EXPENDITURES
Eliminate All Corporate Tax Expenditures. Because corporate tax expenditures are already compiled in the President's budget submission and by the Joint Committee on Taxation, this step would be less logistically complicated than ending all corporate welfare. Wiping the slate clean of corporate tax expenditures -- perhaps the most deeply entrenched type of corporate welfare -- would require the tax expenditure beneficiaries and their Congressional allies to justify anew these tax supports.
Require Reporting of Corporate Tax Expenditure Beneficiaries. The Internal Revenue Service should be required to publish a list of all corporate tax expenditure recipients over a certain de minimis level.
INDUSTRY PROMOTIONS AND EXPORT ASSISTANCE
End Government Market Promotion. Congress should prohibit government-run advertising and marketing schemes for private corporations.
End Export Assistance. Congress should eliminate export assistance programs, or making them available only on a strict means-tested basis.
Transcending liberal-conservative divisions, there is a nascent national movement of consumer, taxpayer, environmentalist, labor, and small business groups that is waiting to be consolidated to stop corporate welfare. If these forces are united, they will form a powerful political force that can help rescue our political democracy from the narrow interests that now dominate it. Corporate welfare cuts to the core of political self-governance, because it is perpetuated in large measure through campaign contributions and the subversion of democracy; and because the continuation of corporate welfare itself misallocates public and private resources, generates unfair competition to companies not on welfare, and exacerbates the disparities and concentration of wealth, influence and power that run counter to a functioning political system in which the people should rule.