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S. 1376, the Corporate Subsidy Review, Reform, and Termination Act of 1995 : hearing before the Committee on Governmental Affairs, United States Senate, One Hundred Fourth Congress, second session, on S. 1376, to terminate unnecessary and inequitable federal corporate subsidies, March 5, 1996 online

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Online LibraryUnited States. Congress. Senate. Committee on GoveS. 1376, the Corporate Subsidy Review, Reform, and Termination Act of 1995 : hearing before the Committee on Governmental Affairs, United States Senate, One Hundred Fourth Congress, second session, on S. 1376, to terminate unnecessary and inequitable federal corporate subsidies, March 5, 1996 → online text (page 1 of 10)
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^A. S. Hrg. 104-652

\^ S. 1376, THE CORPORATE SUBSIDY REVIEW,
REFORM AND TERMINATION ACT OF 1995



Y 4. G 74/9: S. RS. 104-652

S.1376i The Corporate Subsidy Revie...

HEARING

BEFORE THE

COMMITTEE ON
GOA^RNMENTAL AFFAIRS
UNITED STATES SENATE

ONE HUNDRED FOURTH CONGRESS

SECOND SESSION

ON

S. 1376

TO TERMINATE UNNECESSARY AND INEQUITABLE FEDERAL
CORPORATE SUBSIDIES



MARCH 5, 1996



UPERIfJreiBENTOFDODijtou:^^^*!



Printed for the use of the Committee on Governmental Affairs—-

ENBEWTOFDt
OEPOSffORY

JAN 1 6 1997



U.S. GOVERNMENT PRINTING OFFICE '^

WASHINGTON : 1996




For sale by the U.S. Government Printing Office
Superintendent of Documents, Congressional Sales Office, Washington, DC 20402
ISBN 0-16-053723-1



S. Hrg. 104-652

\^ ' S. 1376, THE CORPORATE SUBSIDY REVIEW,
REFORM AND TERMINATION ACT OF 1995



Y 4, G 74/9:5. RG. 104-652

S.1376, The Corporate Subsidy Revie...

HEARING

BEFORE THE

COMMITTEE ON
GOVERNMENTAL AFFAIRS
UNITED STATES SENATE

ONE HUNDRED FOURTH CONGRESS

SECOND SESSION
ON

S. 1376

TO TERMINATE UNNECESSARY AND INEQUITABLE FEDERAL
CORPORATE SUBSIDIES



MARCH 5, 1996



Printed for the use of the Committee on Governmental Affp irg — ^^




SUPERIfJTENBENiTOFDOeiiiS
OEPaSffORY

JAN 1 6 1997






U.S. GOVERNMENT PRINTING ePPICE
WASHINGTON : 1996



For sale by the U.S. Government Printing Office
-Superintendent of Docmnents. Congressional Sales Office, Washington, DC 20402
ISBN 0-16-053723-1



COMMITTEE ON GOVERNMENTAL AFFAIRS

TED STEVENS, Alaska, Chairman
WILLIAM V. ROTH, Jr., Delaware JOHN GLENN, Ohio

WILLIAM S. COHEN, Maine SAM NUNN, Georgia

FRED THOMPSON, Tennessee CARL LEVIN, Michigan

THAD COCHRAN, Mississippi DAVID PRYOR, Arkansas

JOHN McCAIN, Arizona JOSEPH I. LIEBERMAN, Connecticut

BOB SMITH, New Hampshire DANIEL K. AKAKA, Hawaii

HANK BROWN, Colorado BYRON L. DORGAN, North Dakota

Albert L. McDermott, Staff Director
Christine Schabacker, Counsel
Leonard Weiss, Minority Staff Director
Michal Sue Prosser, Chief Clerk



(II)



CONTENTS



Opening statement: Page

Senator Stevens 1

Prepared statement:

Senator Levin 49

WITNESSES

Tuesday, March 5, 1996

Hon. John McCain, U.S. Senator from the State of Arizona 1

Hon. Fred Thompson, U.S. Senator from the State of Tennessee 4

Stephen Moore, Executive Director, Cato Institute 8

Robert J. Shapiro, Founder and President, Progressive Policy Institute 16

Martha Philhps, Executive Director, Concord Coahtion Citizens' Council 29

Ann McBride, President, Common Cause 35

Alphabetical List of Witnesses

McBride, Ann:

Testimony 35

Prepared statement 37-38

McCain, Hon. John:

Testimony 1

Prepared statement 3

Moore, Stephen:

Testimony 8

Prepared statement 10

Phillips, Martha:

Testimony 29

Prepared statement 31

Shapiro, Robert J.:

Testimony 16

Prepared statement 18

Thompson, Hon. Fred:

Testimony 4

Prepared statement 6

APPENDIX

Text of S. 1376 53



(III)



S. 1376, THE CORPORATE SUBSIDY REVIEW,
REFORM AND TERMINATION ACT OF 1995



TUESDAY, MARCH 5, 1996

U.S. Senate,
Committee on Governmental Affairs,

Washington, DC.
The Committee met, pursuant to notice, at 9:31 a.m., in room
SD-342, Dirksen Senate Office Building, Hon. Ted Stevens, Chair-
man of the Committee, presiding.

Present: Senators Stevens, Thompson, McCain, and Levin.

OPENING STATEMENT OF CHAIRMAN STEVENS

Chairman Stevens. Good morning. This morning we are going to
hear from Senator McCain, Senator Thompson, and others who are
here to discuss S. 1376. This bill would create a Corporate Sub-
sidies Termination Commission with a tight timetable for identify-
ing, reviewing, and advising the President and Congress on cor-
porate subsidies and tax advantages which should be retained,
modified, or terminated. The aim is to reduce expenditures and
Government programs for businesses and abolish unfair tax advan-
tages, which some term as "corporate welfare."

The process under S. 1376 calls for the President's nomination of
an 8-member commission. Each Government agency would submit
to this commission a list identifying its programs which fall under
the broad criteria outlined in the bill. The commission reviews and
may revise all identified subsidies and tax advantages at public
hearings. Then it must make recommendations to the President re-
garding the retention, modification, or termination of these sub-
sidies and tax advantages.

If the President approves the commission's recommendations, he
may submit them for congressional review. Congress at that time
may make revisions to the subsidies list approved by the President,
but it must move the legislation in less than 1 month's time. The
timetable for this entire process is 1 year.

I thank you very much for coming today, and I want to shorten
the introduction so we can get to the hearing. Gentlemen, I appre-
ciate the fact that you are very prompt, and. Senator McCain, you
are first.

TESTIMONY OF HON. JOHN McCAIN, U.S. SENATOR FROM THE
STATE OF ARIZONA

Senator McCain. Thank you very much, Mr. Chairman, and
thank you for holding this hearing.

(1)



Mr. Chairman, I recognize that this is a very controversial issue,
and I know that when we address it, there are a lot of sacred cows
and special interests that are deeply offended by this proposal and
proposals that Senator Thompson and I have made in the past.

I will get right to the point, Mr. Chairman. We are asking Ameri-
cans all across this country to sacrifice in order to stop the Nation's
fiscal bleeding. We all know about the size of the annual deficit and
the accumulated debt, and we are having to make savings in pro-
grams that previously we had never considered, such as Medicare
and other social welfare programs. And I am one of the strongest
supporters of doing that. I think that we have a moral obligation
to ensure that the corporate sector shares in the burden.

Mr. Chairman, the Cato and Progressive Policy Institutes, which.
I might add, are viewed as being at different ends of the political
spectrum, have identified 125 Federal programs that subsidize in-
dustry to the tune of $85 billion every year. The Progressive Policy
Institute found an additional $30 billion in tax loopholes to power-
ful industries.

We cannot continue to shell out billions in corporate subsidies as
we tighten the belt on everyone else and at a time when executive
salaries are skyrocketing, while thousands of workers are being
laid off in corporate downsizing.

Mr. Chairman, I have been out on the campaign trail, and I have
watched Presidential candidate Pat Buchanan strike a responsive
chord with lots of Americans. And one of the issues that he has
raised is this laying off people from jobs while corporate executives
make large amounts of money. In the case of AT&T, they dismissed
40,000 workers, while Mr. Allen got a $3 million salary and $16
million additional. And others, it goes on.

Senator Thompson and I and others introduced bipartisan legis-
lation to establish a Corporate Subsidy Reform and Termination
Commission, and, Mr. Chairman, you described it, so I will not be
redundant here except to say that I don't like commissions. I don't
think that the chairman likes commissions. I think it clearly takes
responsibilities from the Congress and gives it to commissions. But
I don't know any other way that we can attack this issue.

We spend millions for the Marketing Promotion Program, tens of
millions in Federal R&D for wealthy industries, hundreds of mil-
lions for unrequested military construction projects, billions in
spectrum give-aways. And the list goes on. I believe that an inde-
pendent commission with privileged and expedited procedures to
ensure congressional action would depoliticize the process, guaran-
tee that the pain is shared, and might be the only realistic means
of achieving the meaningful reform that the public and our dire fis-
cal circumstances demand.

Mr. Chairman, I would ask unanimous consent that the dozen
amendments that Senator Thompson and I and Senator Feingold
and others and Senator Kerry introduced — which lost, by the way,
by a vote of 25-74 — be made part of the record. ^

Senator McCain. And, Mr. Chairman, I thank you for holding
this hearing.

[The prepared statement of Senator McCain follows:]

iSee page 77.



PREPARED STATEMENT OF SENATOR McCAIN

Thank you, Mr. Chairman and members of the Committee for the opportunity to
testify today.

Mr. Chairman, I will get right to the point. We are asking millions of Americans —
from families who receive food stamps to our men and women in uniform — to sac-
rifice in order to stop the nation's fiscal bleeding.

As a matter of simple fairness, we have a moral obligation to ensure that cor-
porate interests share the burden. The Cato and Progressive Policy Institutes, have
identified 125 federal programs that subsidize industry to the tune of $85 billion
every year, and PPI found an additional $30 billion in tax loopholes to powerful in-
dustries.

The public cannot understand why we continue to shell out billions of dollars in
subsidies to powerful corporate interests, when we simply cannot afford such lar-
gesse, and at a time when many corporate CEO's are earning bonuses that are larg-
er than the budgets of most school districts.

Last week, we learned that Robert Allen the Chief Executive Officer of AT&T re-
ceived a salary of over $3 million and an additional $16 million in stock options last
year, at the same time the company dismissed over 40,000 employees. Walter Ship-
ley of Chemical/Chase Manhattan received a salary of nearly $2.5 million while the
company laid off 12,000 employees. Charles Lee, CEO of GTE Corporation made
over $2 million in salary while 17,000 workers were told to take a hike. And the
list goes on.

Corporate pork cannot be justified in such an environment and it has no place
in a diminishing federal budget. This hearing will help us examine one way — per-
haps the only way — we might eliminate the fat.

Last November I was pleased to join with Senators Feingold, Thompson, Kerry,
Kennedy and Coats to announce a bi-partisan initiative to eliminate "corporate
pork" from the federal budget by establishing an independent Corporate Subsidy Re-
form and Termination Commission.

The eight member panel, styled after the Base Closing and Realignment Commis-
sion, would review all federal subsidies to private industry, including special inter-
est tax provisions. The commission would identify those which are unnecessary, un-
fair or not in the clear and compelling public interest; and recommend them for ter-
mination or reform. Congress would be required to consider and vote on a com-
prehensive reform package by the end of 1997.

Some believe that corporate pork is a thing of the past. Sadly that's not so. While
some gains were made this year in trimming the fat, the effort has been disappoint-
ingly anemic.

We still subsidize the overseas advertising of multi-million dollar companies
through the Marketing Promotion Program; hundreds of millions are earmarked for
unrequested hometown military construction projects; we still coddle wealthy pea-
nut and sugar growers with anachronistic production quotas and tariff restrictions;
billions remain in the pipeline for highway demonstration projects which are not
even considered priorities in the States where they will be built; and the biggest
and most obscene example, we still plan to give away billions of dollars in publicly
owned electro-magnetic spectrum to affluent communications companies; and that
list goes on and on.

Last November, I offered an amendment along with Senator Thompson and others
to eliminate and reform 12 of the most celebrated and egregious forms of corporate
pork identified by CATO and PPI. The fact that 74 Senators voted against the
amendment is ample testimony to the problem.

Mr. Chairman, corporate pork wastes resources, increases the deficit, distorts
markets and has no place either in a free market economy or in a budget where
we are asking millions of Americans to sacrifice for the good of future generations.

As the Progressive Policy Institute observed, "The President and Congress can
break the current impasse and substantially reduce both spending and projected
deficits ... if they are willing to eliminate or reform scores of special spending pro-
grams and tax provisions narrowly targeted to subsidize influential industries."

"If we are willing?" That's the million dollar question, Mr. Chairman. Billions of
dollars in corporate pork programs are sustained year after year. Congress after
Congress, because they have influential corporate constituencies and powerful Con-
gressional patrons. I'm not certain that Congress, no matter what party is in the
majority, is institutionally capable of addressing the problem.

Let me conclude, Mr. Chairman, by admitting that I don't really like the idea of
commissions. We know where the pork is and what can and should be eliminated,
but the reality is that. Members will not gore their own ox, unless others are forced



to do the same. As with miUtary base closures — the mentaUty is — we either all go
together or we don't go at all. Perhaps that is the only fair way to do it.

An independent corporate pork commission with privileged and expedited proce-
dures to ensure Congressional action would depoliticize the process, guarantee that
the pain is shared, and might be the only realistic means of achieving the meaning-
ful reform that the public and our dire fiscal circumstances demand.

I thank you for holding this hearing.

Chairman STEVENS. Thank you very much. We will print your
statement in full in the record and the material you have just iden-
tified.

Senator McCain. Thank you.

Chairman Stevens. Senator Thompson?

TESTIMONY OF HON. FRED THOMPSON, U.S. SENATOR FROM
THE STATE OF TENNESSEE

Senator Thompson. Thank you, Mr. Chairman. And I, too, appre-
ciate your having these hearings today. The fact of the matter is
that there are many people who believe that Government often op-
erates for the benefit of the few and the privileged. People need
only to look at what appears to be dozens of special spending and
tax benefits enjoyed by profit-making entities to be convinced that
they are pretty much correct in their assessment. They believe the
system does not operate fairly, and their lack of confidence in us
affects our ability to enact the reforms and make the hard decisions
which must be made if we are to get our country back on the right
track again.

This Congress has done a pretty good job of examining thousands
of items of Government spending. We have identified areas of
spending which should be reformed because they don't work as well
as they should, and we have identified those which should be ter-
minated because their existence cannot be justified. In each case,
we have asked several questions: Does this spending promote a
useful public purpose? If so, can Government afford it? Should the
effort and the money for it be transferred to the state or local level,
where it is closer to those it is supposed to benefit?

As part of this process, we have examined some programs whose
primary beneficiaries are profit-making enterprises — businesses of
all sizes. In several such cases we have made progress on incre-
mental reforms. For example, the Senate passed an amendment to
the agriculture reform bill to restrict the Marketing Promotion Pro-
gram through which $110 million is spent annually to underwrite
advertising in foreign countries by some of our largest corporations.

But these efforts and others that are ongoing are necessarily
piecemeal. We can cut out or restrict a corporate subsidy here and
leave another one untouched. And we may end up further distort-
ing the market by ending the subsidy for one commercial interest
while leaving those enjoyed by a competing commercial interest in
place.

Last year, as part of an effort to highlight the issue of Federal
subsidies to profit-making enterprises, a bipartisan group of col-
leagues and I proposed, with Senator McCain's leadership, reform-
ing 12 specific programs which are characterized by some element
of corporate subsidization. We chose these examples to demonstrate
that such programs exist in virtually every industry, from military
construction, to energy production, to consumer product advertis-



ing. While all the sponsors were not uniformly enthusiastic about
each of the 12 examples, we believed the package as a whole un-
derscored an important point and demonstrated our willingness to
examine Government spending in every area. They were only a
sampling of such programs. The Cato Institute and the Progressive
Policy Institute have identified 100 items that they term "corporate
pork."

Senator McCain offered this package of 12 items as an amend-
ment to the reconciliation bill, where it received the support of only
a fourth of the Senate, as Senator McCain pointed out.

Clearly, this problem needs to be attacked in a different way,
which is why we introduced this legislation to establish a Cor-
porate Subsidy Termination Commission.

The commission is charged with identifying spending programs
or tax policies which provide unwarranted benefits or inequitable
tax advantages for profit-making enterprises. The commission is
fashioned after the BRAC Commission, with expedited legislative
procedures similar to those provided for the congressional budget
resolution. Our bill establishes a process which allows input and
change by both the President and the Congress.

Why establish a commission and a new process to do what we
could and should do directly?

First, and most important, this commission will do what we can-
not do well; that is, make an overall informed assessment of all the
programs on both the spending and the revenue sides at one time.
Over the years we have created an intricate, interwoven system of
subsidies, taxes, and exemptions. For example, a Tennessee utility
which would have been affected by the spending cuts we proposed
last year pointed out to me that they in turn are competing against
other energy providers who receive subsidies in the form of Federal
tax exemptions.

Second, our experience last year demonstrated that voting hit or
miss on individual items is not going to be successful. One person's
pork is another's prize. And no one wants to give up their prize
program if there isn't shared sacrifice. With the commission ap-
proach, we will know that all programs have been examined and
those which provide unjustified subsidies exposed.

Third, the members of the commission will be appointed specifi-
cally for this purpose by the President and the Congress. They will
possess the expertise, authority, and stature necessary to do the
job.

Fourth, the commission's recommendations will not be buried in
the corner of a Federal agency or a congressional committee. While
the President and Congress will be able to propose amendments to
or outright reject the commission's recommendations, they must
address them.

We should require no less of profit-making enterprises than we
ask of all Americans. It is a matter of fairness and shared sacrifice.
At a time when the national debate is focused on getting control
of the budget, now and in the future, we cannot afford to provide
corporate subsidies which undermine our efforts and which distort
the free market. Perhaps most importantly, enactment of this legis-
lation will demonstrate that Congress and the executive branch are
serious about addressing and correcting a system which the Amer-



ican public as a whole sees as benefiting the few witl H

influence rather than serving the general public good.

Thank you, Mr. Chairman.

[The prepared statement of Senator Thompson follows:]

PREPARED STATEMENT OF SENATOR THOMPSON

Mr. Chairman, thank you for convening this hearing o >. legislation which Sen.
McCain, I and others of our colleagues have introduced to establish a corporate sub-
sidy review, reform and termination commission.

I think it is very important that we address the issue of v. hat is called "corporate
pork" directly, thoroughly and honestly.

My travels through Tennessee, if nothing else, have conviu I me that the Amer-
ican people have little faith in their elected leaders in Washi "on. Part of the rea-
son for this lack of faith is that people believe that governi nt often operates to
the benefit of the few and privileged. People need only to I ok at what appear to
be dozens of special spending and tax benefits enjoyed by profit making entities to
be convinced that they are correct in this assessment. They believe the sv^t: m .i ..^s
not operate fairly, and their lack of confidence in us affects our ability t;
reforms and make the hard decisions which must be mad* if we are to ge
try on the right track again.

This Congress has done a thorough and, I believe, ad^nirable job ol' examining
thousands of items of government spending. We have ide itified areas of spending
which should be reformed because they don't work as tVoy should. And we have
identified those which should be terminated because thei existence cannot be justi-
fied. In each case we have asked several questions: Doe; this spending promote a
useful public purpose? If so, can government afford it? hould the effort and the
money for it be transferred to the State or local level, % here it is closer to those
it is supposed to benefit?

As part of this process we have examined some prog :ns whose primary bene-
ficiaries are profit-making enterprises — businesses of all ./:.es. In several such cases
we have made progress on incremental reforms. For instance, the Senate passed an
amendment to the agriculture reform bill to restrict he Marketing Promotion Pro-
gram through which $110 million is spent annually ' underwrite advertising in for-
eign countries by some of our largest corporations.

But these efforts and others that are ongoing ; .■ necessarily piecemeal. We can
cut out or restrict a corporate subsidy here, and leave another one untouched. And
we may end up further distorting the market b^ . nding the subsidy for one commer-
cial interest while leaving those enjoyed b> competing, cgrthnercial interest in
place. *y-<'^->%

Last year, as part of an effort to highligh line issue of iede"^^ subsidies to profit-
making enterprises, a bipartisan group oi -oileagues ancf ,1 p^pcf^e^i reforming 12
specific programs which are characterized v some elemeh'tof Cerporate subsidiza-
tion. We chose these examples to demonst a:- thafc^SRchc-pro^ams jexist in virtually
every industry, from military construction ■ ^■2^'gy prpi&uction, to c(5nsanier prod-
uct advertising. While all the sponsors wf rioi unifo/hily.-,ent!TusiastiC about each
of the 12 examples, we believed the pack ,,^0 as a.wholeuftderscm-ed an' important
point and demonstrated our willingness t,o ^x^mine government spendi^i^<irii^very
area. They were only a sampling of all aiich pj;6OTam&T - 'the GATO Iilfstitofe 'gjid^the
Progressive Policy Institute have identifiec^ jb\%?QHne ^t(^k^e'^p^s mey tepfi'^'^fepr-

porate pork". ^ ■,'^^r^^^4; % -Cc^^-r'fc'^'^ ^ "^o "^ •"•<>

Sen. McCain offered this package of 12 iteifvf; as ^ aifienatttent %. th^Rec^^^
ation bill, where it received the support of only a foiirthof the-§e;nate/?^ \ %-'^-o-Sj,

Clearly this problem needs to be attacked in a diffe^rent^v^YiJ^'hicb, is^i^y '*we<p.'7j
introduced this legislation to establish a Corporate Subsidy '^e^jn&j^^ Q,<^tc\\§-%.
sion. ■ 1^, #- -^^ ■> O, P^^ ^^'^<^%

The Commission is charged with identifying spending programs or tax :poli6|fiS ^>'^<^
which provide unnecessary benefits or inequitable tax advantages to profitrmakin^ %. ■
enterprises. The Commission is fashioned after the BRAC Commission, with-^xpe^tS- '^
dited legislative procedures similar to those provided for the Congressional Budget ^
Resolution. Our bill establishes a process which allows input and change by both
the President and the Congress.

Why establish a Commission and a new process to do what we could conceivably
do directly?

First, and most important, this Commission will do what we cannot do well: make
an overall informed assessment of all programs, on both the spending and revenue
sides, at one time. Over the years we have created an intricate, interwoven system



<^



of subsidies, taxes and exemptions. For example, a Tennessee utility which would
have been affected by the spending cuts we proposed last year pointed out to me


1 3 4 5 6 7 8 9 10

Online LibraryUnited States. Congress. Senate. Committee on GoveS. 1376, the Corporate Subsidy Review, Reform, and Termination Act of 1995 : hearing before the Committee on Governmental Affairs, United States Senate, One Hundred Fourth Congress, second session, on S. 1376, to terminate unnecessary and inequitable federal corporate subsidies, March 5, 1996 → online text (page 1 of 10)