Corporate welfare is a term used to describe special programs that benefit only specific CORPORATIONs or industries but not offered to others. In the United States, WELFARE— benefits to individuals or families for which no product or service is received in exchange—is a controversial area of social policy. Corporate welfare is less well-known and therefore less controversial, even though it represents billions of dollars annually. What critics call corporate welfare, supporters refer to as economic incentives, enterprise zones, or development assistance. The federal government spends over $100 billion annually on corporate-welfare programs. In 2001 President George W. Bush’s budget called for reductions in corporate welfare, including cuts in public-works projects, commercial-loan guarantees, shipbuilding programs, and export-import bank trade assistance programs. Supporters argue every country subsidizes exports and that export subsidies level and playing field in international trade. In an ongoing NAFTA (NORTH AMERICAN FREE TRADE AGREEMENT) dispute, the United States and Canada have been challenging each country’s support of timber production. Both countries provide low-cost access to public land and subsidize road development and other transportation. The dispute centers on which country is providing greater subsidies, unfairly reducing the cost of timber harvesting and creating an artificial COMPARATIVE ADVANTAGE in lumber markets. Similarly, in 2001 the WORLD TRADE ORGANIZATION (WTO) ruled U.S. foreign-sales corporations (FSCs), offshore offices funneling paperwork for corporate exports to avoid federal income taxes on export PROFITs, unfairly subsidize U.S. corporations in world trade. The U.S. Congress responded by changing the language of laws allowing FSCs, hoping to continue to support the corporations without facing WTO sanctions. In 1998 in a major exposé, Time Magazine devoted almost an entire issue to the subject of corporate welfare. In addition to federal subsidies, Time presented numerous examples of state and local governments competing with each other to attract corporations. Typical corporate- welfare packages include cash, low-interest LOANS, tax breaks, $1 real estate, and worker-training programs. States often compete to attract large corporations. In 2001 Boeing announced it was moving its corporate headquarters to Dallas, Denver, or Chicago. Chicago won the competition with a variety of “incentives.” Among economic-development specialists, attracting Boeing or other large companies is known as an “elephant hunt.” In the 1980s, to “bag” BMW, South Carolina leased land to the company for $1 a year, agreed to train workers, exempted the company from a variety of taxes, and even extended the runway on an area airport. Alabama subsequently offered hundreds of millions of dollars in incentives to bag Mercedes-Benz. One of the problems with corporate welfare is the tendency for companies to “cut and run” once the incentive end. Throughout the southeastern United States, textile companies have long been known for this practice. Time describes the relocation of meat-packing operations around the Midwest. Rural communities lacking job opportunities build INFRASTRUCTURE (particularly wastetreatment facilities), spending millions to attract a company. When the company leaves for a better proposition, the community is left with huge indebtedness and little tax base to support the investment. Critics say corporate welfare distorts allocation of RESOURCES and reduces ECONOMIC EFFICIENCY, but the question of how to stop it is difficult to answer. State officials from New Jersey and New York once agreed to stop “raiding” companies, but the truce was quickly ignored. Five possible measures have been suggested to reduce corporate welfare.
• Level a federal excise tax on incentives given to corporations from state and local governments. This would eliminate the value of the incentives and reduce the bidding war among communities.
• Challenge incentives as illegal under the COMMERCE CLAUSE of the U.S. Constitution.
• Create a special commission to propose ending corporate- welfare programs at the federal level.
• End funding for federal programs subsidizing loans to businesses.
• Challenge state and local incentive programs through lawsuits against companies receiving them.
See also Export-Import Bank of the United States.