NCPA - National Center for Policy Analysis

Democrats Propose Corporate Welfare Cuts

August 11, 1997

When the Republican Congress took power in 1995, there was much talk about cutting "corporate welfare" -- government programs that only benefit private businesses. This is an area where Republicans and Democrats should have been able to work together. Republicans were anxious to downsize government and shed their image as lackeys for business, while Democrats wanted to use cuts in business programs to pay for new spending initiatives.

However, three years later there is little evidence that corporate welfare has been cut back at all. According to a new report from the Progressive Policy Institute (PPI), 89 percent of the value of corporate spending subsidies it identified in a 1995 report are still being funded. In fact, PPI, a think tank affiliated with the Democratic Leadership Council, was only able to identify one major subsidy program that has been scaled-back. That is the sale of broadcast spectrum to telecommunications companies, rather than giving it away as the federal government historically has done.

On the other hand, agriculture subsidies, which Congress said it would abolish, actually have been expanded. Under legislation passed in 1996, the Department of Agriculture will pay out $15 billion more over the next five years than it would have under previous law.

Altogether, the PPI report identifies $157 billion of corporate welfare spending over the next five years. These include the following:

  • Transportation: highway "demonstration" projects, subsidies for the maritime industry and failure to charge airlines for services provided by the Federal Aviation Administration
  • Energy: below-market rates charged for hydroelectric power and grants for energy research and development.
  • Trade: Export-Import Bank, Overseas Private Investment Corporation, and subsidies for military and agricultural sales.
  • Aerospace: NASA space station and subsidies for basic research by private companies.

In addition, PPI identifies another $124 billion in tax subsidies. Unlike spending subsidies, these involve special provisions that lower tax payments for particular businesses and industries. These include special tax credits for energy production, special depreciation rules for rental housing, and the special tax exemption given to credit unions.

PPI's goal in calling attention to these subsidies is to raise funds for an ambitious "investment" program that would expand federal government spending on education, worker training, basic research, public infrastructure and other initiatives. Its purpose, therefore, is not to cut the size of government, but to reprogram spending in a different direction.

Nevertheless, Republicans in Congress should read this report. Cutting corporate welfare is still a good idea, even if PPI's desire to spend the money on liberal programs of dubious value is not.

Source: Bruce Bartlett, senior fellow, National Center for Policy Analysis, August 11, 1997.


Browse more articles on Tax and Spending Issues