What do people mean by ‘corporate welfare’?

What do people mean by ‘corporate welfare’?
Charles and David Koch. MSNBC video

People on both the Left and the Right claim to oppose “corporate welfare.” But they mean something different when they say it. To people on the Right, it means that a company gets a taxpayer subsidy, or that it gets a tax break that most other companies don’t. To progressives, it sometimes just means they are not paying “enough” taxes, even if they are paying tax at the same rate as every other company. Progressives accused Charles and David Koch of corporate welfare, even though Koch Industries opposed all taxpayer subsidies to corporations and opposed government favors to politically-connected companies. Why? Because they thought Koch Industries didn’t pay enough taxes (even though many companies paid less taxes than it did).

Koch Industries did collect a relatively small amount of ethanol subsidies, which were available to any similarly situated company, but it actually lobbied against ethanol subsidies. It wasn’t responsible for such subsidies existing. It would have been unilateral disarmament for it to turn down a subsidy that its competitors were also collecting. It had no moral duty to turn down such free money, just as the fact that you ideologically oppose a tax deduction shouldn’t prevent you from claiming it on your tax return, just like everybody else.

In popular discourse, people don’t really grasp what a subsidy is. If an oil company spends $10 million to find an oil deposit, and it deducts this cost as depreciation from the revenues it gets from producing and selling the oil, that’s not a subsidy. That’s just proper accounting. Businesses are supposed to be taxed on profits, not gross revenues. And that’s all the subsidy most oil companies get (i.e. none). Yet progressives think oil companies are big recipients of corporate welfare.

On the other hand, if someone gets a piece of municipal land cheap on a no-bid basis (a particularly common problem in progressive-run areas), almost certainly there’s a subsidy embedded there. If someone is the dominant local contractor for trains to nowhere, one that knows how to pay off the unions, the state legislature, and other toll collectors, and a train to nowhere gets built, that’s likely a huge economic subsidy to them. If someone gets generous zoning in a very zoning-constipated place to build new housing in return for a small number of subsidized units to politically-active “moderate-income” people. There’s likely a substantial subsidy to both the builder and the activists.

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And then there are the sports teams and all the subsidies they get. Progressives don’t want companies that produce oil and other basic necessities to earn a good rate of return, but some of them have no problem with a billionaire with his expensive sports-team toy turning what was a vanity investment into a source of additional wealth through a subsidized stadium. This, even though sports teams are a net loss for the rest of the local economy. For every out-of-town person who comes to a home game, you have a local going out of town for an away game. And at the home games, other businesses locally lose out to the sports team.

Perhaps subsidies are not the only form of corporate welfare. One problem in the U.S. is regulatory failure on government-backed monopolies, such as cable companies. They don’t get subsidies, per se. But they are allowed to overcharge. Americans pay a lot more for cable than Germans do, that’s for sure. (Of course, Germans pay a lot more for power than Americans do, because of having shut down their nuclear plants, which are expensive to build but not expensive to operate).

Hans Bader

Hans Bader

Hans Bader practices law in Washington, D.C. After studying economics and history at the University of Virginia and law at Harvard, he practiced civil-rights, international-trade, and constitutional law. He also once worked in the Education Department. Hans writes for CNSNews.com and has appeared on C-SPAN’s “Washington Journal.”