Tag: Corporate welfare

The Biggest Corporate Welfare

Scott Walker — supposed conservative — has become just the latest politician to dole out a few hundred million in corporate welfare:

Last year, two New York City hedge fund owners purchased the Milwaukee Bucks, a down-at-the-heels N.B.A. team. The new owners smiled, took a victory lap around this handsome lakeside city and laid down their terms.

We’ll keep the Bucks in Milwaukee, the owners said, if the public foots half the cost of a $500 million arena. (The owners spoke of their “moral obligation” to the city and pledged $100 million toward their arena, with the remainder coming from other private funds.) N.B.A. officials acted as muscle for the owners and warned that if Wisconsin did not cough up this money within a year’s time, the league would move the team to Las Vegas or Seattle.

These opening feints were right out of the professional sports owner handbook. From start to desultory end, Milwaukee offered a case study in all that is wrong with our arena-shakedown age.

Gov. Scott Walker signed a bill Wednesday to subsidize the arena, which could cost the public twice as much as originally projected. Echoing the owners’ arguments, the governor proclaimed that the arena, a practice complex and a promised “entertainment district” would spur a renaissance for downtown Milwaukee and attract tourists. Income taxes paid by the pro athletes, the governor said, would fill local coffers.

The governor is repeating the standard mantra of stadium extortionists everywhere. It is categorical nonsense. Twenty years of economic research has shown that the economic benefits of stadiums are somewhere between non-existent and slightly negative. Sports teams mostly affect how people spend their money, not if. It is true that that taxes paid by the athletes would pay for a stadium … in a century.

The ability of extremely rich men who own extremely successful business to extract hundreds of millions in public welfare from cash-strapped cities and states is baffling. The lack of benefits of stadium building has been known for years, but sports teams, including my Braves, are still able to work this scam to perfection.

In reality, the power should flow the other way. Sports teams benefit from being in big cities way more than the big cities benefit from having sports teams. Do you think the Yankees would be making hundreds of millions of dollars if they moved to Louisville? They still got a billion dollars in subsidies for their stadium. Would the Milwaukee Bucks, sans subsidies, make more money in Vegas or Seattle than they do in Milwaukee? I doubt it. Seattle just gave up a basketball team and Las Vegas has … um … a lot more than a sports team going for it.

The most recent baseball team that moved was the Montreal Expos. That move benefited the Expos way way more than it benefited Washington. They went from an empty stadium and minimal revenue to a full stadium and overflowing coffers. Sports teams should be begging to play in the big markets, not holding them for ransom.

There are two problems that underlay the subsidies to sports. The first is plain ordinary corruption. It’s not just sports stadiums; cities invest tens of millions into “big projects” that are going “stimulate the economy” and “revitalize downtown”. When I was growing up in Atlanta, we heard those same arguments dragged out for Underground Atlanta, World of Coca Cola and the Olympics. Yet, somehow, it didn’t work. The area around the Olympic Stadium (later Turner Field) was still a dump. Sports teams have an advantage in terms of visibility and the ability to give guaranteed luxury seats to powerful politicians. But fundamentally, this shakedown goes on every day. And sports teams have become very skilled in doling out cash to local community groups and working lobbyists so that they can ride that well-greased track.

The problem that is more specific to sports teams is a basic prisoner’s dilemma. Everyone knows that cities would be better off not caving into the demands of sports teams. But the cities and states are afraid of losing their teams to other cities and states that give in. They could say “no” but it only works if everyone else does too. What you would need is for state and city governments to sign onto a compact: no city or state will subsidize a sports stadium … ever.

That won’t happen, of course, because politicians love this. Scott Walker is far, far from the only politician doling out this particular brand of corporate welfare. The political class love it because they get to claim credit for keeping a sports team in town and building a huge stadium. They love it because it sounds good to say your going to stimulate the economy, even if the stimulus never happens (see Obama, Barack). They get wined and dined by rich team owners and corporate sponsors.

It’s a win-win. The only people who lose are the taxpayers and, really, who cares what those plebs think?

The New Corporate Welfare

This is somewhat disconcerting:

The report from Good Jobs First, a nonprofit taxpayer watchdog organization funded by Ford, Surdna and other major foundations, identifies 16 states that let companies divert some or all of the state income taxes deducted from workers’ paychecks. None of the states requires notifying the workers, whose withholdings are treated as taxes they paid.

General Electric, Goldman Sachs, Procter & Gamble, Chrysler, Ford, General Motors and AMC Theatres enjoy deals to keep state taxes deducted from their workers’ paychecks, the report shows. Foreign companies also enjoy such arrangements, including Electrolux, Nissan, Toyota and a host of Canadian, Japanese and European banks, Good Jobs First says.

Why do state governments do this? Public records show that large companies often pay little or no state income tax in states where they have large operations, as this column has documented. Some companies get discounts on property, sales and other taxes. So how to provide even more subsidies without writing a check? Simple. Let corporations keep the state income taxes deducted from their workers’ paychecks for up to 25 years.

Good Jobs First, I should point out, seems to be interested in a slight variation on corporate welfare, declaring that they want corporate subsidies to be “accountable and effective”. I agree with the first, but the second is incredibly dubious. I don’t think that any of this corporate welfare business is effective in building economies. In the end, the state expends more money and effort scratching the backs of fat cats than they can possibly recoup. Unprofitable business are propped up at the expense of ones that can survive on their own. A better idea would be to simply make your state a good place to do business in general: keep taxes low, regulations reasonable and your budget balanced.

Of course, then the halls of our state houses wouldn’t be filled with rich guys begging favor of and giving contributions to two-bit politicians. So, we can’t have that.

Still, this confiscation of income taxes is a step past the usual corporate welfare. Money is fungible, and maybe there’s no difference between keeping your employees’ witholding and turning it over to the state before getting it back in a subsidy. But it reeks even more than usual.

Big Business Liberals

One of the most amazing things about our political system is that liberals and Democrats have a reputation as being the champion of the little guy and the foe of big business. You would think their enthusiasm for eminent domain and regulatory capture would disabuse us of this notion. But it persists. And, this month, we have another illustration of why their nobel reputation is entirely undeserved.

The GOP Congress is trying, for once, to keep a campaign promise and get rid of some corporate welfare. They are fighting to shrink the transportation bill. They are refusing to renew tax subsidies unless they are paid for with spending cuts. They are targeting the Export-Import bank for closure.

And what is the response from the Left? Are they applauding this? Are they cheering it on? Are they saying, “Hooray! At last the Republicans are doing something right!” Are they glad that someone has listened to their gripes about GE’s tax bill?

Not exactly.

As Radley Balko points out, The Nation has come out swinging in favor of the Ex-Im bank, a New Deal relic that was designed to loan money to poor countries so they could buy US goods. It’s no longer needed. Our private lending industry is so huge it lends money to such unlikely people as unemployed home-owners. What the Ex-Im bank — and its counterparts around the world — really does is subsidize exports for favored businesses like Boeing and Wells Fargo. It is heavily politicized, beset with lobbyists and expensive. Eric Cantor has suggested a 13-month extension to give Obama time to negotiate with other countries to cancel their banks. I’ll take that, but it’s not necessary. I’m happy to let other countries finance uncompetitive businesses. I’m happy to let their businessmen spend their time lobbying government rather than inventing.

And the Ex-Im Bank is just one aspect of this. All over our government, people have their hands out. And it is the Left that are wailing and gashing their teeth that, God forbid, we should stop giving piles of money to politically-connected businesses. (Of course, there’s always the likelihood that this is pure partisan bullshittery, but we all know the Left are too principled for that).

You should really read the NYT article in my first link. It’s a perfect illustration of why government spending is hard to cut: concentrated gain; diffuse cost. The people who get money from Ex-Im, the highway bill, green subsidies or whatever are very interested in keeping that money flowing. But the taxpayers are only dinged for a few bucks on any particular bit of largesse so we’re not very motivated. Thankfully, for once, someone is fighting for us.

I do understand that ending these things suddenly may cause some problems and job losses. The transportation bill, in particular, is hung up in a GOP house that can’t get something out and does affect hundreds of thousands of jobs. And it’s not like we don’t need roads. But I am glad to see that these bills are no longer automatic gimmes; that someone — anyone — is starting to consider costs.

The Department of Corporate Welfare

You remember early on in the Obama Administration when he “challenged” his cabinet to find something like $0.82 in savings? Actually, it was about $100 million or one three-thousandth of the new spending he was sending their way.

Well, he’s doing it again. This time he’s calling for a merging of several federal agencies. It would cut about 1000 federal jobs and save a whopping $3 billion over the next decade. If only he can do it 4000 more times, our budget problems will be solved.

But, OK, I’ll praise him for that … for a second … let’s bask in it.

And now I’ll call it bullshit:

Contrary to what various news outlets are reporting, President Obama is NOT proposing to cut government. The administration is proposing to take four independent federal agencies that specialize in corporate welfare – along with the Office of the U.S. Trade Representative – and combine them with corporate welfare programs at the Department of Commerce to form what I would argue should be called the Department of Corporate Welfare.

According to reports, this rearranging of the deck chairs would save $300 million a year. That’s peanuts. Worse, those alleged savings will be of no consequence to taxpayers as there is nothing to suggest that the president intends to cut overall spending for the agencies comprising the new bureaucracy. That portends bigger government, not smaller. The president is trying to sell the American taxpayer a false bill of goods.

The program is actually called BusinessUSA. But while making it easier for businesses to navigate the dizzying federal bureaucracy might be a laudable goal, a better one would be making them not have to navigate it all. A huge amount of what these agencies do is pure corporate welfare, with companies wheeling and dealing for the next taxpayer buck. The programs should be merged and then cancelled. The only remainder should be necessary stuff like export control (i.e., making sure our businesses don’t sell nuclear weapons parts to Iran or somebody).