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Work and prosperity
10 October 2012

Let’s slash welfare – corporate welfare, that is

As we saw yesterday on the Deep End, the idea that the rich pay more than their fair share of tax is wrong. Taking all taxes into account, what people pay as a percentage of their income is remarkably even across income groups.

But what if we also take benefits into account? Surely, those disproportionately go to those on lower incomes. Well, yes, they do. But, as James Surowiecki argues in the New Yorker, social security isn’t the only kind of welfare:

  • “Mitt Romney once seemed like a moderate technocrat. But… now [he] seems to fancy himself a small-government zealot, who promises the end of the culture of entitlement. Yet even as he assails people on Medicaid and Social Security, and those who receive the earned-income tax credit, for being “dependent upon government,” Romney has had strikingly little to say about another prominent group that’s “dependent upon government”: the many American companies whose profits rely, in one form or another, on government assistance.”

Surowiecki provides various examples of corporate welfare:

  • “In 1996, for instance, the government temporarily lowered royalties on oil pumped in the Gulf of Mexico as a way of encouraging more drilling at a time of low oil prices. But this royalty relief wasn’t rescinded when oil prices started to rise, which gave the oil companies a windfall of billions of dollars.”
  • “…In the mining industry, meanwhile, thanks to a law that was passed in 1872 and never rewritten, companies can lease federal land for a mere five dollars an acre, and then keep all the gold, silver, or uranium they find; we, the people, get no royalty payments at all.”

Other examples include all sorts of subsidies and sweeteners to agriculture, such as “the sweetest boondoggle in business: an import quota keeps American sugar prices roughly twice as high as they otherwise would be, handing the industry guaranteed profits.”

Other transfers are cleverly disguised – for instance, as tax breaks, which may selectively lower taxes for some, but effectively mean higher taxes for others. Then there’s regulation – which can be as unfairly advantageous to some businesses as any direct subsidy:

  • “Vested interests… also explain why so many states have onerous licensing regulations; Florida says that you need six years of training and apprenticeship to become an interior designer. Such regulations, which have grown precipitously in recent decades, are catnip to incumbent businesses worried about competition.”

The list could go on and on, but Surowiecki’s space is limited. So, while government guarantees and bail-outs for the banking system get a mention, there’s nothing on another rich seam of state-facilitated profiteering: public procurement, where official carelessness is lapped-up by contractors in the defence, construction and pharmaceutical sectors.

Though Surowiecki uses the issue of corporate welfare to bash Mitt Romney, one might ask what Barack Obama has done about it – and the answer to that is ‘very little’. But then that’s what you’d expect from the liberal left. While the cosy relationship between big government and big business undoubtedly helps the rich to get richer, it also helps extend the influence of the state deep into the heart of an ostensibly ‘private’ sector. Thus the lack of action from the progressive camp comes as no surprise.

The real mystery is why, with honourable exceptions, the right seems so relaxed about it.


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