Origin Of Kerry's Corporate Welfare Reform Plan

[DrFunkenstein]

"We must also take a hard look at federal spending. We simply can’t afford to keep wasting money on the wrong things.

It won’t be easy. The special interests will stop at nothing to keep their special deals. That’s why I’ve joined John McCain in calling for a “Corporate Subsidy Reform Commission” modeled after the military base-closing commission. A bipartisan group would recommend corporate subsidies to be eliminated and Congress would have to vote up or down on the entire package.

It’s the only way to stop the games that go on in Washington."

http://www.johnkerry.com/pressroom/speeches/spc_2002_1203.html



Senate Government Affairs Committee Hearing on Corporate Subsidies

Witness List:
Panel 1
Senator John McCain (R-AZ)
Senator John Kerry (D-MA)
Senator Russell Feingold (D-WI)

Panel 2
Thomas Schatz, President, Citizens Against Government Waste
Grover Nordquist, President, Americans for Tax Reform
Courtney Cuff, Director, Green Scissors Campaign, Friends of the Earth
Dean Stansel, Fiscal Policy Analyst, Cato Institute

Background

The Government Affairs Committee held this hearing "to examine the merits of a commission approach that could actually succeed in making a big dent in corporate subsidies." Corporate subsidies have continued to grow, even in a political climate of budget reduction aimed at eliminating the deficit and reducing the $5.3 trillion national debt.

Estimates of expenditures vary widely. The Cato Institute estimates at least $60 billion in corporate welfare is paid each year, and the Progressive Policy Institute has identified 120 programs that subsidize industry by $265 billion over 5 years.

The Corporate Subsidy Reform Commission Act...calls for a task force similar to the base closings task force to take over the difficult job of determining which corporate subsidies can be eliminated. The bill instructs the commission to look both at direct contributions to corporations as well as tax loopholes.

This bill relates to the geoscience community through programs conducted by the Department of Energy. Several DOE programs, such as Energy Supply, Research and Development Activities; the Clean Coal Technology Program; and Fossil Energy Research and Development activities, have been targeted as corporate welfare to be eliminated.

Senator Kerry cited figures demonstrating that by 2002 the total amount lost by the government from tax loopholes for corporations will eclipse total discretionary spending. He compared the subsidy reform process to military base closings, where legislators agreed elimination was necessary but were not willing to cut their own programs. The commission approach was very successful in that situation, and Senator Kerry expressed optimism that it would work for corporate subsidies.

Senator McCain began his testimony by expressing his appreciation for the bipartisan support of the bill and explaining the bill's history. He emphasized his desire make all companies follow the same rules and compete on a level playing field. He also expressed his belief that you cannot make cuts to Medicare and welfare, while still giving large subsidies to corporations.

Senator Feingold kept his remarks brief and reiterated the concerns of the other Senators.

Panel 2

The sentiment from the diverse group of panelists was much the same: end corporate subsidies. Each of the groups represented, however, proposed somewhat different ways to achieve this common goal. It is noteworthy that none of the groups represented receive federal funding, and all of the representatives commented that they wanted to keep it that way.

The Green Scissors Campaign of Friends of the Earth is a collaborative effort of taxpayer, environmental, consumer and deficit-hawk groups that target wasteful and environmentally harmful spending practices. Courtney Cuff, campaign director,...strongly advocated eliminating both subsidies and tax loopholes. Furthermore, Cuff explained that taxpayers actually pay twice for these corporate projects- once in the subsidy and again in the environmental clean up of these programs.

Citizens Against Government Waste is a 600,000 member organization that is a direct outgrowth of the President's Private Sector Survey on Cost Control. Thomas Schatz, President,...supports the formation of a commission that has the independence to make decisions outside of the political arena.

Americans for Tax Reform is an organization of over 70,000 individuals, corporations, and associations concerned about high levels of taxation. They define corporate welfare spending as "direct government payments to public and private companies and corporations where the federal government does not receive a good or service in return--particularly when the money goes to aid or assist a profit- making activity, or where it creates or fosters competition with private, for profit business."

Grover Nordquist, President, reasoned that their omission of tax breaks in the definition is that allowing tax payers to keep more of their own money is not welfare. He also expressed his disagreement with the bill's exclusion of programs that return a profit to the federal government. These profits are generally minimal, with a loss occurring from the opportunity cost of the money, and also on the principle that the government should not be involved with profit-making activities.

Dean Stansel, a fiscal policy analyst for the Cato Institute, defines corporate welfare as spending programs that provide unique benefits or advantages to specific companies or industries. If all the spending subsidies covered by this definition were eliminated today, the budget deficit could be cut in half or the capital gains tax and the federal estate tax could be eliminated.

The Cato Institute supports elimination of these expenditures but opposes a change in the tax laws because they allow companies to keep more of their earnings. If the tax loopholes are closed, however, tax rates should be reduced to prevent a tax hike on businesses. Stansel had three provisions for the commission: It should be unamendable, it should only focus on spending programs, and restrictions on what programs can be considered should be eliminated. S. 207 contains none of these provisions

In conclusion, all panelists agreed that eliminating corporate welfare is necessary, although participants disagreed on whether welfare definitions included tax breaks. All also agreed that the commission's recommendations should be unamendable. While all groups support the theory behind S. 207, none see it as an ideal bill, and all feel changes should be made.

http://www.agiweb.org/gap/hearings/corpsub.html