by David Cay Johnston, published at Al Jazeera on March 17, 2015
New report represents first effort to measure flow of taxpayer money flowing into company coffers
How much welfare Uncle Sam provides companies has long been one of the great mysteries of taxpayer spending. Like a secret underground river, boodles have flowed out of the Treasury and into corporate bank accounts without notice.
Now we finally have a first look at the size of that river and where the cash goes.
The federal government has quietly doled out $68 billion through 137 government giveaway programs since 2000, according to a new database built by a nonprofit research organization, Good Jobs First. It identified more than 164,000 gifts of taxpayer money to companies. You can look up company names, subsidy programs and other freebies at the Subsidy Tracker 3.0 website.
A report the organization released today, “Uncle Sam’s Favorite Corporations,” shows that big businesses raked in two-thirds of the welfare.
The most surprising and tantalizing finding is the identity of the biggest known recipient of federal welfare. That dubious honor belongs to Iberdrola, a Spanish energy company with a reputation for awful service and admissions of incompetence. It collected $2.1 billion of welfare on a $5.4 billion investment in U.S. wind farms from coast to coast.
In fact, 10 of the 50 biggest recipients of federal welfare are foreign-owned firms. Try to imagine Congress debating a bill giving welfare payments to poor Canadians, Mexicans and Europeans and you’ll see the absurdity of U.S. taxpayers providing welfare to the owners of foreign corporations.
Phil Mattera, Good Jobs’ research director, created a software tool that matches subsidiaries to parent companies, enabling him to identify the 1,800 parent companies that received welfare. Its database does not cover many known subsidies, such as Agriculture Department payments to corporate farms, and instead focuses on stealth subsidies on which little or no data have been available without digging through mountains of paperwork.
But for Mattera, who would have known that the $1.8 million of federal cash given to the Union Tank Car Co. actually benefits Warren Buffett’s Berkshire Hathaway, which owns a controlling interest in the firm? In all, Buffett companies collected welfare from 11 programs totaling $179 million.
Because of Mattera’s efforts, we now know that 726 companies that collected $838 million in federal welfare were subsidiaries of General Electric, which also pocketed $533 million in state and local welfare.
That two of the most profitable firms in America dine at a taxpayer-financed buffet should alarm those who feel they are too heavily taxed or who believe in personal responsibility. After all, if Buffet’s company, with pretax profits of $28 billion last year, and GE, with $17 billion of pretax profits, cannot get by without welfare, who can?
The Good Jobs database is an important first step to bringing some balance to our understanding of the real scope of corporate welfare. The oft-cited justification is that it creates jobs. Yet we know that such subsidies often shrink the number of jobs and undermine competing firms not blessed with welfare. When government picks winners and losers, we all lose.
Government picks winners and losers through tax breaks and cash welfare to corporations. These activities get hardly any attention compared with Social Security benefits and other so-called entitlements.
Our government produces many highly detailed reports on individuals who get welfare. We know by geographic area, for example, exactly how much is spent on food stamps. Social Security publishes detailed breakdowns of money sent to the disabled, retirees, widows and orphans, all beneficiaries of federal insurance paid for on the job.
But when it comes to corporate welfare, government produces hardly any statistical reports. Much of what we know about corporate welfare comes from the diligence of Good Jobs First. With a staff of seven and an annual budget of about $1 million, Good Jobs has been digging through the public record for years in search of corporate welfare. The organization does not take a stance on subsidies, save that they and their results should not be hidden.
“When we started looking at state and local subsidies, only 23 states had anything online,” said Greg LeRoy, the group’s founder and executive director.
“We encountered a Tower of Babel, with the facts hidden in obscure appendices and reports” written in terms that sounded like the opposite of welfare, he said. “So we began shaming the states and governors about the lack of transparency.”
In contrast to previous administrations, Barack Obama’s presidency promised to make transparency a defining policy. But the quality of its disclosures is often poor. For years I have asked why the USA Spending website shows that the Internal Revenue Service has issued more than $5 trillion (note that “t”) in contracts, which is roughly 1,000 times its budget during the period covered. The Obama administration, after the president’s de facto policy on questions it dislikes, has yet to respond.
40 percent discount
Iberdrola, the biggest welfare recipient in the Good Jobs database, says it “is proud of our investment in the United States, the American jobs it has created and the enduring infrastructure it has resulted in that benefits consumers all over the country.”
Dan Hucko, the company’s top American spokesman, called the cash-for-wind program “a remarkable success story for U.S. taxpayers, for local communities and for American jobs” partly because Iberdrola invested $5.4 billion more to collect the money under Section 1603 of the American Recovery and Reinvestment Tax Act, the 2009 stimulus.
The nearly $2.2 billion of welfare Iberdrola received is effectively a 40 percent discount on its $5.4 billion investment. Think about how well off you would be if you could buy investments and get 40 percent back in cash from the federal government.
The cash payments were made in lieu of tax credits that companies could use to offset profits. During the financial collapse that began in 2007, profits temporarily evaporated at many firms, making the corporate tax credits worthless.
Hucko said, “The federal government uses tax policy to drive private sector investments that create jobs, address the country’s energy needs, reduce the threat of climate change and ensure the safety and reliability of the nation’s electricity and natural gas transmission infrastructure.”
Quite right, but it is also a reminder that America has never had a free market. Government not only makes the rules but also picks winners and losers through tax breaks and cash welfare to corporations. These activities get hardly any attention compared with the constant attacks on Social Security benefits and other so-called entitlements.
The Good Jobs First report offers a solid start to understanding the full scope of federal welfare to corporations. A report issued Monday as part of Sunshine Week, an annual effort to spotlight government secrecy, gives a sense of how hard governments and their contractors work to hide the facts from taxpayers.
With time, we can expect Mattera and his team to ferret out many other hidden welfare programs, maybe even some of those buried in the files of the Central Intelligence Agency and the National Security Administration.
David Cay Johnston, an investigative reporter who won a Pulitzer Prize while at The New York Times, teaches business, tax and property law of the ancient world at the Syracuse University College of Law. He is the best-selling author of “Perfectly Legal,” “Free Lunch” and “The Fine Print” and editor of the new anthology “Divided: The Perils of Our Growing Inequality.”