08.10.2012 1

Corporate welfare hurts everyone

SolyndraBy Rebekah Rast — Corporate welfare to favored businesses and industries has swelled in this country.

Both sides of the political aisle like it and are equally responsible for it.

No matter the consequences or cost to taxpayers, corporate welfare is scattered throughout our nation’s spending record.

A report by the Cato Institute found that corporate welfare costs taxpayers almost $100 billion a year.

While policy makers think they are doing businesses a favor, often the consequences and repercussions aren’t worth the cost.

Remember Solyndra? It’s a perfect example of the ugly side of corporate welfare.  After receiving a $535 million U.S. taxpayer loan, California-based solar panel company Solyndra went bankrupt — taking all of that $535 million down with it.

However, not all corporate welfare though is given to companies, like Solyndra, with the intention to spur consumer demand. Other forms of corporate welfare are given under the guise of creating an even playing field for the benefits of trade in a global market or even to counteract Mother Nature.

For example, the U.S. subsidizes corn to make ethanol for use in vehicles. Largely due to this conversion, U.S. corn prices have risen from an annual average of $1.96 per bushel in 2005 to $6.01 in 2011.  However, if you purchase E15 for your vehicle it is still cheaper than regular gasoline because decades of taxpayer subsidies have already covered the extra cost.  The Congressional Budget Office states that it costs taxpayers $1.78 every time a gallon of ethanol replaces a gallon of gasoline.

Even though taxpayers are paying for this corporate welfare scheme through their taxes, they also continue to pay for it in other ways. This increase in corn prices impacts U.S. exports to other countries, causes consumers to spend more at the grocery store and affects the lives of farmers and ranchers.

This trickledown effect of corporate welfare causes a disruption in the private sector and forces the government’s will onto businesses and consumers.  Corporate welfare is just another way for the government to pick industry favorites while leaving the others unable to compete.

A large chunk of about $25 billion of the $100 billion in corporate welfare is given to the U.S. Department of Agriculture.  Much of this is given as protection to those in the agriculture industry due to unforeseen complications like weather or overproduction of a crop leading to a financial loss for their business or family. This year, for example, many parts of the U.S. received lower-than-average rainfall coupled with power outages causing agriculture-related families and businesses to take a hit.

In response, the Republican-led U.S. House of Representatives recently passed H.R. 6233, the Agricultural Disaster Assistance Act, which provides supplemental funding for drought relief by retroactively reauthorizing disaster assistance programs that expired at the end of fiscal year 2011.  Though it may seem like a nice gesture, it disrupts the natural decision making these families and businesses would have made.  That decision may have been to either feed cattle high-priced food or slaughter their livestock.  If they chose the latter, the abundance of meat would drive down prices for consumers.  But now those affected families and businesses don’t need to make that decision because the government has deemed them all winners, regardless of whether they made good business decisions.

Furthermore, why is it the role of the federal government to provide this kind of relief? Shouldn’t it come from local or state governments, if anything?

Though policy makers may find many reasons to give corporate welfare the results do not aid growth. It puts value on a product, which in a subsidy-free world might not be deemed as valuable. It can create perverse incentives to not work or make risky business decisions because you know you’re getting financial help regardless. It also hurts competing businesses, which might otherwise be very successful.

President Ronald Reagan once said, “governments tend not to solve problems, only rearrange them.”

Likewise with corporate welfare; it shifts a problem from one favored group to a whole host of others.

If Congress were to cut corporate welfare out altogether and save taxpayers $100 billion a year, everyone would be a winner, consumers would pay fair costs, the playing field would be even for competing industries and businesses could thrive or fail based upon their own efforts.

Rebekah Rast is a contributing editor to Americans for Limited Government (ALG) and NetRightDaily.com.  You can follow her on twitter at @RebekahRast.

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