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No.

415 October 10, 2001

The Corporate Welfare Budget


Bigger Than Ever
by Stephen Slivinski

Executive Summary

Federal subsidies to private businesses cost tax- While the House kept intact the cuts for the
payers $87 billion per year. That is over 30 percent Advanced Technology Program and the Overseas
more than the Cato Institute’s 1997 corporate Private Investment Corporation, it diluted the cuts
welfare estimate of $65 billion. If corporate wel- for the Small Business Administration and the
fare were eliminated tomorrow, the federal gov- Export-Import Bank. The Senate voted to increase
ernment could provide taxpayers with an annual the budgets for the Advanced Technology Program
tax cut more than twice as large as the tax rebate and federal assistance to energy companies.
checks mailed out in 2001. The Advanced Technology Program, the Small
President Bush’s first proposed budget recom- Business Innovative Research program, the
mends about $12 billion in total corporate welfare Partnership for the Next Generation of Vehicles,
cuts. Most notable are the proposed cuts for the and the Export-Import Bank are among the worst
Advanced Technology Program, the Export-Import corporate welfare programs. They subsidize large,
Bank, the Overseas Private Investment Corporation, profitable corporations at the expense of taxpay-
the Maritime Administration’s guaranteed loan pro- ers for projects that already receive, or could
gram, and the Small Business Administration. receive, adequate funding from the private sector.
However, the Bush budget proposal also increases A good way to abolish corporate welfare pro-
some of the largest corporate welfare programs, such grams would be to convene a corporate welfare
as federal aid to oil companies through the fossil ener- reform commission (CWRC). That commission
gy research and development program and research could function like the successful military base
subsidies to aerospace companies as well as increases closure commission. The CWRC could compose
for the National Agricultural Statistics Service, the a list of corporate welfare programs to eliminate
Foreign Agriculture Service, and the Conservation and then present that list to Congress, which
Reserve Program. would have to hold an up-or-down vote on the
Spending bills working their way through the commission proposal. The commission would
House and Senate Appropriations Committees help reform-minded legislators to end federal
have reversed or diluted Bush’s proposed cuts. subsidies to business.

_____________________________________________________________________________________________________
Stephen Slivinski is a fiscal policy analyst at the Cato Institute.
The corporate The study also provides case studies of some
welfare state tran- Introduction of the most egregious corporate welfare pro-
grams, assesses the strength of the Bush
scends any partic- In its first budget, the Bush administra- administration’s proposed cuts in programs
ular agency or tion hinted at its intent to reappraise the fed- and how Congress has already begun to resist
eral government’s role in subsidizing private them, and concludes by proposing a way to
interest group. businesses. The administration’s proposed end corporate welfare programs.
cuts in a handful of corporate welfare pro-
grams are a clear departure from the White
House policy of years past. In contrast, Estimates of Corporate
President Clinton proposed aggregate Welfare
increases of 10 percent for major corporate
welfare programs almost every year he was in The federal government dished out $87
office.1 billion for corporate welfare in the federal
It’s been many years since the last attempt budget in fiscal year 2001, as detailed in
to cut government subsidies to business. An Table 1. Descriptions of the programs appear
attempt was made under the Contract with in Appendix 1. In 1997 the Cato Institute
America when the Republicans took control estimated the cost of corporate welfare as $65
of both houses of Congress in 1994.2 That billion a year.6
attempt failed, and little has been done since The corporate welfare budget supports a
to curtail corporate welfare spending.3 wide-ranging collection of programs. As
There are some signs that the new admin- Table 2 shows, many agencies administer fed-
istration is willing to take a fresh look at gov- eral subsidies to business. The departments
ernment subsidies to business, even if the that are the leading corporate welfare
Bush White House staff does not use the providers are the Departments of Agriculture
term “corporate welfare” in its public state- and Commerce, followed by the Department
ments. For example, Mitch Daniels, director of Energy. That multiagency spigot of corpo-
of the Office of Management and Budget, rate welfare spending is one of the institu-
recently noted that some programs “have tional biases in favor of budget growth since
nothing to show for years and years and years it’s hard for any one congressional commit-
of essentially subsidizing corporate research tee to target much of the corporate welfare
budgets.”4 At times, Daniels has been even budget. The corporate welfare state tran-
more pointed in his criticism of corporate scends any particular agency or interest
welfare. As the Financial Times reported in group.
March, he said that “it was not the federal These estimates differ from measures of
government’s role to ‘subsidize, sometimes corporate welfare by other groups. For
deeply subsidize, private interests.’”5 Subsi- instance, the Congressional Budget Office
dizing private interests not only costs taxpay- occasionally updates its estimate of “federal
ers money; it is beyond the bounds of the fed- financial support of business.”7 The CBO esti-
eral government’s role as outlined in the U.S. mate typically includes only programs that
Constitution. have a stated goal of promoting commerce or
Even though there is bipartisan support business. It excludes major research and devel-
for eliminating many major corporate wel- opment (R&D) initiatives that underwrite the
fare programs, little has been done to stem research budgets of private corporations, and
the tide of funding for them. This study pro- it ignores most infrastructure spending, much
vides detailed estimates of the billions of dol- of which funds transportation boondoggles
lars in the federal budget that go to assisting that would not have been funded in the
private business and descriptions of the fed- absence of federal support and that serve only
eral programs that distribute that money. to enrich the bottom line of local contractors

2
Table 1
Corporate Welfare Programs by Federal Agency (FY01 outlays in millions of dollars)

Department Outlay

Department of Agriculture
Agricultural Credit Insurance Fund 1,007
Agricultural Marketing Service 817
Agricultural Research Service 900
Commodity Credit Corporation
BioEnergy Program 150
Export Loans Program 315
Other Programs 7,187
Commodity Price Supports 14,570
Conservation Reserve Program 1,656
Cooperative State Research, Education & Extension Service 1,020
Economic Research Service 66
Export Enhancement Program 478
Farm Service Agency 896
Federal Crop Insurance Corporation 2,583
Foreign Assistance Programs (Public Law 480) 1,295
Forest Service, State and Private Forestry 363
National Agricultural Statistics Service 100
Natural Resource Conservation Service 1,074
Market Access Program 123
Rural Development Programs
Rural Community Advancement Program 876
Rural Business-Cooperative Service 60
Rural Utilities Service 255
Total, Department of Agriculture 35,791

Department of Commerce
Advanced Technology Program 132
Economic Development Administration 411
Information Infrastructure Grants 29
International Trade Administration 305
Manufacturing Extension Partnership 109
Minority Business Development Agency 23
National Oceanic and Atmospheric Administration
American Fisheries Promotion Act 6
National Environmental Satellite, Data and Information Service 125
National Marine Fisheries Service 735
Office of Technology Policy 17
Total, Department of Commerce 1,892

Department of Defense
Army Corps of Engineers 4,571
Cargo Preference Program 355
Defense Advanced Research Projects Agency
Defense Research Sciences 110
Computing Systems and Communications Technology 334
Materials and Electronics Technology 264
Continued

3
Table 1—Continued

Department Outlay

Defense Export Loan Guarantees 7


Foreign Military Financing 4,213
Foreign Military Sales 460
Total, Department of Defense 10,315

Department of Energy
Clean Coal Technology 75
Energy Conservation 568
Energy Information Administration 74
Energy Supply 655
Fossil Energy Research and Development 418
General Science and Research Activities 2,993
Power Marketing Administrations
Southeastern 5
Southwestern 28
Western 201
Total, Department of Energy 5,017

Department of Housing and Urban Development


Community Development Block Grants 5,058
Federal Housing Administration Subsidies 2,413
Total, Department of Housing and Urban Development 7,471

Department of the Interior


Bureau of Reclamation 959
U.S. Geological Survey 925
Total, Department of the Interior $1,884

Department of Transportation
Federal Aviation Administration
Operations/Air Traffic Control 6,569
Commercial Space Transportation 12
Essential Air Service 50
Grants-in-Aid for Airports 2,174
Federal Highway Administration
Demonstration projects 296
Intelligent Transportation System 257
Federal Maritime Administration
Maritime Guaranteed Loan Subsidies 93
Maritime Security Program 99
Ocean Freight Differential Subsidies (cargo preference) 80
Operating Differential Subsidies 27
Operations and Training 105
Federal Railroad Administration
Amtrak Subsidies 554
Next Generation High-Speed Rail 26
Northeast Corridor Improvement Program 18
Railroad Research and Development 26
Total, Department of Transportation 10,386

4
Department Outlay

Independent Agency, Multiagency, and Other Programs


Agency for International Development 2,415
Appalachian Regional Commission 115
Corporation for Public Broadcasting 342
Export-Import Bank 1,695
In-Q-Tel (Central Intelligence Agency) 28
International Trade Commission 50
NASA: Aerospace Technology and Commercialization 1,369
National Institutes of Health: Applied Biomedical Research/Clinical Development 6,070
Overseas Private Investment Corporation 55
Partnership for a New Generation of Vehicles 298
Small Business Administration 757
Small Business Innovation Research Programs 1,000
Trade and Development Agency 55
Total 14,249

Grand Total 87,005

Source: Based on data from Budget of the United States Government, Fiscal Year 2002 (Washington: Government
Printing Office, 2001).

Table 2
Corporate Welfare as Share of Departmental Budgets

Corporate Welfare Costs Percentage


Department ($ millions) of Budget

Agriculture 35,791 51%


Commerce 1,892 34%
Energy 5,017 30%
Interior 1,884 22%
Transportation 10,386 21%
Housing and Urban Development 7,471 20%
Defense 10,315 4%

Source: Author’s calculations based on data from Budget of the United States Government, Fiscal Year 2001—
Historical Tables, p. 75.

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and construction companies. The CBO esti- some subsidy programs. However, there are
mate also includes certain tax preferences, many corporate welfare programs that
whereas this report does not. escape the ax in the new budget proposal and
The Green Scissors Campaign publishes a a handful that receive fatter budgets, as
report every year detailing “environmentally detailed in Table 3. The following are some
destructive” corporate welfare spending. 8 highlights.1 0
The Green Scissors study, however, is incom-
plete in that it does not include corporate • Some of the biggest cuts come in the cor-
welfare spending that does not affect the porate welfare programs that have been
environment. It also includes some tax opposed by many lawmakers on both
expenditure items and some regulatory costs sides of the aisle for years. The Advanced
that this report does not.9 Technology Program would be cut by 91
percent in Bush’s budget as a result of
the White House’s proposed moratori-
What Is (and Is Not) um on any new ATP grants. The Export-
Corporate Welfare? Import Bank receives a cut of around 25
percent, and an increase in the Overseas
Sometimes corpo- For the purposes of this study, corporate Private Investment Corporation credit
rate welfare sup- welfare is defined as any government spend- subsidy is discontinued, leading to an
ports profitable ing program that provides payments or overall budget decrease of 25 percent.
unique benefits and advantages for specific • Agriculture programs in the budget are
companies that companies or industries. This includes direct selected for reductions but only because,
don’t need any subsidies (to prop up commodity prices or unfortunately, of a few unrealistic
provide cut-rate insurance and loans, for assumptions. Most commodity subsi-
help. instance), grants, funding for specific applied dies get a proposed cut of around 40 per-
research that helps bring profitable products cent and the main subsidized farm loan
to market, and other special privileges that program—the Agricultural Credit
benefit targeted firms or industries. Insurance Fund—would be cut in half.
Sometimes corporate welfare supports prof- However, many of the proposed cuts are
itable companies that don’t need any help. predicated on the notion that Congress
Sometimes corporate welfare programs prop will maintain the phaseout schedule for
up industries that are doing a poor job in the subsidies included in the Freedom to
marketplace and should be allowed to fail. Farm Act of 1996. But Congress has sim-
This report counts only corporate welfare ply ignored that schedule and increased
that is a result of the direct expenditures of payments to farmers every year since
the subsidy programs of the federal govern- with supplemental appropriations bills
ment listed in Table 1. It does not take into (equaling at least $28.3 billion since
account tax preferences or trade restrictions. 1996).1 1Even though the reform bill was
It also does not account for implicit benefits supposed to decrease payments to farm-
received by government-sponsored enterpris- ers, there has been a more than 200 per-
es. Those issues are discussed in Appendix 2. cent overall inflation-adjusted increase
in “farm income stabilization” payments
since the bill passed in 1996.12
How Corporate Welfare • Despite the proposed farm program cuts,
Fares in the Bush Budget the farm lobby still gets some goodies in
the Bush budget: increases in the Farm
The Bush administration has stated its Service Agency ($63 million, or 7 percent),
intent to curtail increases in corporate wel- Federal Crop Insurance ($232 million, or
fare spending and possibly even eliminate 8 percent), the Foreign Agricultural

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Table 3
Corporate Welfare in the Bush Budget: Major Cuts and Increases in the President’s
FY02 Budget Proposal

Reduction Percentage Change


(budget authority from FY01
Program in $ millions)

Cuts

Advanced Technology Program 133 -91%


Agricultural Credit Insurance Fund 448 -50%
Agricultural Export Loans 39 -13%
Agricultural Marketing Service 43 -4%
Appalachian Regional Commission 11 -14%
Army Corps of Engineers 636 -14%
Commodity Support Paymentsa 3,817 -47%
Community Development Block Grants 411 -8%
Cooperative State Research,
Education & Extension Service 144 -13%
Economic Development Administration 76 -19%
Energy Conservation 39 -7%
Energy Supply 116 -18%
Essential Air Service 10 -20%
Export-Import Bank 227 -25%
Federal Housing Administration
Mortgage Subsidies 140 -3%
Maritime guaranteed loan subsidies 43 -91%
Market Access Program 33 -27%
National Marine Fisheries Service 85 -12%
Ocean Freight Differential Subsidies 32 -40%
Overseas Private Investment Corporation 31 -25%
Partnership for a New Generation of Vehicles 15 -6%
Rural Development Programs b 777 -42%
Small Business Administration 117 -37%
State and Private Forestry 175 -42%

Increases

Bureau of Reclamation 18 2%
Conservation Reserve Program 132 8%
Defense Cargo Preference Program 6 2%
Export Administration 4 6%
Farm Service Agency 63 7%
Federal Crop Insurance Corporation 232 8%
Foreign Agricultural Service 7 6%
Fossil Energy Research and Development 96 21%
NASA: Aerospace Technology
and Commercialization 984 72%
National Agricultural Statistics Service 13 13%
National Environmental Satellite,
Data and Information Service 7 6%

Source: Author’s calculations based on data from Budget of the United States Government, Fiscal Year 2002—Appendix.
aFeed grains, wheat, rice, and cotton price support payments.
bRural Community Advancement Service, Rural Housing Service, Rural Utilities Service, and Rural Business-
Cooperative Service.

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Service ($7 million, or 6 percent), and the budget amount to $12 billion, about 13 per-
National Agricultural Statistics Service cent of the total corporate welfare spending
($13 million, or 13 percent). outlined in this study.1 4 Though meager,
• One of the worst government boondog- these are the largest proposed cuts in many of
gles, the Maritime Administration’s these programs’ budgets since Ronald
guaranteed loan program, benefits the Reagan was in the Oval Office.
U.S. shipbuilding industry. Bush pro-
poses to cut that program by 91 percent.
The ocean differential freight program— Recent Congressional
which subsidizes U.S. merchant marine Action on Corporate
ships to transport food overseas—
receives a proposed cut of 40 percent.
Welfare
• The Small Business Administration, a By the time of Congress’s summer recess
longtime target of opponents of corpo- in August, 9 of the 13 appropriations bills for
rate welfare, receives a substantial cut of FY02 had passed the House and 5 had passed
37 percent in the Bush budget, mostly the Senate. Those bills will still have to go
decreases in loan subsidies and discon- through conference committee to have their
tinuation of certain programs such as differences worked out. Still, the original bills
the New Markets Venture Capital loan can give a preliminary indication of where
program.1 3 the budgets of individual programs might
• The Bush budget proposes an increase in end up. President Bush, of course, has the
the Conservation Reserve Program bud- option of vetoing bills that reverse of dilute
get of $132 million. The CRP is notori- his proposed cuts in corporate welfare pro-
ous for paying farmers not to grow crops grams. The status of some particular pro-
on their land. grams in the current bills follows.1 5
• The largest increase in corporate welfare
comes in the NASA budget. The Bush • The current House spending bill for the
administration proposal boosts the Department of Commerce includes the
budget to aid aerospace company cuts to the ATP recommended by the
research and development (R&D) bud- Bush administration and proposes even-
gets by $984 million, or 72 percent. tual elimination of the program.16 The
• The administration’s recent energy plan Senate bill, however, recommends an
contains a lump of coal for taxpayers. increase in the current budget of more
Though meager, While there are cuts in energy conserva- than $55 million, or at least 38 percent.1 7
tion and (renewable) energy supply pro- The ATP has survived numerous
Bush’s are the grams (a total cut of $155 million, or 23 attempts by the House to kill it over the
largest proposed percent, in energy supply research) and a past few years, mostly as a result of the
cuts in many of small cut of $15 million, or 6 percent, in Senate negotiators’ ability to sustain
the Partnership for the Next Generation support for it in conference committee.
these programs’ of Vehicles, there is a $96 million, or 21 • The Export-Import Bank and the
budgets since percent, increase in fossil energy R&D, Overseas Private Investment Corpora-
not to mention myriad tax credits for the tion met with different fates in the
Ronald Reagan energy industry. A better approach House. The Bush administration’s pro-
was in the Oval would be to get the government out of posed discontinuation of subsidies to
Office. the power industry altogether and termi- OPIC is in the House bill. However, the
nate all energy programs—renewable, Export-Import Bank fares better: the
fossil, or otherwise. House bill advocates a cut of only $125
million, or 15 percent, as opposed to
The net corporate welfare cuts in the Bush Bush’s proposed cut of 25 percent.18 The

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bill funding these programs did not pass Those arguments do not stand up under The federal gov-
the Senate before the summer recess. scrutiny. In fact, when it comes to subsidies ernment has a
• The Small Business Administration and trade barriers, often instituted to main-
received a smaller recommended cut in the tain competitiveness, there is a great deal of disappointing
House than Bush originally proposed: a value to “unilaterally disarming.”23 Lower record of picking
$130 million proposed cut in the House prices of products for consumers would be
bill amounts to a 15 percent decrease, one immediate and tangible benefit of abol-
winners and
while the White House’s recommended ishing trade barriers that support and pro- losers.
cut of $317 million amounts to a 37 per- tect favored industries. If subsidy cuts were
cent decrease.19 Meanwhile, the Senate accompanied by tax cuts, the lowering of the
Appropriations Committee has proposed tax burden would be another clear benefit to
an even smaller cut of 10 percent in the consumers, workers, and the U.S. economy.
SBA budget.20 That factor alone would make the United
• The House and Senate versions of the pres- States even more competitive with the high-
ident’s energy plan would increase federal tax, high-subsidy nations of the European
aid to the energy industry more than Community and with Japan.
would the White House’s budget proposal. Protectionism produces no substantial
While the Bush administration recom- long-term economic gains. Industrial poli-
mended a cut of 18 percent to the $655 cies and the politics of “crony capitalism,” for
million in federal assistance to the R&D instance, have begun to collapse and cause
budgets of energy companies, the House economic problems in Japan and elsewhere
recommends only a 3 percent cut, and the in Asia. Japan is beginning to abandon the
Senate actually increases the budget by $81 very policies that proponents of U.S. corpo-
million over last year, for a 13 percent rate welfare support.24
increase.2 1 There are many other reasons why such
• The Farm Security Act of 2001, which policies are misguided and counterproductive.
passed the House Agricultural Committee
on July 27, 2001, recommends a doubling Winners and Losers
of the budget for the Market Access The federal government has a disappoint-
Program, which gives money to agricultur- ing record of picking winners and losers. The
al trade associations to advertise products function of private capital markets is to
overseas.2 2 This is in direct opposition to direct investment to industries and firms
the 27 percent cut that the White House that offer the highest potential rate of return.
recommended. The capital markets, in effect, are in the busi-
ness of selecting corporate winners and
losers. Yet the underlying premise of federal
What’s Wrong with business subsidies is that the government
Corporate Welfare? can direct the limited pool of capital funds
just as effectively as, if not better than, ven-
Supporters of federal subsidies to private ture capitalists and money managers. The
industry often maintain that government sup- truth is that capital markets rely on more
port of business is in the national interest. sophisticated knowledge, and in much larger
Government support is said to protect indus- quantities, than a government could ever col-
tries from failure and to preserve high-paying lect, use effectively, or even fathom. That
American jobs, finance research activities that dooms most capital allocation decisions by
private industries would not finance them- government bureaucracy to failure.2 5 As T. J.
selves, maintain the competitiveness of certain Rodgers, president and CEO of Cypress
industries, and assist socially disadvantaged Semiconductors, has noted, when the federal
groups in establishing new businesses. government tries to control investment capi-

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tal, the “proven moneymakers and job cre- Commerce, has said, “These special industry
ators lose control over the investment of their entitlements force taxpayers, consumers, and
funds, and unproven Washington amateurs businesses to transfer more resources to
take over.”2 6 influential sectors than [they] would other-
The evidence supports this contention. For wise require, and consequently, they leave less
instance, the Small Business Administration, capital and less labor for everyone else.”3 3
which subsidizes loans to small businesses,
has a delinquency rate of up to 15 percent in An Incestuous Relationship
any given year.27 The average delinquency rate Corporate welfare fosters an incestuous
for similar commercial loans by private relationship between business and govern-
lenders is around 2 percent.2 8 ment. In Washington today industry trade
The same goes for agricultural loans. The associations and lobbying firms continually
Farm Service Agency’s direct farm loan portfo- pressure lawmakers to give out new business
lio has a delinquency rate of just over 28 per- subsidies or to protect long-standing hand-
cent.2 9 In fact, a Department of Agriculture outs. This is a natural byproduct of a govern-
study stated: “All major institutional lender ment that uses its power to give taxpayer
groups except the Farm Service Agency contin- money to favored interests. If there were no
Subsidies create a ue to experience historically low levels of delin- possibility that subsidies might be offered,
perverse incentive quencies, foreclosures, net loan charge-offs, and demands for them would diminish if not dis-
for businesses. loan restructuring.”30 Indeed, the correspond- appear. The reality, however, is that the feder-
ing private delinquency rate was no higher than al government has been redistributing wealth
5.4 percent over the last 10 years, and that rate for at least the past 60 years.
has been declining.31 Taxpayers lost more than This environment is sustained by a budget
$2 billion in defaulted government agricultural process that stacks the deck in favor of new
loans between 1995 and 1997.3 2 spending. It is also nurtured by the problem of
Congressional oversight and agency diffuse costs and concentrated benefits.34 That
reforms might reduce those default rates is seen when subsidies are given to a few at the
only slightly. But the fundamental fact will expense of the many. Because there is such a
always remain: government, by its nature, large number of taxpayers—and each corporate
will never be able to participate in a capital welfare subsidy may cost each taxpayer only a
market effectively and efficiently. few cents or a few dollars—most individual citi-
zens don’t have an interest in lobbying against
Uneven Playing Field subsidies since the cost of doing so far out-
Corporate welfare creates an uneven play- weighs simply paying the taxes. However, the
ing field. Many policymakers think that feder- recipients of those subsidies have a substantial
al subsidies to business are a pro-business gov- interest in making sure they protect the flow of
ernment policy. That may be true, but only for money to them. That leads to a great deal of
the companies that receive the subsidies. The lobbying by special interests but very little lob-
companies that do not receive subsidies are bying on behalf of the taxpayer.
still taxed to pay for the benefits of the others. In addition, subsidies create a perverse
In addition, business subsidies, which are incentive for businesses: if their competitors
sometimes justified because they are said to are receiving help from the government, it
correct distortions in the marketplace, create appears to be in their interest to try to get
huge market distortions of their own. After some help, too. That incentive serves only to
all, corporate subsidies divert credit and cap- turn many businesspeople into lobbyists, not
ital to politically well connected firms, not entrepreneurs.
the most efficient producers. As Robert J.
Shapiro, President Clinton’s under secretary Constitutional Issues
for economic affairs in the Department of Corporate welfare is outside the limited

10
functions of the federal government. Nowhere government money.3 7That raises serious ques-
in the Constitution is Congress granted the tions: Is the research that the government
authority to spend funds to subsidize the funds really the product of entrepreneurial ini-
computer industry, or to enter into joint ven- tiative, or are some businesses simply looking
tures with automobile companies, or to guar- for easy government money?
antee loans to favored business owners. Yet, Another recent GAO study points out that
since the New Deal, by applying very expansive some of the biggest ATP expenditures went to
readings of the “general welfare” clause, the research ventures that were already generously
Supreme Court has allowed Congress to redis- supported by the private sector. For instance,
tribute wealth from taxpayers to favored busi- the ATP spent $1.2 million between 1991 and
ness interests.3 5 Nonetheless, corporate sub- 1993 to develop a system to recognize cursive
sidy programs lie outside Congress’s strictly handwriting for pen-based computer inputs,
limited and enumerated spending authority such as those used in Palm Pilots today. In
under the Constitution. fact, this line of research had begun in the pri-
vate sector during the late 1950s, patents for
workable versions of the technology were
Case Studies issued five years before the start of the ATP
project, and companies like Apple Computers
Corporate Welfare for High-Tech and Motorola were already well on their way to
Companies coming to market with versions of this tech-
The Advanced Technology Program and the nology.38 Other technologies that were already
Small Business Innovative Research Program well funded and researched by the private sec-
are textbook examples of corporate welfare. tor were methods to expand the capacity of
They are also great examples of why govern- fiber optic cables and technology to regenerate
ment is ill suited to drive the technological human tissue and organs. The ATP spent
advances that fuel the high-tech economy. roughly $4 million to duplicate funding for
The ATP was created in 1988 to support those technologies.3 9
technological research that had the potential In fact, over the past 12 years, many
to provide broad-based economic benefits for Fortune 500 companies have received millions
the nation. The presumption was that the pro- of dollars of funding to undertake research
gram, part of the Commerce Department’s they could easily fund on their own (Table 4).4 0
National Institute of Standards and Techno- In addition to being duplicative, govern-
logy, would give a boost to technologies that ment funding of research often ends up sim-
were “pre-competitive” or “high risk” and ply underwriting other aspects of corporate Corporate sub-
could not get funding on their own in the pri- operations. That frequently occurs under the
vate capital markets. Since its inception, the Small Business Innovative Research program. sidy programs lie
program has funded 468 projects at a cost of While a less high-profile program than ATP, outside
about $1.5 billion in federal matching funds.36 its budget is actually much larger—about $1 Congress’s strict-
Although its budget has been shrinking for billion—because it consists of portions of
the past five years, the current budget is 40 many federal agencies’ research budgets. ly limited and
percent higher than that of FY94, despite Created in 1982, the SBIR program has as enumerated
repeated efforts to kill the program or return it its goal to “stimulate technological innova-
to pre-Clinton levels. tion.”41 However, the result has been a “crowd-
spending author-
The assumption was that ATP would be a ing out” of private research spending by firms ity under the
funder of last resort for businesses, but the receiving government money. In other words, Constitution.
General Accounting Office found that 63 per- for every dollar of SBIR grant money the aver-
cent of the companies that applied for ATP age company receives, it reduces its own pri-
grants never looked for private capital or other vate R&D by a dollar.42 That forgone dollar of
sources of investment before they applied for R&D money does not disappear, of course. It

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Table 4
ATP Awards to Selected Fortune 500 Companies (1991–present)

Company ATP Grants ($ millions)

Caterpillar 24.6
Xerox 19.6
Dow Chemical 18.3
Motorola 16.3
BP Amoco 13.0
General Motors 9.1
United Technologies 9.1
Ford Motor Company 8.7
General Electric 8.2
Praxair 5.5
Lucent 5.3

Source: Author’s calculations based on data from “ATP Funded Projects Database,” http://jazz.nist.gov/atpcf/
prjbriefs/listmaker.cfm.

The ATP and simply goes to fund another aspect of the Three automakers—Ford, General Motors,
firm’s operations. The consequence is that, and Daimler Chrysler (Table 5). Those compa-
SBIR programs instead of contributing to an overall increase nies together received close to $40 million
simply shower in R&D spending, the federal government between FY97 and FY99. The overall federal
politically con- finds itself underwriting the profit margins of budget for the PNGV has risen and fallen
small businesses and corporations through slightly but has averaged $250 million a year.4 4
nected businesses technology research programs like SBIR. The PNGV has not halted the Big Three
with taxpayer The ATP and SBIR programs simply show- automakers’ slide in market share. Recent
er politically connected businesses with tax- trends show no improvement.4 5 Decades of
money. payer money. That is hardly an effective way of previous federal government attempts to
encouraging technological innovation. protect the domestic auto industry in various
ways failed, so it’s hardly a surprise that the
Corporate Welfare for Automakers PNGV has met with similar lack of success.
One of the newest corporate welfare pro- Even in the contest to develop a commercially
grams was born on February 22, 1993, when viable electric-gasoline car, the Japanese are ahead.
President Bill Clinton launched the The Honda Insight and the Toyota Prius—both
Partnership for a New Generation of of which get over 70 MPG—hit U.S. dealerships
Vehicles. That program was designed to give toward the end of 2000. The Japanese govern-
money to automakers to enhance the “com- ment provided Toyota and Honda very little
petitive status of the U.S. automobile indus- funding: the projects were mostly self-financed.46
try” and to develop a hybrid car that could There is less need for government-funded
achieve fuel efficiency of approximately 80 technology research programs than their
miles per gallon by 2004.43 supporters claim. Research on innovative
Only one of those goals has actually been automotive technologies for cars with greater
met: the auto industry has indeed received fuel efficiency had been undertaken by
millions of taxpayer dollars. The initiative has domestic automakers for years before the
given upwards of $1.25 billion during its PNGV program existed.4 7 The billions of dol-
seven-year existence, much of it to the Big lars in federal funding are duplicative.

12
Table 5
Top Five Recipients of PNGV Money (totals for FY97 through FY99)

Company Total Funding ($ millions)

Daimler Chrysler Corporation 19.7


AlliedSignal Automotive 12.3
Ford Motor Company 11.1
General Motors Corporation 8.7
EPYX 7.0

Source: General Accounting Office, “Cooperative Research: Results of U.S.-Industry Partnership to Develop a
New Generation of Vehicles,” GAO/RCED-00-81, March 2000, p. 38.

The government’s desire that U.S. compa- The best policy would be to allow the mar-
nies produce a hybrid vehicle has not been ket to determine the supply of a hybrid car on
matched by the demands of automobile buy- the basis of actual demand. Getting the gov-
ers. Honda and Toyota lose thousands of dol- ernment involved has simply subsidized pri-
lars on each copy of their hybrid cars shipped vate car companies at the expense of taxpayers.
to the United States.4 8 The high cost—the
Insight and the Prius start at more than Corporate Welfare for Exporters
$19,000—leads to lower demand for those The mission statement of the Export-
cars. Demand for similarly environment- Import Bank seems innocent on the surface.
friendly electric cars over the past few years has Ex-Im Bank endeavors to “aid in the financ-
been very small.49 Gas prices would have to rise ing and promotion of U.S. exports.”5 4 Yet,
much higher than they have been recently to when you probe beneath the exterior defini-
spur consumers to give up current vehicle per- tion of the program, you’ll find one of the
formance and options like speed or comfort most controversial corporate welfare pro-
and demand cars like the PNGV product.5 0 grams in existence today.
The Clinton administration realized that Ex-Im Bank uses taxpayer money to subsi-
the demand for such a car would be low even dize loans to foreign purchasers of U.S. prod-
once it was built. That’s why the Clinton ucts and provides loans and loan guarantees to The Partnership
administration proposed a tax credit for pur- U.S. companies seeking to enter export mar-
chasers of the car. The tax credits died in leg- kets. It also provides insurance for investing for a New
islative committee.5 1 Recently the Bush admin- overseas. The amount of trade activity under- Generation of
istration proposed, as part of its national ener- written by Ex-Im Bank is minuscule—only 1.5 Vehicles has given
gy policy, a similar tax credit for purchasers of percent of exports—so it’s unlikely that it is
hybrid vehicles.52 Both administrations realized needed to sustain international demand for upwards of $1.25
that the market for such vehicles would be U.S. goods.55 There is also substantial evidence billion during its
minuscule if there were a government-subsi- that Ex-Im Bank’s activities alter only the com-
dized supply of them without a corresponding position of economic activity—in other words,
seven-year exis-
government-subsidized demand. the bank merely shifts around existing tence, much of it
The current Ford version of the PNGV resources and does not increase the actual to the Big Three
prototype—the Prodigy—is a diesel-electric amount of economic activity.56
car that cannot generate enough power to Although its mission statement claims automakers.
keep the air conditioning running while the that Ex-Im Bank tries to “assume commercial
car is idling. 53 and political risks that exporters or private

13
Table 6
Top 10 U.S. Beneficiaries of Ex-Im Bank Loans and Long-term Guarantees, FY 2000

Total Loans and


U.S. Company Guarantees ($ millions) Percentage of Total

Boeing Co. 3,384 43.1%


Bechtel International 1,475 18.8%
Varian Associates, Inc. 674 8.6%
United Technologiesa 334 4.3%
Willbros Engineers 200 2.5%
Halliburton Co.b 172 2.2%
Raytheon Engineers and Constructors 150 1.9%
Enron Development Corp. 132 1.7%
General Electric Co. 127 1.6%
Schlumberger Technology Corp. 87 1.1%
Total 6,735 85.9%

Sources: Export-Import Bank, 2000 Annual Report (Washington: Export-Import Bank, 2000), cited in Ian Vásquez,
“Re-Authorize or Retire the Export-Import Bank,” Testimony before the Subcommittee on International Monetary
Policy and Trade of the House Committee on Financial Services, 107th Cong., 1st sess., May 8, 2001.
aIncludes loans and guarantees for Sikorsky Aircraft Corp., a wholly owned subsidiary of United Technologies.
bIncludes loans and guarantees for Brown and Root International, Inc., a wholly owned subsidiary of Haliburton Co.

The loans and institutions are unwilling to take,” the oppo- There are unseen costs and unintended
site is often true: the data show that the consequences of giving a few large corpora-
guarantees that countries to which Ex-Im Bank funnels tions this kind of help. For example, there is
Ex-Im Bank money—countries such as China, Mexico, evidence that “subsidized export financing
and Brazil—have little trouble attracting pri- raises financing costs for all borrowers by
grants to U.S.
vate investment on their own.57 drawing on financial resources that other-
companies quali- The loans and guarantees that Ex-Im wise would be available for other uses, there-
fy it as the under- Bank grants to U.S. companies qualify it as by possibly crowding out some borrowers
the underwriter of some of the biggest from the financial markets.”5 9
writer of some of Fortune 500 companies’ overseas sales. As The best way to encourage exports is for the
the biggest Table 6 shows, Boeing is the largest corporate federal government to negotiate free-trade
Fortune 500 com- beneficiary of Ex-Im Bank loan activity. agreements with other countries. Then all U.S.
The beneficiaries of the loans and the sup- companies would benefit rather than just
panies’ overseas porters of Ex-Im Bank suggest that govern- those that have substantial political clout.
sales. ment credit is needed to level the playing
field for U.S. companies to help them com-
pete against foreign competitors who receive The Corporate Welfare
support from their governments. Yet Ex-Im Reform Commission
Bank’s annual report points out that only 18
percent of the money involved in medium- Eliminating corporate welfare spending
and long-term loan and guarantee transac- will be a very difficult task. Nonetheless, with
tions was spent to counter government- a new president and White House staff will-
backed export credit competition in FY99.58 ing to reassess the role of the federal govern-

14
ment in the economy, the prospects for get- • The Special Interests Dilemma: Because
ting rid of many corporate welfare programs the members of the commission would
are brighter than before. not be incumbent lawmakers, there
Ending corporate welfare will require would be substantially reduced, if any,
altering the incentives of legislators. No one incentives for the members to think
senator or representative will vote for a bill about reelection prospects or other
that lowers the budget for his or her favored political factors. Admittedly, there
program without a corresponding decrease would still be special interest pressure
in someone else’s favored program. In other on the commission. Instead of lobbying
words, no one wants to unilaterally defund a members of Congress, supporters of cor-
favorite program since the money will just be porate welfare programs would lobby
reallocated elsewhere. Also, member of the commission. However, the political
Congress A knows that voting for a decrease dynamic would be different enough that
in member B’s favored program might result lobbying would be likely to be less, if at
in future reprisals. That is the reason that all, effective.
tackling these programs one by one, or in a • The Collective Choice Dilemma:
small group, during the appropriations Because every program would be termi-
process is not likely to yield results (it yielded nated by an up-or-down vote on an una-
no results when it was tried during the FY mendable bill, there would be no vote
2000 appropriations cycle). An institutional trading on the specifics of the bill as
problem of this sort requires an institutional there is during the normal appropria-
solution. tions process. The commission would
One promising solution is to create a cor- have the ability to cast a wider net and
porate welfare reform commission (CWRC).60 create a list of programs that would hit a
General guidelines for a bill creating a CWRC larger number of special interest con-
could be as follows: stituencies than any one member of, or
group within, Congress would propose.
• The commission would not be com- To avoid other attendant political
posed of sitting members of Congress. It dynamics, the commission could pre-
would be chosen by bipartisan agree- sent to Congress its list of program ter-
ment between the president and the minations in a nonelection year.
leadership of both houses of Congress.
• The commission would convene for the The CWRC has an ancestor in the Base
purpose of proposing a list of corporate Realignment and Closure Commission. The Ending corporate
welfare programs that should be elimi- BRAC grew out of the understanding that
nated. even though the military base structure at welfare will
• The commission would address only the time “made little sense on the whole, require altering
spending programs, not tax preferences Congress could not bring itself to close spe- the incentives of
in the budget, and no corporate welfare cific bases.”6 1 That is because, during the 10
spending programs should be consid- years before BRAC, “Congress prohibited legislators.
ered “off the table.” studies of whether bases should be closed,
• The commission’s list of recommended required an environmental impact statement
program terminations would be voted for any proposed closure, and attached riders
on by both houses of Congress, with no to appropriations bills to bar the spending of
amendments, within 60 days of the com- funds to close particular bases.”6 2 Although
mission’s final report. many members of Congress wanted to close
military bases in the abstract, they were rarely
A commission structured along those willing to vote for a bill that would close a
lines would solve two main problems: base in their district. As in the case of corpo-

15
If the $87 billion rate welfare programs, Congress soon found Government or from the official publications
in corporate wel- itself unable, because of institutional and of the agencies, bureaus, and programs.
political biases, to downsize the defense bud-
fare were elimi- get at a time when doing so was widely and Department of Agriculture
nated tomorrow, often cited by members of both parties as an Agricultural Credit Insurance Fund. The
important goal. Agricultural Credit Insurance Fund provides
and personal Another benefit for taxpayers of having a direct loans and loan guarantees for people
income taxes were commission address the issue of corporate seeking credit to improve or purchase farms
lowered by the welfare is that those often egregious pro- or to offset the cost of operating a farm.
grams could be discussed openly and pub- There is no reason taxpayers should subsi-
same amount for licly in a focused proceeding. The exposure of dize this activity, especially when it is dupli-
the year, taxpay- a substantial portion of the federal budget— cated by the private sector.
ers would receive indeed, an overall reappraisal of what the fed- Agricultural Marketing Service. The
eral government does—is a long-needed tonic Agricultural Marketing Service collects data
a tax cut more to the current state of affairs. on agricultural commodity markets and,
than twice as through its Market News reports, makes that
information available to agricultural produc-
large as the rebate Conclusion ers, processors, distributors, and others to
checks mailed out assist them in the marketing and distribu-
in 2001. If the $87 billion in corporate welfare were tion of farm products. Through its market
eliminated tomorrow, and personal income protection and promotion activities, AMS
taxes were lowered by the same amount for the aids in the promotion of cotton, potatoes,
year, taxpayers would receive a tax cut more eggs, milk and dairy products, beef, pork,
than twice as large as the rebate checks mailed soybeans, honey, watermelon, mushrooms,
out in 2001. The budget savings over five years wool, lamb, and cut flowers.
would amount to $435 billion, far more than Agricultural Research Service. The Agricul-
the marginal income tax rate reductions in the tural Research Service conducts research
recent tax cut, which amount to $298 billion focused on increasing the productivity of the
over five years. Cutting corporate welfare nation’s land and water resources, improving
would be an excellent show not only of fiscal the quality of agricultural products, and find-
prudence but also of willingness to begin the ing new uses for those products. As that
much-needed reassessment of the current role research inevitably serves to enhance the prof-
of government and to make a hearty attempt itability of farming, it should be funded direct-
at returning the federal government to consti- ly by private farmers, not by all taxpayers.
tutional limits. Commodity Credit Corporation: BioEnergy
Program. This program provides “incentive
payments” to producers of ethanol, biodiesel,
Appendix 1: Descriptions of and other bio-based fuels. Most of the money
Corporate Welfare goes to giant agricultural companies such as
Archer Daniels Midland. Taxpayer money
Programs should not be used to underwrite the profit
This appendix provides descriptions of margin of any company or producer of fuel
the programs this report categorizes as cor- or any other product.
porate welfare. These programs should be Commodity Credit Corporation: Export Loans
eliminated, or in some cases privatized, and Program. The Commodity Credit Corpora-
the savings should be returned to the taxpay- tion’s Export Loans Program promotes the
er by cutting taxes. Unless otherwise indicat- export of U.S. agricultural commodities by
ed, the information used in the descriptions providing guaranteed and subsidized loans
comes from the Budget of the United States to the purchasers of those exports. The U.S.

16
government should not give agricultural ties and other state institutions. Some of
commodities (or any good) a preferential those projects are of use only to farmers in
advantage in world markets. one particular region or congressional dis-
Commodity Credit Corporation: Other trict. CSREES’s activities should be funded
Programs. All of the activities of the CCC prop directly by their intended beneficiaries, the
up the farm industry by either inflating nation’s farmers, not by taxpayers.
prices or subsidizing income. In addition, the Economic Research Service. The Economic
CCC maintains programs that subsidize big Research Service conducts economic and
food companies such as Kraft, gives money other social science research on topics of rel-
to farmers to buy new technology, and subsi- evance to the agricultural industry, including
dizes the purchase of livestock. The govern- marketing research and supply-and-demand
ment should get out of the farming business analysis. The American taxpayer should not
once and for all. be forced to pay for the marketing research of
Commodity Price Supports. Almost half of all the agricultural industry, or any other private
federal farm payments are made to the industry.
wealthiest 7.5 percent of farmers—many of Export Enhancement Program. The Export
whom are huge agribusinesses, such as Enhancement Program subsidizes the export
Archer Daniels Midland.63 According to the of certain U.S. agricultural commodities, The government
Department of Agriculture’s own estimates, mainly wheat and other grains, by paying U.S. should get out of
the net worth of the average farmer today is exporters to sell their goods to foreign pur- the farming busi-
almost twice as much as the net worth of the chasers at a discount. The Department of
average U.S. family.6 4 For the rest of America, Agriculture provides those exporters with cash ness once and for
the net result of these huge subsidies to bonuses to compensate them for the differ- all.
agribusiness is higher taxes and higher prices ence between the selling price and their costs.
at the supermarket thanks to federal subsi- Farm Service Agency. This agency is respon-
dies for peanuts, rice, wheat, and other com- sible for administering the programs of the
modities. Commodity Credit Corporation. The federal
Conservation Reserve Program. The Conser- government should not have such a heavy-
vation Reserve Program pays farmers not to handed role in the agriculture market. This
grow crops on their land. The stated rationale agency should be eliminated.
for CRP is to help farmers control soil erosion Federal Crop Insurance Corporation. The
and to reduce production of surplus com- Federal Crop Insurance Corporation pro-
modities. However, if farmers’ own planting vides subsidies to crop insurers and ends up
decisions—often influenced heavily by large helping mostly the insurance companies that
subsidies—are causing soil erosion problems accept the subsidies. The FCIC subsidizes up
that inhibit their ability to profitably produce to 25 percent of the cost of servicing crop
crops and reduce the value of their land, those insurance policies, and farmers are covered
farmers should be responsible for taking by insurance without having to pay the entire
actions to address the problem. The American premium. Also, the insurance companies
taxpayer should not be asked to pay for the bear only part of the risk: the American tax-
federal government’s misguided foray into payer bears the rest of the risk.65 The federal
land management. government should not be involved in the
Cooperative State Research, Education, and insurance market.
Extension Service. The Cooperative State Foreign Assistance Programs: Public Law 480.
Research, Education, and Extension Service P.L. 480 promotes the export of U.S. agricul-
funds programs that are designed to assist tural commodities by providing subsidized
farmers in making use of new technologies. loans to purchasers of those goods in devel-
The CSREES also funds agricultural research oping countries. The program also subsidizes
projects at the nation’s land-grant universi- U.S. freight carriers that carry those com-

17
Free trade should modities overseas. There is no legitimate age economic development in rural areas.
be encouraged by need for the government to manage foreign Through the Alternative Agricultural Research
demand for products. and Commercialization fund, RBCS enters into
means of free- Forest Service: State and Private Forestry. This cooperative agreements to facilitate the devel-
trade agreements, program provides pesticide-spraying services opment and commercialization of new non-
to large private landowners and planning food industrial and commercial products
not by subsidiz- assistance to state agencies and private derived from agricultural and forestry materi-
ing certain forestry companies. The states and the pri- als. This program, a hodgepodge of corporate
industries and vate landowners themselves, not federal tax- welfare spending, even includes obscure line
payers, should pay for those services. items such as the National Sheep Industry
penalizing National Agricultural Statistics Service. This Improvement Center.
foreign imports. agency collects and publishes data on agri- Rural Utilities Service. The Rural Utilities
cultural yields and livestock used in the com- Service was established in 1994 to administer
putations of farm program payments. The programs of the former Rural Electrification
data are also of direct benefit to the farming Administration and the Rural Development
industry. The NASS states that its goal is to Administration. RUS provides subsidized
publish data that help to “ensure an orderly loans to electric and telephone utility
flow of goods and services among agricul- providers in rural areas. Telecommunications
ture’s producing, processing, and marketing companies are able to raise plenty of support
sectors.” The agency admits that its publica- in the private capital markets. Taxpayers
tions, which provide “evaluations of alterna- should not have to subsidize them.
tive courses of action for producers [and]
agribusinesses,” allow “farmers and ranchers Department of Commerce
[to] rely on NASS reports in making all sorts Advanced Technology Program. See “Case
of production and marketing decisions.”6 6 Studies” above.
Farmers should be expected to pay for such a Economic Development Administration. The
service on their own, and private firms would Economic Development Administration
be willing to provide it if there were demand. seeks to improve distressed economies by
Market Access Program. The Department of providing grants and loans to state and local
Agriculture’s Market Access Program pro- governments, nonprofit organizations, and
vides the trade associations of private agri- private businesses in areas with high and per-
cultural product firms with taxpayer dollars sistent unemployment. EDA’s activities
to help offset their foreign advertising costs. include technical assistance grants, which
Forty percent of this spending goes to pro- provide technology transfer assistance to pri-
mote brand-name products overseas.67 vate firms, and development grants, which
Rural Community Advancement Program. fund the construction and improvement of
This program provides grants and subsidized infrastructure for the development and
loans for water, waste disposal, and solid waste expansion of private industrial parks and
management activities. These subsidies bene- ports. EDA also funds the Trade Adjustment
fit businesses that help provide and receive Assistance program, which doles out grants
such services. The program also gives out to assist private firms and industries that are
roughly $50 million of taxpayer money in the deemed to have been adversely affected by
form of rural business enterprise grants. increased imports.
Rural Business-Cooperative Service. The Rural International Trade Administration. The
Business-Cooperative Service was established in International Trade Administration’s role is
1994 to administer programs of the former to “develop the export potential of U.S.
Rural Development Administration and the firms” by conducting export promotion pro-
Rural Electrification Administration. RBCS grams, working with firms to develop market
provides grants and subsidized loans to encour- strategies for overseas markets, and protect-

18
ing uncompetitive industries by enforcing Office of Technology Policy. This office
“antidumping” regulations. Free trade directs many of the corporate welfare pro-
should be encouraged, but it should be done grams in the Department of Commerce. It
by means of free-trade agreements, not subsi- would not be necessary if the federal govern-
dizing certain industries and penalizing for- ment were not involved in giving money and
eign imports. benefits to private industry.
Manufacturing Extension Partnership. This
program provides grants to fund the creation Department of Defense
and maintenance of dozens of extension cen- Army Corps of Engineers. The Army Corps of
ters to assist small and medium-sized manu- Engineers builds, operates, and maintains the
facturing firms in making use of modern nation’s inland waterways system, including
manufacturing and production technolo- dams and other structures. Those activities
gies. General taxpayer funds should not be subsidize the private barge companies and
used to provide assistance to one specific bulk commodity shippers who make frequent
industry, as they are in this case. use of the waterways. In addition, the corps’
Minority Business Development Agency. The water supply and hydroelectric projects subsi-
Minority Business Development Agency dize the water and power supplies of industry
attempts to promote the development of in the areas served by those projects. Its opera- General taxpayer
minority-owned businesses through the provi- tions could be privatized so an efficient toll- funds should not
sion of management and technical assistance based system or private pricing system could be used to pro-
and assistance in gaining access to capital. The be used to fund those activities.
MBDA’s activities often focus on helping Cargo Preference Program. The Cargo vide assistance to
minority-owned businesses chase government Preference Act of 1904 requires all goods pro- one specific
grants and contracts. To encourage the devel- cured by the military to be transported by
opment of minority-owned businesses, the U.S. merchant marine vessels. This monop-
industry.
federal government should stop showering oly protects the merchant marine from com-
them with taxpayer money and instead focus petition with foreign shipping companies
on removing the many government impedi- that can typically transport goods more
ments to the formation and growth of minor- cheaply. It also protects the merchant marine
ity firms, such as unnecessary regulations and from competition with other more efficient
the onerous burden of taxation. forms of transportation, such as airplanes.
National Oceanic and Atmospheric Administra- Defense Advanced Research Projects Agency.
tion: Non-Weather-Related Activities. The non- This agency gives money to companies and
weather-related portion of the National industry consortiums to undertake cost-
Oceanic and Atmospheric Administration shared research projects to develop technology
budget funds activities such as the analysis of that would have a “dual-purpose” application:
fishery industry information, fishery trade technology that can be used by the U.S. mili-
and export promotion, and industry assis- tary and also has a commercial purpose. One
tance programs through the National Marine of the stated goals of the program is the
Fisheries Service, all of which provide benefits “commercialization” of the technology devel-
to the fishing industry. The American oped with taxpayer money.6 8 The participat-
Fisheries Promotion Act gives grants directly ing companies retain title and license rights to
to fisheries to increase their productivity. the inventions so they can sell the products in
Other non-weather-related activities include the private marketplace.6 9 The Department of
the mapping and charting services, which are Defense should buy technologies in the open
used by private industry, of the National market when they are developed, not subsidize
Environmental Satellite, Data, and Informa- the development of technology that has clear
tion Service. Those services could be provided money-making potential for private firms out-
by the private sector. side the military demand for them.

19
Defense Export Loan Guarantees. This pro- Conservation program account funds
gram makes U.S.-guaranteed loans to more applied R&D projects intended to discover
than three dozen nations to finance arms new energy efficient technologies that will
sales. Recipient governments pay “exposure enhance the profitability of U.S. businesses.
fees” to finance the program’s operations, Many of those projects involve direct part-
but the fees are not large enough to cover the nerships with private industry. Energy con-
overall costs of the program, and the taxpay- servation programs include the Industries of
er foots the bill for the difference.7 0 the Future program, selected technology
Foreign Military Financing Program. assistance programs, and transportation
Estimated to be the largest single subsidy pro- technology programs such as alternative-
gram for U.S. weapons exporters, the Foreign fueled vehicles.
Military Financing Program supports grants Energy Information Administration. The
and loans to subsidize the sale of U.S. military Energy Information Administration collects
equipment and services to more than two and disseminates data on current energy
dozen countries, with the bulk of the money sources, alternative energy sources, end uses,
going to Egypt and Israel. As a result of this prices, supply and demand, and environmental
program and the Foreign Military Sales pro- matters. In a free market for energy, Congress
gram, more than half of U.S. arms sales are and the executive branch would have little use
financed by U.S. taxpayers, not by the foreign for such information. Further, to the extent the
arms clients and weapons makers.71 The pri- information provided by the EIA is deemed
vate lending markets could handle those valuable by private industry, private firms
loans, just as they do loans for other products. should bear the cost of attaining it. They should
Foreign Military Sales Program. This program not be allowed to shift that cost to the taxpayer.
facilitates government-to-government sales of In fact, much of the information provided by
arms; the Pentagon acts as a broker, negotiat- the EIA is already being provided by the private
ing the terms of the deal, collecting funds, and sector and by nonprofit industry associations.
disbursing them to the arms contractors. In Energy Supply Research and Development. The
most other private commercial sales, the prod- Energy Supply Research and Development pro-
uct supplier sells to the buyer without the U.S. gram aims to develop new energy technologies
government as a broker. In addition, the and improve on existing technologies. ESRD
“recoupment fees” assessed to the foreign gov- activities include basic research at universities
ernments to underwrite this activity are usual- and national laboratories and applied R&D
ly not enough to cover costs and are routinely and demonstration ventures in partnership
More than half of waived altogether, thereby forcing the taxpay- with private-sector firms. Research areas
er to pick up the tab.7 2The federal government include solar and renewable energy, nuclear
U.S. arms sales should not directly serve as a broker for any energy, and fusion energy. Such activities
are financed by commercial transaction. should be paid for entirely by private industry.
U.S. taxpayers, Fossil Energy Research and Development. The
Department of Energy Fossil Energy Research and Development
not by the foreign Clean Coal Technology Program. The Clean program is designed to expand the technolo-
arms clients and Coal Technology Program funds joint pub- gy base for private industry engaged in devel-
lic-private demonstration projects designed oping new products and processes. The pro-
weapons makers. to assist private industry in developing new gram supports activities ranging from basic
commercial technologies that burn coal in a research at universities and national labora-
more environmentally friendly way. This pro- tories to applied R&D and cooperative R&D
gram gives taxpayer money to coal compa- ventures with private-sector firms. FERD
nies that were already undertaking the also supports company-specific technology
research on their own.7 3 development and demonstration activities.
Energy Conservation Programs. The Energy Research areas include clean fuels; clean, effi-

20
cient power systems; oil technology; natural Department of the Interior Many projects
gas; and fuel cells. Bureau of Reclamation. The Bureau of that do have
General Science and Research Activities. The Reclamation provides for the construction,
General Science and Research activities operation, and maintenance of various water potential com-
account underwrites research in high-energy projects that provide power, water supply, irri- mercial spinoffs
physics and nuclear physics. Many projects gation, and flood control in the western
that do have potential commercial spinoffs— United States. Since its establishment in 1902,
can and should
such as high-speed computing, superconduct- the bureau’s main goal has been to provide be financed
ing magnet technology, and high-power radio water supply for the agricultural industry in through the ven-
frequency devices—can and should be the western United States. One of the most
financed through the venture capital markets. controversial BOR projects is the Animas-La ture capital mar-
Power Marketing Administrations. The federal Plata project, which siphons the flow of the kets.
government generates electric power at more Animas River uphill to irrigate low-value
than 120 federal dams under the authority of crops. 75 This project delivers taxpayer-
the five Power Marketing Administrations. financed irrigation to a specific region and
That electricity is sold to large and profitable group of corporate farms, an indirect subsidy
electric utility cooperatives at below-market that is estimated at over $1 million per farm.
rates. These power generators should be priva- U.S. Geological Survey. The U.S. Geological
tized and prices for the energy produced deter- Survey provides the public research and scien-
mined by market forces. tific information about water, land, and min-
eral resources. The information on the loca-
Department of Housing and Urban tion of energy and mineral resources is valu-
Development able to mining and oil companies. This agency
Community Development Block Grants. This could be privatized and the research funded by
multi-billion-dollar program, which grows the beneficiaries of the information.
every year, consists of thousands of pork-
laden earmarks to congressional districts. Department of Transportation
Many of the grants go directly to benefit Federal Aviation Administration Operations
business. In recent years, CDBG money was and Air Traffic Control. Most of the cost of run-
spent to revitalize a shopping mall in ning the air traffic control system is paid by
California and to build parking lots in New taxpayers. The fees charged to register air-
York.7 4 craft are far lower than are needed to finance
Federal Housing Administration Subsidies. The the operation of a large and inefficient
Federal Housing Administration subsidizes national air traffic control service. The pas-
the mortgage banking industry by providing senger ticket taxes and the federal fuel taxes
low-rate mortgage insurance to low- and are inefficient ways of financing this system.
moderate-income homebuyers. Not surpris- The market would be best able determine
ingly, the FHA’s staunchest defender is the how to assess price and cover costs of the
Mortgage Bankers Association. The subsidies benefits received. The air traffic control sys-
to the mortgage banking industry are partic- tem should be privatized.76
ularly unwarranted, given that there is a Commercial Space Transportation. This pro-
healthy and expanding private mortgage gram was created to encourage private space
insurance industry that can and would carry launches and expendable launch vehicles
the load in the FHA’s absence. Moreover, with taxpayer money. While it is important
because there is no income limit for FHA that the private sector be allowed to develop
insurance eligibility—just a cap on the size of commercially viable means of traveling in
the mortgage—many households that would space, it is not the government’s role to pick
not be considered moderate income are able winners in that market by giving government
to obtain FHA-insured loans. money to favored aerospace companies. The

21
venture capital markets are capable of han- should develop profit-making product inno-
dling that type of development funding. vations with their own funds.
Essential Air Service. This program was cre- Maritime Administration: Guaranteed Loan
ated in 1978, when the airlines were deregu- Program. The Maritime Administration’s
lated, to ensure that air service was continued Guaranteed Loan Program provides guaran-
in small and rural communities where its teed loans for purchasers of ships from the
provision had previously been mandated. U.S. shipbuilding industry and for modern-
This program provides direct subsidies to air- izing U.S. shipyards. U.S. shipbuilders should
lines—primarily commuter carriers—that not have the special benefit of a guaranteed
serve those areas. EAS was intended to be a capital market.
transitional program and was initially autho- Maritime Security Program. This program
rized for 10 years, yet it has managed to sur- provides direct payments to U.S.-flag ship
vive the budget ax year after year. The air operators engaged in U.S.-foreign trade
travel market is far more advanced than it under the condition that a certain percentage
was in 1978, and the airlines provide service of their fleets remain in service and that the
in virtually all markets. The federal govern- Defense Department can require them in
ment should not use taxpayer money to sub- wartime to provide sealift support. These
The Intelligent sidize airports or airlines. payments have the effect of propping up fail-
Vehicle Initiative Grants-in-Aid for Airports. The Grants-in- ing shipping companies by subsidizing a
gives money to Aid for Airports program provides direct larger fleet than would be necessary to com-
grants to the nation’s airports to fund air- pete. The government could still contract
private corpora- port planning and development activities. with companies for shipping needs on a case-
tions to develop Those activities include capacity expansion, by-case basis without paying unprofitable
terminal improvements, and noise mitiga- ships to run in the meantime.
better braking tion. The cost of maintaining and improving Maritime Administration: Operating-Differential
and cruise control airports should be borne not by the general Subsidies. The Maritime Administration’s
systems. Those taxpayer but by the direct (commercial air- Operating-Differential Subsidies program was
lines) and indirect (commercial airline pas- established in an effort to ensure the mainte-
companies should sengers) beneficiaries of those activities. nance of a private U.S. merchant fleet. The pro-
develop profit- Federal Highway Administration: Demonstration gram provides direct subsidies to U.S.-flagged
Projects. The Federal Highway Administration’s ship operators to offset the portion of their
making product demonstration projects are pork-barrel politics operating costs that exceeds those of foreign
innovations with at its worst. Each year Congress funds hun- shipping companies. However, by shielding
their own funds. dreds of pork-barrel “demonstration” projects U.S. shippers from foreign competition, the
in the districts of powerful members. Much of subsidies allow U.S. shippers to run higher cost,
the largesse of those unnecessary projects goes less efficient operations. The American taxpay-
to benefit highway contractors, construction er is forced to pick up the tab for the industry’s
companies, and other private companies. inefficiency.
Federal Highway Administration: Intelligent Maritime Administration: Operations and
Transportation System. This public-private part- Training. The federal government gives unfair
nership endeavors to research, develop, and protection to the U.S. merchant marine by
test advanced electronic and information sys- shielding it from competition with foreign
tems to improve the safety and efficiency of shipping companies. The government also
driving. The main effort in this program, the gives money to develop and revitalize ports,
Intelligent Vehicle Initiative, gives money to which should be paid for by the users of
private corporations such as Volvo and Mack those ports.
Trucks, Inc., among other trucking and auto- Railroad Administration: Amtrak Subsidies. The
motive companies, to develop better braking National Railroad Passenger Corporation,
and cruise control systems. Those companies known as Amtrak, was created in 1970. Its goals

22
were clearly a form of corporate welfare: to use amounts to large subsidies to exporting busi-
taxpayer money to provide long-distance train nesses. Even the AID itself admits: “The prin-
service in exchange for allowing private compa- cipal beneficiary of America’s foreign assis-
nies to discontinue those money-losing routes. tance programs has always been the United
Amtrak was meant to exist for only a brief period States. Close to 80 percent of the U.S. Agency
of time, just long enough for those routes to for International Development’s contracts
achieve profitability and Amtrak to become self- and grants go directly to American firms.”7 8
supporting. That has not occurred, and during Appalachian Regional Commission. The
the 30-year existence of the program taxpayers Appalachian Regional Commission was estab-
have forked over more than $15 billion in subsi- lished in the 1960s to help reduce poverty and
dies.77 Amtrak continues to lose money, and geographic isolation in the 13 states of the
Congress continues to bail it out. Amtrak should mostly rural Appalachian region by promot-
be privatized and all subsidies eliminated. ing private investment and “economic devel-
Railroad Administration: Next-Generation opment” efforts, which amounts to giving
High Speed Rail. This program gives money to money to small business. Much of ARC’s bud-
corporations to develop upgraded steel- get goes to construction companies building
wheel-on-rail railroads and magnetically levi- roads and highways, and much of it duplicates
tated vehicles for use on Amtrak routes. local funding.
Railroad Administration: Northeast Corridor Corporation for Public Broadcasting. The CPB
Improvement Program. Amtrak’s Northeast gives grants to state and local public television
Corridor route between Washington, D.C., and and radio stations. The programs that appear
New York City is the only profitable route that on those stations (such as Sesame Street and
the corporation runs. However, Congress con- Teletubbies) generate millions of dollars in mer-
tinually approves capital improvement grants chandise sales revenue a year for production
for it. Amtrak should be privatized and pay for firms and toy companies as a result of the fed-
its own capital improvement. erally supported broadcast of shows. In addi-
Railroad Administration: Railroad Research and tion, the broadcast stations that receive this
Development. This program uses taxpayer money have been able to fund much of their
money to finance research on improved rail operation by subscriptions and donations.
technology. These technological advances are Indeed, about 40 percent of their operating
often accomplished through public-private budgets already comes from corporations and
partnerships geared toward product improve- subscribers.79 These money-making television
ment. This program assists the DOT’s “tech- shows should not be financed even in part by
nology transfer” to private companies for the taxpayers. The government
purpose of advancing improved manufactur- Export-Import Bank. See “Case Studies” above.
ing processes and the development of major In-Q-Tel (Central Intelligence Agency). should quit sub-
new products for the international market- Created in 1998, this unclassified program of sidizing the rail-
place. The government should quit subsidizing the CIA gives roughly $30 million a year to road industry.
the railroad industry. Research that leads to commercial technology firms to develop new
profitable technological advances should be software, digital database systems, computer Research that
paid for by the companies themselves. hardware, and Internet technology. The In- leads to prof-
Q-Tel director calls the investment fund a
Independent Agencies and Others “venture catalyst” and boasts that it offers
itable technologi-
Agency for International Development. The high-tech startups what nobody else can, the cal advances
Agency for International Development is the opportunity to test their technologies inside should be paid
main U.S. foreign aid agency. It seeks to help the CIA.8 0 The government should not be in
developing countries by establishing invest- the business of using taxpayer money to pick for by the compa-
ment funds with taxpayer money. The results winners in a dynamic technology market- nies themselves.
have been dismal, and the funding simply place or give them special treatment.

23
The SBA has a Technology funding is already very plentiful Partnership for a New Generation of Vehicles.
terrible record of in the private capital markets. See “Case Studies” above.
International Trade Commission. This agency Small Business Administration. The Small
selecting busi- of the federal government assists in the Business Administration provides direct
nesses to support; administration of antidumping tariffs and loans and loan guarantees to small business-
trade barriers and provides policymakers es, as well as administrative counseling and
as many as 15 per- assistance in trade policy formulation. Tariffs disaster relief. SBA’s subsidized financing is
cent of its loans protect weak domestic industries at the targeted at small businesses owned by
become delin- expense of consumers. The government minorities or located in economically dis-
should not be in the business of using trade tressed areas or in areas struck by natural dis-
quent in any given barriers to prop up certain favored industries aster. Those loan programs assist fewer than
year. that cannot compete in the international 0.5 percent of all small businesses. The SBA
marketplace. has a terrible record of selecting businesses to
National Aeronautics and Space Adminisra- support; as many as 15 percent of its loans
tion: Aeronautical Technology and Commerciali- become delinquent in any given year.
zation Activities. This account funds R&D Small Business Innovative Research. See “Case
activities (often in direct partnership with Studies” above.
private industry) that benefit the commercial Trade and Development Agency. The Trade
airline industry. Current projects include and Development Agency provides grants to
developing new propulsion systems, robot- fund feasibility studies and other planning
ics, and a solar-powered airplane. Such services for major economic development
applied R&D benefits primarily specific pri- projects in developing countries. Those
vate companies, such as Boeing, Lockheed grants go largely to governments and to pri-
Martin, and Airbus. The government has vate investors in developing countries who
trouble picking winners in other industries then use the money to engage in commerce
and will likely have a difficult time doing so with U.S. businesses. TDA projects thereby
in the aerospace industry as well. subsidize new business opportunities for
National Institutes of Health: Applied large U.S. corporations, such as Bechtel,
Biomedical Research and Clinical Development. Caterpillar, and General Electric.
Basic medical research is only part of what
the National Institutes of Health funds.
About a third of the NIH budget supports Appendix 2:
applied biomedical research as well as pre- Tax Preferences and Other
clinical and clinical development of specific
pharmaceuticals.8 1 Those activities are of
Types of Indirect Subsidies
direct benefit to the pharmaceutical industry Tax Preferences
and should not be financed by taxpayers. Some opponents of corporate welfare
Overseas Private Investment Corporation. The include tax preferences in their definition of
Overseas Private Investment Corporation corporate welfare. For example, Ralph Nader,
provides direct loans, guaranteed loans, and a longtime opponent of corporate welfare,
political risk insurance to U.S. companies states that tax deductions and credits that go
that invest in developing countries. OPIC’s to a particular company or industry should
activities underwrite Fortune 500 corpora- be considered a subsidy. “When the govern-
tions, such as Coca-Cola and General ment does not collect certain taxes . . . it is
Electric. Such private business investments spending money. And when the government
should be financed by private banks and fails to collect taxes from corporations due to
insurance companies, which can charge risk- various legal preferences, it is subsidizing
based interest rates and premiums, not by those companies as surely as if it were mak-
federal taxpayers. ing direct payments to them.”8 2 Nader

24
assumes that tax money belongs to the gov- or a national retail sales tax, that doesn’t
ernment in the first place and that the gov- make distinctions between politically favored
ernment has an inherent right to it—in other taxpayers and others.
words, cutting taxes deprives the government These various so-called loopholes should
of money it would otherwise receive and, by be closed in the interest of lowering taxes for
so doing, constitute a “cost” to the govern- all. If tax preferences were abolished but a
ment as opposed to a “gain” for the taxpayer. corresponding decrease in the tax rate was
This paper does not include tax preferences not enacted, that would lead to a tax increase
in its estimate of corporate welfare spending. for some. The last thing Congress should be
The thinking outlined above assumes that doing is increasing the amount of revenue
tax preferences are a form of “tax expenditure.” flowing into government coffers when tax
That term has been in wide use since the pas- surpluses are expected to grow substantially
sage of the Congressional Budget Act of 1974, over the next 10 years.
which requires that every year the federal gov-
ernment compile a list of “provisions of the Trade Barriers
Federal tax laws with exclusions, exemptions, Another type of preference that the federal
deductions, credits, deferrals, or special tax government provides to certain businesses
rates.”8 3 There is some indication that a reap- and industries is the imposition of tariffs and The tax prefer-
praisal of that approach may be forthcoming. barriers to trade with foreign countries. There ences that go to
The Bush administration budget submission are currently thousands of tariffs levied on particular compa-
for FY02 states, “The Administration believes thousands of goods, ranging from fruit juice
that the concept of ‘tax expenditures’ is of ques- and leather products to pressed glass and cos- nies or particular
tionable analytic value.”8 4 tume jewelry.8 7Other barriers to trade include industries are
Any company may avail itself of certain import quotas on certain farm commodities.
tax preferences, such as the tax deduction for All of those barriers have the effect of protect-
especially bad
donations to charities, so not every tax ing domestic industries from foreign competi- economic policy.
expenditure is subject to criticism solely from tion in goods and services. They also have the
a corporate welfare standpoint. It is the tax effect of restricting the free flow of goods in
preferences that go to particular companies the economy, leading to decreased supply, for-
or particular industries that are especially gone economic production, and higher prices
bad economic policy. A case in point is the for consumers. The cost to the U.S. economy
total $940 million tax credit that goes to pro- of the most significant trade barriers was
ducers of ethanol and alternative fuels.8 5 recently estimated at $12.4 billion.8 8
Many of those tax credits go to only a few Trade barriers have the effect of sheltering
companies. One company, Archer Daniels a company or an industry from competition,
Midland, the $13 billion agribusiness based or favoring one industry over another.
in Decatur, Illinois, produces 40 percent of Indeed, many of those barriers are designed
the ethanol used in the United States and specifically to keep prices high. Consider the
receives a large tax credit.8 6 sugar program, for example. The U.S. gov-
Targeted tax preferences complicate the ernment maintains a tariff rate quota that
tax code and create market distortions. Tax restricts the amount of foreign competition
preferences should be abolished on those that domestic sugar growers encounter. In
grounds, not on Nader’s inclusion of them as 1970, 47 percent of the sugar used in the
corporate welfare. As a result, they should be United States was imported.8 9 In 1998 only
terminated in the context of fundamental tax 16 percent of the sugar consumed in the
reform that strives to lower taxes and simpli- United States was imported.9 0
fy the tax code. One way of doing that would The cost to consumers in the form of high-
be to replace the current tax system with a er prices is substantial. The price of raw cane
consumption-based tax, such as the flat tax sugar is twice as high in the United States as it

25
It is obvious that is in the rest of the world: that costs U.S. sugar nies receive many benefits that actually make
implicit federal users a total of about $2 billion a year.91 them more like government-protected
Those costs are not included in this bureaucracies. Fannie Mae and Freddie Mac,
subsidies distort report’s estimate of the taxpayer cost of cor- for instance, are exempt from most of the
the lending mar- porate welfare. This does not mean that trade regulations that bind truly private mortgage
protections are not forms of corporate wel- lenders.9 4 In addition, they have a contin-
ket and crowd out fare. In fact, they are some of the most egre- gency line of credit in the amount of $2.25
private invest- gious forms of corporate welfare. They are billion that can be drawn from the federal
ment. also stealthy because they do not translate Treasury. There is also an implicit under-
into a cost easily quantified or associated standing that the federal government will
with a line item in the federal budget. In con- bail out the GSEs if they ever collapse under
trast, the programs listed in this study have the weight of their rapidly expanding debt.
an actual direct taxpayer cost as measured by All of those benefits have created unfair com-
the federal budget. Note, however, that some petition with private lenders. Dan L. Crippen,
of the programs listed in this report, such as director of the Congressional Budget Office,
the International Trade Commission, admin- has estimated these implicit subsidies at
ister trade barriers and do result in a direct $13.6 billion. 95
taxpayer cost. These benefits clearly accrue to the GSE
shareholders and certain dependent indus-
Government-Sponsored Enterprises tries—such as segments of the construction
During the 20th century the federal gov- industry—at the expense of others. There is no
ernment chartered corporations for certain direct line item in the budget that corresponds
public policy purposes. The main govern- to that estimated cost, so it is not included in
ment-sponsored enterprises (GSEs) are the this report’s total corporate welfare cost esti-
Federal National Mortgage Association mate. However, it is obvious that the implicit
(“Fannie Mae”), the Federal Home Loan federal subsidies to those companies distort
Mortgage Corporation (“Freddie Mac”), the the lending market and crowd out private
Federal Home Loan Banks (sometimes called investment. The government should get out
“Flubbies”), and the Farm Credit System of the mortgage lending business.
(which consists of the Agricultural Credit
Bank, the Federal Agricultural Mortgage
Corporation, and the Farm Credit Banks). Notes
Those institutions were supposed to create 1. See Stephen Moore, “Corporate Subsidies in
markets for cut-rate loans to poor families the Federal Budget,” Testimony before the House
and farmers, which, it was argued, would not Committee on the Budget, 106th Cong., 1st sess.,
exist in the absence of government action. June 30, 1999, http://www.cato.org/testimony/
ct-sm063099.html.
The GSE loan portfolios represent a very
large share of the lending market in their 2. See Restoring the Dream: The Bold New Plan by
respective fields. In fact, Fannie Mae and House Republicans, ed. Stephen Moore (New York:
Freddie Mac, two of the biggest GSEs, com- Times Books, 1995): 124–26.
bined account for more than 50 percent of 3. See Stephen Moore and Stephen Slivinski,
the overall conventional mortgage market “Return of the Living Dead: Federal Programs
and 40 percent of the total residential mort- That Survived the Republican Revolution,” Cato
gage market.92 Yet only 13 percent of the Institute Policy Analysis no. 375, July 24, 2000.
Fannie and Freddie mortgage holders are 4. Quoted in Richard Wolffe, “Bush Set for Battle
low-income families.9 3 over Spending and Tax Cuts,” Financial Times,
Technically, GSEs are publicly traded cor- March 1, 2001, p. 1.
porations—they have shareholders and
5. Quoted in Edward Alden and Nancy Dunne,
boards of directors. However, those compa- “Business Uneasy with New Administration’s

26
Revenue Plans,” Financial Times, March 6, 2001, p. 4. loc.gov/home/approp/appover.html.

6. See Dean Stansel and Stephen Moore, “Federal Aid 21. See H.R. 107-112, June 26, 2001, and S.R. 107-
to Dependent Corporations,” Cato Institute Briefing 39, July 13, 2001, http://thomas.loc.gov/home/
Paper no. 28, May 1, 1997. As well as increases in exist- approp/appover.html.
ing corporate welfare programs, the current estimate
includes newer programs that have since become part 22. See H.R 2646, http://agriculture.house.gov/
of the federal budget and programs that have since farmbill.htm.
developed into programs that can be classified as cor-
porate welfare. It does not include some programs that 23. See Brink Lindsey, “A New Track for U.S.
have been eliminated or do not fit the definition of cor- Trade Policy,” Cato Institute Trade Policy
porate welfare used in this study. Analysis no. 4, September 11, 1998.

7. See Congressional Budget Office, “Federal Financial 24. See Brink Lindsey and Aaron Lukas,
Support of Business,” July 1995. “Revisiting the ‘Revisionists’: The Rise and Fall of
the Japanese Economic Model,” Cato Institute
8. See Green Scissors Campaign, Green Scissors 2001, Trade Policy Analysis no. 3, July 31, 1998.
February 22, 2001, http://www.greenscissors. org.
25. For a discussion of the theoretical implica-
9. For a detailed critique of the Green Scissors tions, see F. A. Hayek, “The Use of Knowledge in
report, see Jerry Taylor and Stephen Slivinski, Society,” in The Libertarian Reader, ed. David Boaz
“Cato Fires Back on Corporate Welfare,” Cato Policy (New York: Free Press, 1997), pp. 215–24.
Report 23, no. 2 (March–April 2001): 14–15.
26. T. J. Rodgers, “Silicon Valley versus Corporate
10. All numbers in this section refer to budget Welfare,” Cato Institute Briefing Paper no. 37,
authority, not outlays. April 27, 1998, p. 15.

11. U.S. Department of Agriculture, Economic 27. See House Committee on the Budget,
Research Service, “Farm Income and Costs: Farm Majority Caucus, “The Corporate Welfare Reform
Income Forecasts,” http://www.ers.usda.gov/ Commission Act: Unjustified Business Subsidies
Briefing/FarmIncome/GP_T7.htm. and Legislation Aimed at Addressing Them”
(draft), Briefing material for the hearing before
12. Author’s calculation based on Budget of the the Committee on the Budget, June 8, 2000, p. 20.
United States Government, Fiscal Year 2002—Historical
Tables (Washington: Government Printing Office, 28. See “Insured Commercial Banks—Delinquency
2001), Table 3-2, pp. 56–57. Rates on Loans: 1990 to 1999,” Bureau of the
Census, Statistical Abstract of the United States: 2000
13. For details on the Bush administration’s cuts in the (Washington: Government Printing Office,
Small Business Administration, see White House, A 1999),Table 803, p. 513.
Blueprint for New Beginnings: A Responsible Budget for
America’s Priorities (Washington: Government Printing 29. General Accounting Office, “Farm Service
Office, February 2001), pp. 163–64. Agency: Status of the Farm Loan Portfolio and
the Use of Three Contracting Provisions for Loan
14. This estimate does not include new defense Servicing,” GAO/RECD-98-141, May 5, 1998, p. 1.
spending.
30. U.S. Department of Agriculture, Economic
15. All numbers in this section refer to budget Research Service, “Agriculture Income and Finance—
authority, not outlays. Summary,” ERS-AIS-74, March 7, 2000, p. 1.

16. See H.R. 107-139, July 13, 2001, http:/ thomas. 31. Statistical Abstract of the United States, 2000, Table
loc.gov/home/approp/appover.html. 803, p. 513.

17. See S.R. 107-42, July 20, 2001, http://thomas. 32. General Accounting Office, “Farm Service
loc.gov/home/approp/appover.html. Agency,” p. 2.

18. See H.R. 107-142, July 17, 2001, http://thomas. 33. Quoted in House Committee on the Budget, p. 5.
loc.gov/home/approp/appover.html.
34. A brief treatment of this theory is found in
19. See H.R. 107-139, July 13, 2001, http:/ thomas. Mancur Olson, The Rise and Decline of Nations (New
loc.gov/home/approp/appover.html. Haven, Conn.: Yale University Press, 1982), chap. 2.

20. See S.R. 107-42, July 20, 2001, http://thomas. 35. For a discussion of the constitutional limita-

27
tions on federal spending, see Roger Pilon, “On the Fuel Vehicles and Reaching Fuel Goals,”
Folly and Illegitimacy of Industrial Policy,” Stanford (Washington: GAO, February 2000), p. 16.
Law and Policy Review 5, no. 1 (Fall 1993): 103–18.
50. Ibid., pp. 12–13.
36. General Accounting Office, “Advanced
Technology Program: Inherent Factors in Selection 51. Bradsher.
Process Could Limit Identification of Similar
Research,” GAO/RECD-00-114, April 2000, p. 3. 52. National Energy Policy Development Group,
National Energy Policy (Washington: Government
37. General Accounting Office, “Measuring Printing Office, May 2001), pp. 4–10.
Performance: The Advanced Technology Program
and Private-Sector Funding,” GAO/RECD-96-47, 53. Bradsher.
January 1996, p. 3.
54. See Budget of the United States Government, Fiscal
38. General Accounting Office, “Advanced Year 2002—Appendix (Washington: Government
Technology Program: Inherent Factors in Selection Printing Office, 2002), p. 1149.
Process Could Limit Identification of Similar
Research,” pp. 4, 7–9. 55. Ian Vásquez, “Re-Authorize or Retire the
Export Import Bank,” Testimony before the
39. Author’s calculations based on data from ibid. Subcommittee on International Monetary Policy
and Trade of the House Committee on Financial
40. Many companies receive more than is listed in Services, 107th Cong., 1st sess., May 8, 2001,
the table since many companies are also members http://www.cato.org/testimony/ct-iv050801.html.
of multiple consortiums and joint ventures that
receive federal money to divvy up among partici- 56. See James K. Jackson, “Export-Import Bank:
pants. The numbers used in this study are a rep- Background and Legislative Issues,” Congression-
resentative sample of the total money received. al Research Service Report for Congress, 98-568E,
January 19, 2001, p. 5.
41. Quoted in Scott J. Wallsten, “The R&D
Boondoggle,” Regulation 23, no. 4 (2000): 13. 57. See Vásquez.

42. This result is arrived at by regression analysis 58. Export-Import Bank, 1999 Annual Performance
outlined in ibid., pp. 14–15. Report (Washington: Export-Import Bank, 2001),
chap. 1, p. 2, http://www.exim.gov/annperf2.pdf.
43. See “A Declaration of Intent: Partnership for a
New Generation of Vehicles,” http://www.ta.doc. 59. Jackson, p. 6.
gov/pngv/news/pngv.htm.
60. A different version of this commission has been
44. Author’s calculations based on data from General introduced in the past. A high-profile coalition in 1997
Accounting Office, “Cooperative Research: Results of brought together in the Senate cosponsors as diverse
U.S.-Industry Partnership to Develop a New as John McCain (R-Ariz.), Ted Kennedy (D-Mass.),
Generation of Vehicles,” GAO/RECD-00-81, March Fred Thompson (R-Tenn.), John Kerry (D-Mass.), Russ
2000; and Budget of the United States Government, Fiscal Feingold (D-Wis.), Joe Lieberman (D-Conn.), and Sam
Year 2001—Appendix (Washington: Government Brownback (R-Kans.); and in the House, John Kasich
Printing Office, 2001), p. 410. (R-Ohio), Ed Royce (R-Calif.), Rob Andrews (D-N.J.),
Dan Miller (R-Fla.),and Steve Chabot (R-Ohio). More
45. See Sholnn Freeman, “Auto Sales Rise Despite recently, in 1999, Rep. Joe Hoeffel (D-Pa.) introduced a
Big Three as Foreign Brands Gain Ground,” Wall bill that outlined a version of such a commission.
Street Journal, July 5, 2001, p. A3.
61. Kenneth R. Mayer, “The Limits of Delegation:
46. Keith Bradsher, “Detroit Plays Catch-up in The Rise and Fall of BRAC,” Regulation 22, no. 3
Race for Hybrid Car; With Fewer Subsidies, Japan (1999): 34.
is Ahead,” New York Times, January 1, 2000, p. C1.
62. Ibid., p. 32.
47. General Accounting Office, “Cooperative
Research: Results of U.S.-Industry Partnership to 63. General Accounting Office, “Farm Programs:
Develop a New Generation of Vehicles.” Information on Recipients of Federal Payments,”
June 2001, p. 40.
48. Bradsher.
64. U.S. Department of Agriculture, Economic
49. General Accounting Office, “Energy Policy Act Research Service, “Using Farm-Sector Income as a
of 1992: Limited Progress in Acquiring Alternative Policy Benchmark,” Agricultural Outlook, June–July

28
2001, p. 15. Dollar In-Q-Tel Offshoot for Value,” Washington
Post, June 3, 2001, p. A5.
65. See Jerry R. Skees, “The Bad Harvest,” Regulation
(Spring 2001): 16–21. 81. See Congressional Budget Office, “Federal
Financial Support of Business,” July 1995, p. 24.
66. See National Agricultural Statistics Service
Web site, http://www.usda.gov/nass/nassinfo/ 82. Ralph Nader, Testimony before the House
importnt.htm. Committee on the Budget, 106th Cong., 1st sess., June
30, 1999, http://www.nader.org/releases/63099.html.
67. Congressional Budget Office, Budget Options
(Washington: CBO, February 2001), p. 238. 83. See “Tax Expenditures,” in Budget of the United
States Government, Fiscal Year 2002—Analytical
68. See General Accounting Office, “DOD Perspectives (Washington: Government Printing
Research: Acquiring Research by Nontraditional Office, 2001), p. 61.
Means,” GAO/NSIAD-96-11, March 1996, p. 7.
84. Ibid.
69. Ibid.
85. Ibid., Table 5-2, p. 66.
70. For a detailed analysis of the DELG program, as
well as the Foreign Military Financing and Foreign 86. Brent D. Yacobucci and Jasper Womach, “Fuel
Military Sales programs, see William D. Hartung, Ethanol: Background and Public Policy Issues,”
“Corporate Welfare for Weapons Makers: The Congressional Research Service report for Congress,
Hidden Costs of Spending on Defense and Foreign March 22, 2000 (updated July 30, 2001), p. 4.
Aid,” Cato Institute Policy Analysis no. 350, August
12, 1999. 87. See U.S. International Trade Commission,
Harmonized Tariff Schedule of the United States
71. Ibid., p. 5. (Washington: Government Printing Office, 2001).

72. Ibid., pp. 9–12. 88. U.S. International Trade Commission, The
Economic Effects of Significant U.S. Import Restrictions:
73. See Green Scissors Campaign, http://www. Second Update 1999 (Washington: Government
greenscissors.org/energy/cleancoal.htm. Printing Office, May 1999), p. xv.

74. See Moore and Slivinski, p. 14. 89. U.S. Department of Agriculture, Agricultural
Statistics, 1985, cited in Clifton B. Luttrell, The High
75. For a detailed discussion of this project, see the Green Cost of Farm Welfare (Washington: Cato Institute,
Scissors Campaign Web site, www.greenscissors.org. 1989), p. 100.

76. See Robert W. Poole and Viggo Butler, “How 90. General Accounting Office, “Sugar Program:
to Commercialize Air Traffic Control,” Reason Changing the Method for Setting Import Quotas
Public Policy Study no. 278, February 2001, Could Reduce Cost to Users,” GAO/RECD-99-
http://www.rppi.org/ps278.pdf. 209, July 1999, p. 1.

77. See Jean Love, Wendell Cox, and Stephen 91. General Accounting Office, “Sugar Program:
Moore, “Amtrak at Twenty Five: End of the Line Supporting Sugar Prices Has Increased Users’
for Taxpayer Subsidies,” Cato Institute Policy Costs While Benefiting Producers,” GAO/RECD-
Analysis no. 266, December 19, 1996; and 00-126, June 2000, p. 5.
“Transportation,” in Cato Handbook for Congress,
107th Congress (Washington: Cato Institute, 92. Bert Ely, “Fannie Mae and Freddie Mac:
2001), pp. 423–25. What’s at Risk?” Paper presented at American
Enterprise Institute second conference on Fannie
78. See U.S. Agency for International Mae and Freddie Mac: Public Purposes and
Development, “Direct Economic Benefits of U.S. Private Interests, September 8, 1999, p 1A.
Assistance by State,” visited August 28, 2001,
www.usaid.gov/procurement_bus_opp/states. 93. Vern McKinley, “The Mounting Case for
Privatizing Fannie Mae and Freddie Mac,” Cato
79. Heritage Foundation, A Budget for America Institute Policy Analysis no. 293, December 29, 1997.
(Washington: Heritage Foundation, 2001), p. 371.
94. Ibid.
80. Vernon Loeb, “CIA Adventures in Venture
Capital; Hill Reviewing Agency’s Multimillion 95. Dan L. Crippen, “Federal Subsidies for the

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Housing GSEs,” Testimony before the Subcommittee Sponsored Enterprises of the House Committee on
on Capital Markets, Insurance and Government Financial Services, 107th Cong., 1st sess. May 23, 2001.

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