McCain, Gephardt Join To Attack 'Corporate Welfare'

By Jeff Johnson | July 7, 2008 | 8:28 PM EDT

Capitol Hill ( - Sen. John McCain (R-Ariz.) and House Democratic Leader Richard Gephardt (D-Mo.) believe corporate America is receiving too many tax breaks and subsidies from the federal government, and cutting these government programs would put more money into taxpayers' pockets.

"Because we face diminishing resources, we must prioritize our level of federal spending," McCain said, "therefore corporate welfare must be eliminated."

The senator says the more than 100 "corporate subsidy" programs funded by the federal government cost taxpayers approximately $65 billion a year.

"Terminating even some of these programs could save taxpayers tens of billions of dollars each year, money that could be used to cut taxes for lower income Americans, bolster Social Security, pay down the national debt, and strengthen our military forces," he added.

McCain and Gephardt are introducing the Corporate Subsidy Reform Commission Act. The bill would create a review body, similar to the Military Base Closing Commission, that would review tax exemptions and subsidies provided to corporations and recommend which ones should be reduced or eliminated.

"We've got to start undoing the damage that special interests [have done] with their campaign contributions," Gephardt said. "That means eliminating special interest pork that benefits the few at the expense of the many, [and] tax code privileges and exceptions that make no sense and often benefit just one concern."

Chris Edwards, director of fiscal policy for the Cato Institute, agrees that "corporate welfare" should be eliminated.

"It's government spending for private purposes," he explains, "it's not spending for the general welfare."

As an example, Edwards points to the federal government's annual agriculture subsidies, which have amounted to $25 billion over the past few years.

"There are about 300,000 or 400,000 farmers who get the vast bulk of the farm subsidies," according to research by the Cato Institute, he says, "and much of that money is going to agri-business and corporate [farms]."

While many people argue that such subsidies are necessary to insure supplies and competition, Edwards disagrees.

"We don't have subsidies going to the TV set manufacturers or the computer chip manufacturers or all kinds of other industries, and yet we seem to be quite capable of producing and consuming a huge range of thousands of products that are not subsidized," he argued. "It's just that certain industries seem to have gotten a claw-hold on the public purse."

But Edwards says the proposal by McCain and Gephardt makes a major mistake in including tax exemptions under the umbrella of "corporate welfare."

"We should make the corporate tax flatter and simpler and eliminate unjustified loopholes, but eliminating tax loopholes is raising taxes," he contended. "So if we were to eliminate the loopholes, we should lower the overall corporate rate so that we don't have a tax hike on the business sector."

Each year, the federal budget includes a table of "Tax Expenditures" that includes tax exemptions for items such as Individual Retirement Accounts and 401(k) savings plans. Those items may be perceived in the mind of the public as "tax loopholes," Edwards says, but they are not.

"Liberal groups tend to say that a $1 billion tax break is the same as $1 billion in corporate welfare spending. We don't agree with that at all," he added. "The tax [exemptions] allow people to keep more of their own money ... it's their money."

In October, 2001, the Cato Institute completed a study entitled "The Corporate Welfare Budget: Bigger Than Ever, which asserts that, "If corporate welfare were eliminated tomorrow, the federal government could provide taxpayers with an annual tax cut more than twice as large as the tax rebate checks mailed out in 2001."

The study's author, Stephen Slivinski supports the idea of a Corporate Subsidy Reform Commission, but says some conditions should apply:

- The commission should not be composed of sitting members of Congress. It should be chosen by bipartisan agreement between the president and the leadership of both houses of Congress;
- The commission should convene for the purpose of proposing a list of corporate welfare programs to be eliminated;
- The commission should address only spending programs, not tax preferences in the budget;
- No corporate welfare spending programs should be considered "off the table;" and
- The commission's list of recommended program terminations should be voted on by both houses of Congress, with no amendments, within 60 days of the commission's final report.

Slivinski's study concluded that federal subsidies to private businesses cost taxpayers $87 billion per year, a 30 percent increase over the 1997 corporate welfare estimate of $65 billion.

"Cutting corporate welfare would be an excellent show not only of fiscal prudence but also of willingness to begin the much-needed reassessment of the current role of government," he concludes, "and to make a hearty attempt at returning the federal government to constitutional limits."

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