Corporate Welfare: Its Harmful Effects on Your Wallet

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corporate welfare

Corporate welfare refers to when corporations receive special government subsidies and/or treatment, including but not limited to money grants and tax breaks.

At first blush, corporate welfare might sound harmless—perhaps necessary even. After all, there are Mom and Pop shops out there that could do with the occasional financial support. But dig a bit deeper, and you might just discover multibillion-dollar businesses consistently receive arguably unnecessary help from the government. 

In this article, the Zero Theft Movement will examine cases of corporate welfare to see if there is a strong case for citizens (particularly those on minimum wage) being ripped off by the corporatocracy

What is Corporate Welfare?

Financial support that is excessive, unnecessary, wasteful, or acquired via lobbying can be considered corporate welfare.

Some economists have argued that major bailouts amount to corporate welfare. The S&L crisis and the 2007-2009 financial crisis involving AIG, for example, involved bailouts of some major corporations. Senator Bernie Sanders (D-VT) popularized the term’ corporate welfare’ in 2018 when he introduced a bill (the Stop Bad Employers by Zeroing Out Subsidies Act) requiring companies with 500 or more employees to completely pay for its employees’ welfare benefits.

Wage stagnation appears to have been an issue since the 70s, with the end of the Bretton-Woods Agreement. Do you think workers are receiving less than they perhaps should?

In 2014, Good Jobs First research director, Philip Matera, published the Subsidy Tracker 2.0. It’s a report examining which businesses state and local development incentives actually go to. Matera discovered that “at least 75 percent of cumulative disclosed subsidy dollars have gone to just 965 large corporations, even though these companies account for only about 10 percent of the number of announced awards.”

Between those 965 large corporations, Matera found that they had received an average of 26 awards each at an average total value of $102 million. $110 billion was the total amount awarded to all 965 companies. The parent companies on the Fortune 500 alone accounted for 16,000+ subsidy awards worth $63 billion (43% of total dollars tracked). Furthermore, Matera claims that many foreign companies received both state and federal welfare subsidies.

Corporate Welfare vs Social Welfare

Spurred on by Senator Sanders, the GAO (Government Accountability Office) conducted research to find how many full-time workers rely on Federal Health Care (Medicaid) and Food Assistance Programs (SNAP).

Turns out, it was millions of citizens.

GAO’s top-level findings

  • About 70% worked full time
  • Most worked for private sector employers in places like restaurants, department stores, and grocery stores
  • Others worked for state governments, public universities, or nonprofit organizations
  • Some employers in selected states had thousands of beneficiaries in their workforces

The Washington Post reported on some of the data, honing in on research collected on Walmart and McDonald’s.

“In the nine states that responded about SNAP benefits — Arkansas, Georgia, Indiana, Maine, Massachusetts, Nebraska, North Carolina, Tennessee and Washington — Walmart was found to have employed about 14,500 workers receiving the benefit, followed by McDonald’s with 8,780….In six states that reported Medicaid enrollees, Walmart again topped the list, with 10,350 employees, followed by McDonald’s with 4,600.”

These Federal programs are funded by taxpayer money. Citizens are financially supporting thousands of these corporations’ low-wage workers. The question is: why aren’t these megacorporations paying their own workers more (many of them full-time employees), so that the latter does not need to rely on federal aid?

To give you some idea just how much these two corporations make, Walmart self-reported $524 billion in revenue for FY 2020; McDonald’s generated $21.08 billion in revenue for FY 2019.

Some of these major corporations generate billions in revenue yet receive corporate welfare (taxpayer money) from the government. Not only that, their employees cannot even survive without Federal assistance (more taxpayer money). We should be open to helping those in need, but in this case, it seems like the major corporations making billions in revenue should look out for their own employees, the very people who help keep the machine in operation.

Is there wasteful spending in local government contracting? Procurement specialist Colin Cram estimated that the U.S.’s “public sector procurement spending by and within states amounts to some $1.5 trillion a year…[which is] around 70% of total U.S. public sector spend.” Find out if there are any problems in this area of the economy.

Research on Wages in the Fast Food Industry

In 2013, professors at the UC Berkeley Labor Center and the University of Urbana-Champaign Department of Urban & Regional Planning conducted a study on low wages in the fast-food industry. The following quote is from the executive summary:

Nearly three-quarters (73 percent) of enrollments in America’s major public benefits programs are from working families. But many of them work in jobs that pay wages so low that their paychecks do not generate enough income to provide for life’s basic necessities. Low wages paid by employers in the fast-food industry create especially acute problems for the families of workers in this industry…Benefits are also scarce for front-line fast-food workers; an estimated 87 percent do not receive health benefits through their employer. The combination of low wages and benefits, often coupled with part-time employment, means that many of the families of fast-food workers must rely on taxpayer-funded safety net programs to make ends meet.”

Some Potential Cases of Corporate Welfare

Boeing’s Tax Breaks and Job Cuts

Aerospace giant Boeing received their first major Washington state tax break in 2003. A decade later, the tax break was renewed. Although it was slated to continue to 2040, the WA government moved to revoke it in 2020.

Boeing managed to consistently save hundreds of millions dollars annually. In 2015 alone, the company reported $305 million in tax savings.

Public outrage broke when Boeing started cutting jobs in the mid-2010s. The LA Times reported, in 2017, that “the company has cut 12,655 jobs, or more than 15% of its Washington workforce, since that heady signing ceremony in November 2013. Layoff notices have gone out to 429 more employees in just the last few weeks.”

The Fossil Fuel Industry

The Center for American Progress compiled a list of nine fossil fuel tax breaks it believes should be phased out. We strongly urge you to check out the list for yourself, but we will include two of the tax breaks below.

Deducting the Costs of Drilling Wells (26 U.S.C. § 263(c))

Amount saved by repealing: $13.1 billion between 2016-2026

Businesses deduct business costs from their income. For projects demanding large capital, they tend to spread the costs over the lifetime of the asset or project.

Fossil fuels companies, however, can deduct intangible drilling costs—nearly all of the preparation costs—upfront. This can reduce their taxable income considerably. Independent oil and gas producers can deduct all of their intangible drilling costs incurred during the first year of a project. Integrated oil companies can deduct 70 percent of these costs in the first year and then amortize the remaining 30 percent over five years.

Dark pools enable investors to trade on private channels outside of the public stock exchanges (NYSE & NASDAQ). They consistently account for around 30% of all trades, including those made on the exchange. Are these trades harming your retirement investments? Find out by joining the Zero Theft Movement in the fight against the rigged economy.

Deductions for the depletion of oil and gas deposits (26 U.S.C. § 613A(c)(1))

Amount saved by repealing: $12.1 billion between 2016-2026

The tax code allows some fossil fuel companies to recoup costs associated with the depletion of the natural resource (oil or gas deposits). The depletion allowance enables royalty owners and independent oil and gas producers to deduct 15% of the gross income from oil and gas annually produced from a well, as opposed to a deduction based on the actual exhaustion of the resource each year. 

Operators of unproductive/low-producing wells can deduct even more than 15 percent—based on a statutory formula linked to the price of crude oil—and to deduct more than their net income from the property. These producers could also have the ability to continue claiming the depletion deduction after they have recovered the costs of acquiring and developing the property. This means that taxpayers would be subsidizing their income.

Pharma Tax Breaks

In early 2019, Oxfam published an analysis of the year-end tax statements of some of the pharmaceutical industry’s biggest players. The group found “[p]harmaceutical giants Johnson & Johnson, Pfizer, Merck and Abbott Laboratories benefited from an estimated $7 billion in tax savings last year from two central provisions in the new US tax law.”

With the ever-present questions about high drug prices and the overall cost of care with the U.S. healthcare system, these tax breaks at least raise concerns about corporate welfare. This can be all the more unsettling when you know the pharmaceutical industry consistently produces more profits than most major industries, according to this study.

How does Corporate Welfare Happen?

Former United States Secretary of Labor Robert Reich argues that corporate welfare mainly occurs due to lobbying. In a system where the politicians with the most money win, it is no stretch to believe that dollars have a huge influence on how legislators and regulators act. Companies across industries are spending billions every year to make sure they secure their interests, their profits.

Here’s what Reich has to say:

 When corporations get special handouts from the government, it costs the rest of us. We have to pay more in taxes to make up for these hidden tax breaks, subsidies, and loopholes. In turn, there’s less money for good schools and roads, Medicare and national defense, and everything else we need.

Again, the concern should not be so much about tax dollars going to help those in need. We should have our targets set on the major corporations that are the primary beneficiaries of corporate welfare while making billions in revenue. They have more than enough to share with the employees who keep those businesses running. 

In short, taxpayers should not have to pay for something wealthy companies can and arguably should be handling. 

Eradicate the Rigged Layer with the Zero Theft Movement

Crony capitalists and corrupt officials have created a rigged layer of the economy that enables them to unethically profit off of the everyday American. This corruption has led to the 50 years of wage suppression, 50 years of price fixing and anti-competitive markets, and 50 years of legislators and regulators who work to satisfy moneyed interests, not our interests.

View how much is being stolen, according to the public

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The Zero Theft Movement does not have any interest in partisan politics/competition or attacking/defending one side. We seek to eradicate theft from the U.S economy. In other words, how the wealthy and powerful rig the system to steal money from us, the everyday citizen. We need to collectively fight against crony capitalism in order for us to all profit from an ethical economy.   

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