February 4, 2003

February 4, 2003 | Commentary on Federal Budget

The Other Welfare Program

The 1996 welfare reforms comprised the boldest social policy reform over the last 60 years. Millions of people moved off the government dole and achieved self-sufficiency. Unfortunately, those reforms excluded a rather large segment of society that still considers itself too vulnerable to survive on its own, and stubbornly resists subjecting itself to sink-or-swim capitalism: Corporations.

Corporate welfare-defined as direct payments, low-cost loans or insurance, subsidized services to private businesses-costs taxpayers over $90 billion per year. That means the average household pays $850 in taxes each year to special interests that neither need nor deserve the help.

The federal government's top two priorities are fully funding national security, and reducing the high tax burden that is currently weighing down the economy. Addressing those priorities without expanding the budget deficit requires eliminating unnecessary and wasteful spending elsewhere. It requires eliminating corporate welfare.

The Advanced Technology Program (ATP) represents a typical corporate welfare program. Back in the late 1980s, America had a brief fixation with the Japanese economic "miracle." Believing that Japan's system of government subsidies and protections to preferred businesses was the Next Big Thing, America created ATP to fund private research projects and bring them to the market.

Japan's economy has since drifted into stagnation, and so has ATP. Costing $2.5 billion since its inception, the program is a classic government boondoggle. A recent audit showed the program doesn't keep records identifying why grant applicants get selected or rejected. Program officials also apparently lack knowledge of the fields they provide grants to: They recently gave a $1.2 million grant for initial research into computer recognition of cursive handwriting, even though the technology had already been developed, patented and marketed years ago. Anyone who owns a credit card or regularly signs for packages likely has been signing these small electric screens for years.

ATP's largest problem is that it pays businesses to perform activities they would naturally do anyway. Bribing corporations to research and develop profitable new technologies is about as necessary as bribing athletes to try and win games. Consequently, these federal research grants do not create new projects. They merely subsidize existing ones. Better to leave corporate research funding to the stockholders-at least they'll get a share of the profits.

It's not exactly the small, capital-starved companies that receive ATP grants, either. IBM, with $8 billion in annual net income and $89 billion worth of assets, could fund its own research even without the $111 million of ATP funds it has received. Similarly, companies such as General Motors ($82 million in grants), General Electric ($75 million) and Sun Microsystems ($50 million) should not receive additional taxpayer dollars.

Although the Advanced Technology Program fits almost all definitions of corporate welfare, fewer people would think to include farm subsidies in that group. Most Americans maintain the Rockwellian stereotype of farm subsidies aiding small, struggling family farmers at the mercy of unpredictable weather. But Farmer Jones has been bought out by Agribusiness, Inc. Thus, farm subsidies have evolved into America's most expensive corporate welfare program, peaking at $30 billion in 2000.

Since 1996, Fortune 500 companies such as Westvaco, Chevron and John Hancock Mutual Life Insurance have received as much as 68 times the amount of farm subsidy dollars the median farmer receives. Tyler Farms of Arkansas has received $31.9 million since 1996-more than 7,000 times more than the median farmer. Overall, nearly three-fourths of federal farm subsidies are granted to just 10 percent of subsidy recipients. The bottom 80 percent of recipients combined for less than one-sixth of all farm subsidies.

The $90 billion freed up by ending corporate could be put to much better use. It could fully fund a war to remove Saddam Hussein from power, dramatically beef up other defense and homeland security needs, or reduce taxes by $850 per household.

Besides, if there ever was a time for politicians to get rid of corporate welfare, it's now. Recent corporate accounting scandals have provided a political environment that's safe enough for even the most timid politician to finally end this wasteful spending. Corporations should be assured that leaving the government dole isn't so bad. Just ask the 3 million families who've already done it.

Brian M. Riedlis the Grover M. Hermann fellow in federal budgetary issues at The Heritage Foundation (www.heritage.org), a Washington-based public policy research institute.

About the Author

Brian M. Riedl Grover Hermann Fellow in Federal Budgetary Affairs
Thomas A. Roe Institute for Economic Policy Studies

Related Issues: Federal Budget