October 6, 2012

MITT'S CONSTITUENCY IS THE 47%:

CORPORATE WELFARE QUEENS (JAMES SUROWIECKI, OCTOBER 8, 2012, The New Yorker)

From the days of high tariffs and giant land grants to the railroads, business and government have always been tightly intertwined in this country. But, in recent decades, what you could call the corporate welfare state has become bigger. Energy companies lease almost forty million acres of onshore land in the U.S. and more than forty million offshore, and keep the lion's share of the profits from the oil and natural gas that they pump out. In theory, this is O.K., because we get paid for the leases and we get royalties on what they sell, but in practice it often works differently. 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 But this royalty relief wasn't rescinded when oil prices started to rise, which gave the oil companies a windfall of billions of dollars. Something similar happened in the telecom industry in the late nineties, when the government, in order to encourage the transition to high-def TV, simply gave local broadcasters swathes of the digital spectrum worth tens 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. Metal prices have soared in the last decade, but the only beneficiaries have been the mine owners.

In other cases, the government offers direct subsidies, like those which have helped keep many renewable-energy projects afloat. Farmers, despite food prices at record highs, still get almost five billion dollars annually in direct payments, along with billions more in crop insurance and drought aid. U.S. sugar companies benefit from 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.

The tax code, too, is a useful tool for helping businesses. Domestic manufacturers collectively get a tax break of around twenty billion dollars a year. State and local governments give away seventy billion dollars annually in tax breaks and subsidies in order to lure (or keep) companies. The strategies make sense for local communities keen to generate new jobs, but, from a national perspective, since they usually just reward companies moving from one state to another, they're simply giveaways.

More subtly, government boosts business profits via regulation. 




Posted by at October 6, 2012 6:37 AM
  

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