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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 2 of 10)
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that they are in turn are competing against other energy providers who receive sub-
sidies in the form of federal tax exemptions.

Second, our experience last year demonstrated that voting hit or miss on individ-
ual 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 approach, we will know that all programs have been examined and
those which provide unjustified subsidies have been exposed.

Third, the members of the Commission will be appointed specifically for this pur-
pose 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 Commissions recommenda-
tions, they must address them.

We should require no less of profit-making enterprises than we ask of all Ameri-
cans. 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 legislation will dem-
onstrate that Congress and the Executive branch are serious about addressing and
correcting a system which the American public as a whole sees as benefiting the
few with access and influence, rather than serving the general public good.

Chairman STEVENS. Thank you very much, gentlemen. I hope
you will join me here at the Committee table for the rest of the
hearing to the extent you may have time to remain. I know you
have other committees.

I do want to state to you we had an indication yesterday that we
probably had not publicized the hearing well enough, and it may
be necessary at a future hearing to review the perspective of busi-
nesses affected by this bill and seek their comments on the me-
chanics. We did not go out to solicit persons who might either op-
pose the bill or question the mechanics, but I think we will leave
the subject open to see if there is a formal request, as I indicated
yesterday there might be.

I would be happy to have you join me. Our next panel is going
to be Stephen Moore, the executive director of the Cato Institute,
and Robert Shapiro, the Founder and Vice President of the Pro-
gressive Policy Institute.

I am told those witnesses are not here yet, so let's go to Panel
3: Martha Phillips, Executive Director, Concord Coalition, and Ann
McBride, President, Common Cause. Are you here?

The witnesses are not here. We will stand in recess for a few mo-
ments and see if there is some problem about notification.

[Recess.]

Chairman STEVENS. I am informed there are some traffic jams.
We set the meeting early because of other conflicts and other hear-
ings, gentlemen. I am sorry about that. But we will see what hap-
pens.

[Recess.]

Chairman STEVENS. I am informed Mr. Moore is here now. Mr.
Moore, would you be willing to proceed now? Yes, come up and just
start your statement, please. We have a panel, but we might as
well proceed with it. I apologize for the problem of setting the hear-
ing early.

Thank you very much, Mr. Moore.



TESTIMONY OF STEPHEN MOORE, EXECUTIVE DIRECTOR, THE

CATO INSTITUTE

Mr. Moore. Thank you, Senator.

First of all, I think would like to commend this Committee, and
especially the work of you, Mr. McCain, for introducing this legisla-
tion, S. 1376, on corporate welfare. Let me just give you a little bit
of background about how we got involved in this issue and why I
feel it is such an important issue in terms of dealing with the budg-
et deficit problem that is perplexing our country right now.

Last year, you may recall that Labor Secretary Robert Reich is-
sued a challenge to groups like the Cato Institute and the Progres-
sive Policy Institute — I understand my friend, Robert Shapiro, will
be here a little later — the Heritage Foundation and others to come
up with a list of corporate welfare subsidies that could be reduced
out of the budget.

We took Mr. Reich up on his challenge, and we started to really
scour through the budget to try to determine just how much cor-
porate welfare is in the budget. Now, we were concentrating mainly
on the spending side of the equation. We went through every de-
partment, every line item in the budget, and tried to determine
what that figure was.

Now, many groups have come up with different types of figures.
We came up with a figure of about $85 billion per year in special
corporate welfare subsidies that go to mostly large business in
America. These subsidies tend to be found in virtually every Cabi-
net agency. The agencies that are most commonly found with cor-
porate welfare would include the Agriculture Department and the
Commerce Department.

Now, late last year, we decided to look at what actions Congress
actually took to reduce some of this corporate welfare. I should say
that there have been some real heroes in this fight. Senator
McCain obviously is one of them. John Kasich on the House side
has really made a high commitment to attack corporate welfare
wherever he found it.

Unfortunately, our assessment is that last year's budget did not
do a very good job of attacking corporate welfare, to put it very
frankly. At the back of my testimony, if you have a copy, we put
together a chart of the 25 to 30 major corporate welfare programs
in the budget. These are probably the programs that are the most
abusive or programs that almost everyone would agree come under
the rubric of corporate welfare.

What we found was that when you look at this sample of pro-
grams — again, these are the most abusive — the spending on these
programs was $9.3 billion in 1995. Congress appropriated $7.8 bil-
lion for these programs, so that was a half-decent job. What we
found was about a 15 to 16 percent cut in corporate welfare sub-
sidies.

Interestingly enough, the administration had actually proposed
an increase in these programs — in fact, a 4 percent increase in the
25 or so programs that are the biggest abuses of corporate welfare.

I would have liked to have seen a larger cut in those programs.
I am sure that you all on this Committee would have liked to have
seen larger cuts in these programs. But it was a half-decent start,
and the question is: What are we going to do now?



Now, the one thing that has frustrated me is that throughout
this last year, we at the Cato Institute really made this a very high
priority to attack corporate welfare, and we came out with our re-
port last year called "Ending Corporate Welfare As We Know It."
After that report came out, we must have been called by three or
four dozen corporate lobbyists from every large Fortune 500 com-
pany that you can think of, and the interesting thing was that in
every conversation that I would have with these K Street lobbyists,
they would make the same point: We are all in favor of cutting the
deficit; we are all in favor of downsizing the budget; but you have
to understand this particular program that we get a benefit from
is a very special program, and this program should really be spared
the budget knife.

You know, that explains why it is so difficult to cut the budget
in general: No company wants to cut spending for the programs
that they get benefits from. And the reason I am telling you all this
in background is that it illustrates the point of why it is so difficult
to cut spending in general and corporate welfare in particular.

This has become an area of parochial spending, and when you
come down to the key votes to get rid of these programs, we often
find that even the most committed deficit hawks vote the wrong
way. So this is why I believe that Senator McCain is quite correct
when he calls for a bipartisan commission. As I understand, it
would be modeled after Dick Armey's base-closing commission. I
believe this should be a bipartisan commission. I believe that you
should give it a targeted amount of spending reduction to come up
with. And the third thing that I would recommend — and I will end
my testimony with this — is that I would recommend that this com-
mission be targeted towards looking at the spending side of the
equation.

The interesting thing I found about corporate welfare is that cor-
porate welfare has become like pornography. Nobody knows exactly
what it is, but they know it when they see it. And this has raised
a lot of problems because I have often noticed when I deal some-
times with my friends on the liberal side of the aisle, when we are
talking about corporate welfare, we are talking about different
things. They would, for example, say that if you cut the capital
gains tax, that is corporate welfare. And I would strongly disagree
with that. I think that corporate welfare is a specific targeted bene-
fit that the Government is giving to a specific company or a specific
industry.

I don't think it is corporate welfare, for example, if this Congress
or any Congress were to cut the corporate income tax rate, because
that is something that would provide a level playing field and a tax
cut for all companies.

I would like to leave the issue of corporate loopholes aside, and
the reason for that is that next year there is a very high prob-
ability that this Congress is going to be taking up the issue of tax
reform, radical tax reform, either a flat tax or something like what
Mr. Archer wants, a wholesale consumption tax. And we ought to
leave this issue of fixing the Tax Code for when we do radical tax
reform. And when we still have somewhere in the neighborhood of
$70 billion of spending cuts to address, I think this commission
should be restricted to those issues.



10

So I would like to commend this Committee for holding these
hearings and you, Mr. McCain, for introducing this very important
legislation. I would be very happy to answer any questions you
might have.

[The prepared statement of Mr. Moore follows:]

PREPARED STATEMENT OF STEPHEN MOORE

Thank you for the opportunity to testify before the Senate Government Affairs
Committee on S-1376, the Corporate Subsidies Review, Reform and Termination
Act of 1995. I support the concept of creating a Commission to examine the cor-
porate safety net programs in the budget, and identify the vast amount of taxpayer
savings that could and should be realized by eliminating these subsidy programs.

I believe it would be best of all if Congress unilaterally exercised its fiduciary duty
to the taxpayers of the country to weed out corporate welfare wherever and when-
ever it appears in the budget. We should not need a commission for such a straight-
forward task. Unfortunately, only a handful of members of Congress, including most
prominently Senators McCain and Feingold, have shown the courage to take on the
K St. lobbyists and defend the taxpayers.

But since Congress — and even more so the Clinton Administration — has dem-
onstrated in recent years very little serious commitment toward cutting corporate
pork, perhaps a commission, modeled after the Armey military base closings com-
mission, is needed to prod Congress to do what it ought to feel honor bound to do:
cut the tens of billions of business subsidies that have become encrusted on the fed-
eral budget.

Just how large is Uncle Sam's corporate social safety net today?

Last year Dean Stansel and I released a study entitled "Ending Corporate Welfare
As We Know It." In this study we identified roughly $75 billion each year spent by
the Federal Government on more than 125 programs that provide direct taxpayer
assistance to American businesses. Recently, the General Accounting Office verified
our numbers, by calculating a corporate subsidy total that was only slightly lower
than ours.

To put the cost of these subsidies in perspective, if all federal assistance to busi-
ness were purged from the budget, the budget deficit could be cut in half Alter-
natively, if Congress were to eliminate all these corporate spending subsidies, this
would generate enough savings to entirely eliminate the capital gains tax and the
federal estate tax. Reducing the deficit or eliminating these anti-growth taxes would
do far more to benefit American industry and U.S. global competitiveness than ask-
ing Congress to pick industrial winners and losers.

Just what is corporate welfare? To some, it is like pornography: they can't define
it, but they know it when they see it. Some groups have mis-identified corporate
welfare labelling such things as a capital gains tax cut for all companies to be a
"corporate subsidy." A universal tax cut for business is not "welfare." We define cor-
porate welfare as the use of government authority to confer special benefits or privi-
leges to specific firms or industries where there is no corresponding societal benefit.

Last year the new Republican Congress pledged to "attack corporate welfare" as
part of its quest to enact a 7-year balanced budget plan. The Clinton administration
also seemed eager to terminate unwarranted government handouts to business. The
administration even challenged the GOP Congress to identify and eliminate "aid to
dependent corporations."

How much was actually cut? Out of the $75 billion pie, we estimate about 15 per-
cent was reduced, or about $10 to $12 billion. Eighty-five percent of the corporate
welfare safety net survived intact. The attached Table shows a summary of the cuts
made to the 25 most indefensible corporate welfare programs in 1995.

• Congress did eliminate or substantially eliminate the following corporate welfare
programs: the Travel and Tourism Administration; the Department of Commerce
Advanced Technology Program; the Pentagon's Technology Reinvestment Project;
Sematech; the Bureau of Mines; highway demonstration projects; and the Penn-
sylvania Development Corporation.

• Conversely, some very expensive corporate subsidy programs were reduced mini-
mally, or not at all. These programs include: the Department of Commerce; agri-
culture research service; the International Trade Administration; the Federal Hous-
ing Administration; fossil energy R&D; the Bureau of Reclamation; the Office of
Commercial Space Administration; the Overseas Private Investment Corporation
(OPIC); and the Export Import Bank. Spending was actually increased for the Agri-
culture Marketing Promotion Program, which subsidizes the foreign advertising of
U.S. corporations such as Pillsbury, Dole, and Jim Beam.



11

We rate Congress' first-year performance on this issue a mild disappointment and
the size of the cutbacks minimal. Some cuts were made — indeed, far more than were
ever enacted by previous Democrat Congresses — but huge amounts of the corporate
welfare state went untouched.

But if the Congress' performance was a disappointment, the Clinton Administra-
tion's was dismal. With few exceptions, the administration has shown itself hostile
to even the modest corporate welfare cutbacks proposed by Congress. In fact, we
find that of the 25 worst offender corporate welfare programs, the administration's
1996 budget actually requested a 4 percent increase in spending (versus the 15 per-
cent cut enacted by Congress). In addition, the President's vetoes of the GOP budg-
ets target corporate welfare cuts as being too deep. Clinton has, at least for now,
helped torpedo GOP efforts to shut down techno-grant programs, such as the Ad-
vanced Technology Program; to make even minor reductions in agriculture price
support programs; to end costly and inefficient Department of Energy research
projects; and close agencies such as the Department of Commerce, the nerve center
of the federal corporate welfare state.

Over the past 18 months, the Clinton administration proved itself to be corporate
welfare's best friend.

What should Congress do this year in the wake of its disappointing performance
on corporate welfare in 1995? I would recommend the following steps:

(1) Congress should immediately enact a budget recision spending bill that could
be entitled "The Corporate Welfare Elimination Act."

This budget bill should terminate at least 20-25 business subsidy programs with
a 7-year savings of at least $75 billion a year. The bill can be crafted in a bipartisan
fashion by identifying those programs that have been universally targeted for ex-
tinction by groups such as the Cato Institute, the Heritage Foundation, the Progres-
sive Policy Institute, and even in some cases the Nader group Essential Information.
This should be a central element of any "deficit downpayment budget" strategy.

Spending programs included in this recision should include, but not be restricted
to:

The Export Import Bank

The Small Business Administration

The Advanced Technology Program

Forest Service Road Building

Federal Housing Administration subsidies to mortgage lenders

The Agriculture Marketing Promotion Program

Manufacturing Extension Program

National Technical and Information Administration

International Trade Administration

Department of Energy R&D funding

The Maritime Administration

Overseas Private Investment Corp. (OPIC)

Agriculture Research Service

Minority Business Development Administration

Economic Development Administration

Sugar price supports

The peanut program

(2) Corporate tax loopholes should be dealt with in the context of an overhaul of
the tax system .

Raising the overall tax burden on corporations does nothing to reduce the size of
the corporate welfare state. In some ways, in fact, corporate tax hikes only raise the
stakes for businesses to carve out special tax exemptions and loopholes. Similarly,
a generalized tax cut for businesses is not equivalent to expanding corporate sub-
sidies.

This issue has been a repeated source of confusion. For example, the Center on
Budget and Policy Priorities reported that the House tax reduction bill that passed
last year "increased business subsidies by $74 billion over 7 years." The Center con-
cluded that "there is a chance that business subsidies could increase as a result of
this year's [1995's] budget decisions." But it turns out that the Center was scoring
many elements of the GOP tax cut bill as "business subsidies," including the capital
gains tax cut, and the more generous depreciation allowances for business capital
purchases. Cutting business taxes across the board is most assuredly not corporate
welfare.

There are several reasons why Congress should not focus this year on closing cor-
porate tax loopholes. First, there is still at least $60 billion a year in direct taxpayer



12

subsidies that have not been terminated on the expenditure side of the budget.
Since the direct spending of taxpayers' dollars is the most offensive feature of the
corporate welfare state, the expenditure subsidies should be the top priority of this
Congress. Second, almost all of the corporate loophole closings are being proposed
instead of cutting the budget, rather than in addition to it. Every dollar of corporate
tax increases in the context of balancing the budget has been a dollar more that
Congress will spend in other areas of the budget — in many cases on business sub-
sidies.

Finally, corporate welfare in the tax code should be eliminated in its entirety in
the context of the revolutionary change in the tax code that is expected in 1997. Ma-
jority Leader Dick Armey's flat tax bill would eliminate all corporate welfare from
the tax code in exchange for a single low rate tax system. Bill Archer's proposal for
a national consumption tax to replace the income tax would immediately and for-
ever end income tax preferences for businesses. Either of these proposals would lead
to a far more equitable and efficient allocation of economic resources in the econ-
omy. If corporate loopholes are eliminated before the flat tax or the sales tax is en-
acted, the tax rate would have to be correspondingly higher.

In sum, corporate loophole closings should be achieved in exchange for lowering
tax rates for all individuals and businesses. To the extent corporate welfare is a def-
icit reduction theme, it should be in the context of cutting business subsidy expendi-
tures.

(3) Congress should consider forming a bipartisan commission to terminate cor-
porate welfare spending.

A corporate welfare termination commission as recommended by Senator McCain
should address the business subsidy programs that Congress has refused to elimi-
nate through the appropriations process. My recommendation is that the commis-
sion should:

• Be required to target at least $75 billion in subsidy reductions over 6 years.

• Be focused only on spending programs, not tax increases.

• Be chartered to examine three particular areas of business subsidies: farm price
support programs, export assistance programs, and high technology grant pro-
grams.

As with the Armey base closings commission, the corporate welfare termination
commissions' recommendations should be voted on as a package with no amend-
ments by Congress within 60 days of the Commission's final report.

I applaud the members of this Committee for moving forward with this important
budget saving idea. My only reservation is that I hope that the formation of a com-
mission is not used as an excuse for Congress to move forward and make significant
cuts in corporate subsidies right now. Americans want a balanced budget that cuts
spending in a fairminded and evenhanded way. The GOP budget has been attacked,
with justification, for not cutting the corporate social safety net.

S-1376, the Corporate Subsidies Review, Reform and Termination Act of 1995
would be a first step in finally getting business off the federal dole.



13

How Major Corporate Welfare Programs Fared in the FY1996 Budget Process

(millions of dollars)

1996
1996 Presi-

1995 Appro- Percent dent's Percent

Actual priatlon Change Proposal Change

Agriculture Department

Agricultural Research Service $758 $740 -2 $740 -2

Cooperative State Research, Education & Ex-
tension Service 932 908 -3 870 -7

Economic Research Service 54 53-2 55 2

Foreign Agricultural Service 118 125 6 130 10

Forest Service— Road and Trail Construction 131 115 -12 130 -1

Market Promotion Program 86 110 28 110 28

National Agricultural Statistics Service 81 81 90 11

Commerce Department

Advanced Technology Program 431 -100 491 14

Economic Development Administration 410 349 -15 439 7

International Trade Administration 266 265 280 5

Manufacturing Extension Partnerships 91 80 -12 147 62

Minority Business Development Agency 44 32 -27 48 9

U.S. Travel and Tourism Administration* 16 2 -88 16

Defense Department

Sematech 90 39 -57 90

Technology Reinvestment Project 443 195 -56 500 13

Energy Department

Energy Information Administration 85 72 -15 85

Energy Supply, Research and Development 3,315 2,727 -18 3,397 2

Fossil Energy Research and Development 424 417 -2 437 3

Power Marketing Administrations 273 313 15 361 32

Transportation Department

Essential Air Service Program 33 23 -30 -100

Maritime Administration — Differential

Subsidies 214 163 -24 163 -24

Independent Agencies and Other

Export-Import Bank 782 743 -5 780

Overseas Private Investment Corporation t .... 58 98 69 106 83

Tennessee Valley Authority 143 109 -24 141 -1

Trade and Development Agency 45 40-11 67 49

TOTAL $9,323 $7,799 -16 $9,673 4

•Amount appropriated by Congress is to cover the costs of terminating the program.

t OPIC figures refer to the total subsidy, operating, and administrative costs, excluding insurance fees and other
offsetting collections.
Source: Pi' 1996 Congressional Appropriations Bill Reports.

Chairman Stevens. Well, Mr. Moore, I don't want to get into an
argument about the individual programs per se, but I would like
to get at one problem here. Take, for instance — and this doesn't
really affect my State because we don't get operating differential
subsidies for Jones Act trade to Alaska in vessels. But the operat-
ing subsidies are paid to the Merchant Marine because there is a
requirement that in certain instances the vessels be constructed in
the United States. I am sure you realize that.

But if you decide to eliminate the operating differential sub-
sidies, what are you going to do about the restrictions that brought
about that program? The restrictions are the American-built ves-


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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 2 of 10)