Repealing Corporate Welfare: Step One

March 25, 2013, 8:50 a.m.

The Journey of a Trillion Dollars

“A journey of a thousand miles begins with a single step.” 老子 (Lao-Tsu), Tao Te Ching, ch. 64 (c 531 B.C.; numerous translations). [Photo credit: multiple sources.]

Ain’t it the truth? We’ve all confronted the impediments to taking that “single step” as we first try all the alternatives procrastination offers. If our goal is to begin a routine that includes a daily walk, it’s literally true. But it’s equally true of any other undertaking, from remodeling a kitchen, to getting out of Afghanistan, to . . . reducing our national debt.

The Democrats and Republicans in Washington are seemingly suffering from ideological immobilization. Republicans fear that if taxes are increased the tax-and-spend Democrats will just squander the money on bigger government and more wasteful giveaways. Their Grover Norquist famously said he’d like a government small enough that he “can drown it in the bathtub.” Meanwhile, Democrats fear that free range feral Republicans will ultimately leave us with no solution for our surfeit of poor children other than Jonathan Swift’s suggestion that we eat them. (“I have been assured by a very knowing American of my acquaintance in London, that a young healthy child well nursed is at a year old a most delicious, nourishing, and wholesome food, whether stewed, roasted, baked, or boiled . . ..” Jonathan Swift, “A Modest Proposal: For Preventing The Children of Poor People in Ireland From Being A Burden to Their Parents or Country, and For Making Them Beneficial to The Public” (1729).)

One is reminded of Jerry Seinfeld’s experience at the rental car counter: although he had a reservation, no car had been reserved for him. (Clerk: “I know why we have reservations.” Seinfeld: “I don’t think you do. If you did, I’d have a car. See, you know how to take the reservation, you just don’t know how to hold the reservation and that’s really the most important part of the reservation, the holding. Anybody can just take them.”)

Here’s a video of the bit:

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That is to say, I think that when it comes to our Washington officials’ consideration of the observation that “a journey of a thousand miles begins with a single step,” they know how to figure the distance of their journey, they just don’t know how to take that single step. And that first step is really the most important part of the journey.

I understand their dilemma. Being honorable men and women, they know that if you take hundreds of thousands of dollars in “campaign contributions” from someone in business, you have a moral obligation to reciprocate, to meet your donor’s expectations of reward in the form of generous grants of taxpayers’ money. Indeed, as I documented in 1996, the average rate of return they had reason to expect at that time was something between 1000-to-one and 2000-to-one. The official gets $100,000 — to avoid prison, he calls it a “campaign contribution,” the donor calls it an “investment” — and in return the donor expects $100 million in one form or another. Nicholas Johnson, “Campaigns: You Pay $4 or $4000,” Des Moines Sunday Register, July 21, 1996, p. C2. (Presumably this is a fluctuating market, and I don’t know what the return on such investments is these days; but there’s some current evidence coming a few paragraphs from now.)

The return can take a variety of forms: subsidies, price supports, tax breaks, government contracts, public land, bailouts, or tariffs — among others.

Although this flood of taxpayers’ dollars involves far more than anything spent on children, the elderly, the poor, and working poor — or other programs benefiting the 99% — for those members of Congress and senators who would like to be re-elected, it’s politically easier to cut Social Security, Medicare, or Food Stamps expenditures than to welch on their bargain with major donors.

So it would be politically unrealistic to suggest Congress turn off the spigot.

What, then, should be their “Step One”?

It needs to be something that takes not one dime from America’s biggest corporations and wealthiest campaign donors. It’s simple, really. Just ask the Congressional Budget Office and IRS to first, identify all the special interest tax breaks throughout the Internal Revenue Code that those campaign donors have paid lobbyists to obtain for them. Some may benefit a single individual or company, others an entire industry, or perhaps all businesses. Don’t worry at this point about the other systems for passing taxpayers’ money to the bottom line of for-profit enterprises — the subsidies, price supports, government contracts, public land, bailouts, or tariffs mentioned above. Just look for the specially designed tax provisions that reduce what would otherwise be the beneficiaries’ tax liability.

Do not reduce the benefit — for now. Just take that list of tax benefits out of that darkened, locked lower left hand desk drawer, and put it under the light on the table. Identify the beneficiaries. Identify as accurately as possible the dollar benefit each receives from their special tax break.

Publish a document in hard copy and online containing this information. Hold a news conference to explain it to journalists and bloggers.

That’s all. You want to know what is “Step One”? That’s Step One.

There’s an accompanying reading assignment that goes with this lesson: Christopher Rowland, “Tax lobbyists help businesses reap windfalls; While Congress fights over ways to cut spending and the deficit, generous breaks for corporations pass with little notice,” The Boston Globe, March 17, 2013.

The Gazette‘s Erin Jordan has already brought this approach to Iowa’s sales tax. Erin Jordan, “Report: Iowa lost $3.9 billion in sales tax breaks in 2010; Breaks up 62 percent since 2005,” The Gazette, March 23, 2013.

And I, among others, have written about the results of the same approach being applied locally in the form of TIFs. Nicholas Johnson, “Like Death and Taxes, TIFs and TIFing Seem Here to Stay,” Iowa City Press-Citizen, February 3, 2013, p. A7, embedded in “Tough TIF Talk,” February 3, 2013. For links to a sampling of many other prior TIF discussions, including the text of a column and blog entry regarding the taxpayer subsidy of a previous Moen project, along with footnote documentation, see “TIF Towers; Giving TIFs the Sniff Test,” April 9, 2012 (which includes Nicholas Johnson, “Moen TIF Proposal Just Doesn’t Pass the ‘Sniff Test,'” Iowa City Press-Citizen, April 5, 2012, p. A7).

Illustrative excerpts from Rowland’s article:

“Lobbying for special tax treatment produced a spectacular return for Whirlpool Corp., courtesy of Congress and those who pay the bills, the American taxpayers.

By investing just $1.8 million over two years in payments for Washington lobbyists, Whirlpool secured the renewal of lucrative energy tax credits for making high-efficiency appliances that it estimates will be worth a combined $120 million for 2012 and 2013. . . .

The return on that lobbying investment: about 6,700 percent.

These are the sort of returns . . . the sorts of payoffs typically reserved for gamblers and gold miners. . . .

“It’s not about tax policy, it’s about benefiting the political class and the well-connected and the well-heeled in this country,” said Senator Tom Coburn of Oklahoma. . . .

A smorgasbord of 43 business and energy tax breaks, collectively worth $67 billion this year, was packed into the emergency tax legislation that avoided the so-called “fiscal cliff.’’ . . .

Whirlpool officials said the tax breaks help the company retain jobs, but in recent years, it has closed refrigerator manufacturing plants in Indiana and Arkansas. . . .

In the absence of meaningful change, corporations like Whirlpool continue to pursue the exponential returns available from tax lobbying. The number of companies disclosing lobbying activity on tax issues rose 56 percent to 1,868 in 2012, up from 1,200 in 1998 . . ..

Whirlpool had plenty of company on New Year’s, including multinational corporations with offshore investment earnings, Hollywood companies that shoot films in the United States, railroads that invest in track maintenance, sellers of energy produced by windmills and solar panels, and producers of electric motorcycles.

Their special treatment is a fraction of a broader constellation of what the federal Joint Committee on Taxation estimates will be $154 billion in special corporate tax breaks in 2013, contained in 135 individual provisions of the tax code.

Note: The two reasons the “return on investment” reported by Rowland is different from my 1996 projections are that (1) he is reporting only what the companies pay their lobbyists, not all of their political expenses (most of which, for many companies, are the campaign contributions), and (2) he is only talking about the payback in tax breaks, thereby excluding the trillions of dollars over 10 years paid to corporations through the other funnels described above.

Rowland was recently a guest on Tom Ashbrook’s “On Point” program. If you’d like to listen to the two of them, and others, discuss the issues, here’s access to that audio: “Big Corporations Lobbying for Big Tax Breaks,” March 19, 2013.

When it comes to politicians transferring taxpayers’ money to for-profit companies (much of the time in exchange for campaign contributions), the practices and consequences are similar, whether it’s local TIFs, state sales taxes, or federal corporate income tax special treatment. The first steps to reform are also similar: public disclosure of what’s going on. How much money is at stake? Who’s getting it? Why; based on what rationale? And ideally, in exchange for what (in the form of campaign contributions and lobbying activities)? Once all of that is well known, by the public, the media — and the legislators themselves — if the public finds it acceptable, well, that’s democracy for you. But the public cannot even address the question so long as it’s in the form of essentially invisible tax breaks rather than debated appropriations of giveaways openly arrived at.

If only Congress’ journey of a thousand miles could begin with this single step.

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