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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 4 of 10)
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so. This urgency comes from the basic pattern of growth in the global economy. For
the last 25 years, the world's non-advanced economies have achieved average an-
nual growth rates that are more than double those of the advanced economies. Both
sides of this pattern^ — strong growth in the developing world, relatively slow growth
in the advanced world — are significant. The sobering implication for the United
States and other major economies is that we no longer generate sufficient internal
demand to drive higher growth — and a decade of high budget deficits throughout the
advanced world proves that the old solutions don't work anymore either. As a con-
sequence, we will have to tap demand where it does grow fast, in the developing
world, through expanded foreign investment and trade.

But there's a catch: Trade is a two-way street. Gaining access to the markets of
the developing world entails opening our own markets to their producers, a relation-
ship which is already a factor in the very slow income gains of our own less-skilled
workers. In effect, globalization has vastly expanded the effective supply of low-
skilled labor available to many corporations, bidding down the price of low-skilled
labor at home. The best solution available is to enhance the productivity of our own
less skilled workers— which involves greater private investment in capital equip-
ment, through deficit reduction; greater public and private investment in education
and training, and strengthened competition, to ensure that workers and firms make
the best use of their capital and human investments.

None of this will be possible unless we finally reform industry spending and tax
subsidies — and the major entitlement programs as well. In PPI's view, the best way
to begin is to create a base-closing type commission empowered to drive a process
of systematically reconsidering the value and the expense of these subsidies.

Thank you very much.

Chairman STEVENS. Thank you.

Mr. Shapiro, I am interested in the Hst that has come from Cato.
I don't know if you have seen it. But, for instance, not picking on
my friend here from Tennessee, but the Tennessee Valley Author-
ity, I notice that the Western Authorities are involved in marketing
Columbia River power. How do we deal with the successful pro-
grams of the past that are still carrying on? The question is wheth-
er they go on in the future.

Let me just give you a footnote to that. In 1971, I suggested that
the Alaska Power Authority be sold and made available to the peo-
ple of Alaska to buy. It took 25 years to get Congress to approve
that, and the reason it was stalled was that one Senator insisted
that there be restrictions put on who could buy that power from a
series of dams — well, one principal was built by taxpayers' money.
The offer was to pay back what the taxpayers had put into the
dam, but the restrictions on the use of power from the dam were
to be perpetual. It took us 25 years to get away from that concept
and say we will sell it, but the Federal Government can't control
it anymore after it is sold.



21

Now, you have got the Tennessee Valley Authority, for instance,
here. You don't have the others, as I mentioned, or he does. How
do you get away from the regional discriminations that could come
about by such a list?

Mr. Shapiro. Well, in our list, we do have the Power Marketing
Administrations, all of them, and propose that at least

Chairman Stevens. Well, they are up there on his, too. But Bon-
neville is not there and several of the others.

Mr. Shapiro. And the Tennessee Valley Authority as well. But
you raise an important question and that is a program created to
serve a legitimate public purpose. Once it has served that purpose,
by continuing becomes a subsidy, an artificial subsidy. And I think
frankly that TVA is a very good example of that, created for a le-
gitimate purpose to electrify the Tennessee Valley, and likewise the
Power Marketing Administrations.

Chairman STEVENS. The Power Marketing Administration pro-
posal has been defeated at least five times in Congress.

Mr. Shapiro. That is correct.

Chairman STEVENS. The Tennessee Valley Authority, if you are
going to cut off the funding for it, you are going to have to be will-
ing to sell it. That again gets back to what I asked Mr. Moore. You
cannot just cut off TVA's money unless you are prepared to put a
price on it and sell it. How do you handle that with such a commis-
sion? Do you say we are not going to put it up and here is the price
for it? Or are we going to cut it off when we do sell it? Until it is
sold, you couldn't cut off Tennessee Valley Authority users.

Mr. Shapiro. Of course not. As in any activity where the Govern-
ment withdraws from an activity, there is a necessary transition,
and we do this every time we change the tax law. We change the
arrangements on which business arrangements have been made,
and we provide the investors an opportunity to adjust to the
change. Likewise, in selling an existing asset which is no longer —
which has become a way of transferring resources from normal tax-
payer, from average taxpayers to the people who happen to benefit
geographically from a previous investment by the Government. You
have to have a transition period.

But certainly let me say I certainly appreciate how difficult it is
to ever withdraw any of these benefits. That is, of course, why we
have $200 billion deficits.

Chairman Stevens. I am just worried about the balance, like I
asked Mr. Moore. I don't think you can say stop paying the money
to TVA unless you at the same time say it is available for someone
to purchase and continue its operation.

Mr. Shapiro. I agree with that.

Chairman STEVENS. But the proposal is just to cut off the annual
expenditure money, not to go to the underlying cause of the ex-
penditure of the money. The same thing I was talking to you about,
Mr. Moore.

Mr. Shapiro. Well, I can't speak to Cato's proposal. I am sure
that Steve will. But the point certainly of our effort and of Cato's
effort has been to draw the attention of the public and the Con-
gress and the administration to activities which, in effect, are per-
verse economically. They not only maintain a larger deficit, but
they undermine the productivity of the economy by doing so, by



22

their very activity, and to draw the attention of Congress to make
a provision for phasing out the Government's, the taxpayers' in-
volvement in these activities.

But you are absolutely right that there are many activities
which, in order to withdraw our Government, the taxpayers' invest-
ment, we can't simply end the appropriation. We have to recognize
the way in which that activity has become embedded in the com-
mercial life of the region where it is situated and create transition
arrangements, much as we do in every tax bill. Senator.

Mr. Moore. Yes, let me just add to that, Senator. Many of the
items on our list, when we say they should be eliminated, we don't
address how they should be eliminated. And you are quite correct
that with things like the Tennessee Valley Authority, many of the
things on this list, Export-Import Bank could be privatized, OPIC
could be privatized. And so, you know, maybe the route to getting
rid of these things is to put up the assets for sale or to simply allow
that activity to be done by a private company. OPIC and Export-
Import Bank right now, to some extent, compete with private in-
surance companies.

Chairman Stevens. Well, I don't want to prolong it, but I am.
But, anyway, I want to support this concept of creating some com-
mission to look at unnecessary expenditures that deal with advan-
tages for the corporate structure, call it whatever you want. But
the difficulty is that in looking at the lists that have come up, you
look behind those lists to find out what caused those expenditures,
and the policy decision to get rid of the expenditures is an enor-
mous one on different issues.

Take, for instance, the Forest Service. You have got Forest Serv-
ice roads on yours. The road and trail construction, I don't know —
any purchaser of timber would prefer to build their own roads. The
reason the Forest Service does it, they want different standards,
they want larger culverts, they want those roads to be permanent
so there will be recreational access, areas available for a longer pe-
riod of time, much longer than you would have if you just build a
road, go in and cut timber and get out there for 70 years.

The decision as to who is going to — under what conditions you
can get those roads constructed in these areas for recreational ac-
cess, I don't think you would say to knock out recreational trails.
You have said knock out road and trail construction. But those that
are constructed by the Forest Service have a secondary purpose,
and that is, the lasting benefit for recreation or access for flood con-
trol, whatever it might be.

Now, how do you get to the secondary issue? That is what I am
asking you both. How do you get to the secondary issue first and
eliminate the need for the money before you just say let's just cut
ofl" the money?

Mr. Shapiro. Senator, under Senator McCain's legislation, the
recommendations of the commission would then be referred, as I
understand it, to the appropriate authorizing committees, and I
would suggest that that would be the place where the underlying
issues would be examined and some kind of appropriate either
transition treatment or additional changes, because, as you say, in
many cases they are — like in the Maritime Administration pro-



23

grams, the subsidy, in fact, reflects a — is in part a response to an-
other provision, and that that would be the appropriate place.

Mr. Moore. And one way of dealing with perhaps the issue that
you addressed, the road building, is to charge the timber companies
essentially a user fee. In other words, the Forest Service could con-
tinue to build the roads if they are needed for recreational pur-
poses, as you suggest; but when they are also being used for pur-
poses of hauling out timber, then why not charge — I mean, we
know that the timber companies are getting a subsidy from these
roads, so why not charge them some kind of fee?

Chairman Stevens. No, I disagree with you. They are not get-
ting subsidies. As a matter of fact, as I told you, in almost every
instance I know they could build them a lot cheaper than the Grov-
ernment could build them, and you don't go into those areas for
timber except once every — in our State, it is 104 years before you
can go back to an area and cut it again.

Now, no one in his right mind is going to build a road to last for
104 years. He is just going to build it for that one time, temporary
access, and get out. But that is not sufficient for the purposes of
other uses of the Forest Service.

But, again, I don't want to debate the issue. How do you — the
proposal before us just gets to eliminating what people t5T)ify as
being — whether the commission members or us — corporate pork.
But if you look underneath the corporate pork, you find the reason
for it is another policy decision made by a prior Congress and a
prior administration.

Now, how do you get to that basic underlying cause? That is the
thing that I am arguing about.

Senator McCain. Mr. Chairman, could I respond to that just
briefly?

Chairman Stevens. Sure.

Senator McCain. The reason why we departed in this legislation
from the Base Closing Commission procedure, which just provides
the Congress with an up or down vote, is that this legislation pro-
vides for these recommendations to be referred to the authorizing
committees so the authorizing committees can address the very
valid concerns that you raise.

If the Jones Act needs to be repealed in order for the maritime
subsidies to make sense, then the authorizing committees should
act in that fashion. If the TVA needs to have a gradual procedure
for being sold off, its assets, at the maximum benefit to the tax-
payers, then the authorizing committee would address that. And if
they can't, if there is — I don't think there is a situation, but if there
is a situation where they say, look, if we repeal this particular sub-
sidy, that is going to destroy the market or throw thousands of peo-
ple out of work or something, then you just don't do it.

Chairman STEVENS. Well, I am not raising, John, that question,
but I am raising the question of why shouldn't there be a burden
on the commission to examine the history and the reason for the
program being in place and to analyze the basic underlying root
cause of the expenditure before they come up and tell us you are
in favor of corporate pork if you don't eliminate it? That is the
problem I have got.



24

Senator McCain. Mr. Chairman, could I just respond very quick-
ly to that? In the legislation, it says "all actions, circumstances,
and considerations relating to or bearing upon the recommenda-
tions and to the maximum extent practicable, the estimate effect
of the recommendations upon the policies and programs for which
they are recommended." The commission, I believe, would be
tasked to take that into consideration as well, according to this leg-
islation.

Thank you, Mr. Chairman.

Chairman Stevens. Senator Thompson?

Senator Thompson. Yes, I think that is contemplated by the act.
I think this discussion is a great one because it points up the need
for a commission. I don't think we can prejudge any of these acts
before we have a forum whereby they can all be laid on the table,
pros and cons, by people who are supposed to know what they are
doing. Then the Congress has got a bite at the apple; the President
has got a bite at the apple. It is not like anything is going to slip,
we are going to do away with a lot of corporate subsidies under
cover without anybody knowing about them. I don't think that has
been the problem historically around here.

Put them all on the table. Let them justify themselves. TVA re-
ceived — we are talking about the non-power part now, because the
Power Administration doesn't affect the taxpayer anyway. The
ratepayers pay for that. So we are talking about the non-power
part. And the last appropriations reduced 1995 appropriations by
24 percent. So there has already been a 24 percent reduction in the
non-power part.

As you say, you are going to have to look at the whole picture
because part of what they are doing is maintaining the lakes and
grounds and everything down there. And if they don't do it, a lot
of people say the Corps of Engineers will have to do it, and it will
be the same cost to the Government.

Those are all the kinds of things that a commission would put
on the table. I just get the impression that historically these items
have been considered piecemeal as a part of other larger bills. We
have probably had more debate today on some of these things than
we have had in the past. This is the way to get a lot of them on
the table. Let's have that debate. And if they can be justified, so
be it. Not everything that has gone on somebody's list historically
is necessarily a subject for elimination.

I just have one question of Mr. Shapiro. You bring an additional
point to the table that I think is not usually brought up when dis-
cussing this. That is the question of growth. There is an awful lot
of talk about that right now, and I think we are finally coming to
the conclusion that this is something that we are going to have to
spend a whole lot more time on.

Do you really think that this is an element of that picture? Is it
minuscule? Is it substantial? Would it increase our competitiveness
if we made some major headway? Is this really a legitimate part
of the growth debate that I believe is going to be a major debate
in this country from here on out? We are talking about, as you
know, 1 and less than 2 percent growth. I think maybe you pointed
out these under-developed countries are eating our lunch as far as



25

growth is concerned. Is this a legitimate and substantial part of
that overall picture you paint?

Mr. Shapiro. I think so. I think certainly if you expand your con-
cept of subsidy, of industry subsidy, to take in not only the direct
spending and tax subsidies, but also trade protections which sub-
sidize an industry by insulating it from competition, and certain
forms of regulatory insulation that, in effect, subsidize industries,
the telecom bill is a very good step, I think, in general away from
that, a deregulatory step away from a kind of subsidy for some
parts of the existing telecommunications industry.

If you look at all the dimensions of subsidy, then I think you are
probably talking about something that can have a more than mar-
ginal impact on the underlying growth rate of the economy. We are
talking here about affecting the distribution of capital resources to
the tune of $50 to $100 billion a year. That is roughly equal to
rates of business fixed investment. So we are talking about some-
thing that is quite substantial with regard — I mean, you know, as
a matter of scale in the economy.

No single provision has a significant effect on the macro econ-
omy. But when you layer, when you encrust the economy with
layer upon layer of these subsidies, insulating more and more sec-
tors from the basic need that markets create to figure out how to
be more productive and how to be more innovative

Senator THOMPSON. Another form of industrial policy or part of
an industrial policy approach to things.

Mr. Shapiro. Well, it is an industrial policy without a principle.
Industrial policy is bad enough, and then this is one without a
principle at all. It is industrial policy according to the distribution
of political influence. Senator.

Mr. Moore. Can I just add one thing to that? That is, if you ac-
cept that the size of the corporate welfare pie is somewhere in the
neighborhood of $50 to $100 billion, which is the estimates by the
General Accounting Office and Cato and PPI, think of that number
in these terms: We raise about $30 to $35 billion a year from the
capital gains tax, and one of the things I asked my business friends
who support many of these programs is, look, which would be bet-
ter for your business: if we had no capital — in other words, if we
could get rid of just half of the corporate welfare in the budget, we
could eliminate the entire capital gains tax.

Now, Senator, which would be better, you know, for our economic
growth rate — to have a capital gains tax or to have targeted sub-
sidies to several businesses? Or to put it another term, we could
reduce the tax burden on corporate America by over a third if we
could get rid of just these spending subsidies.

So when you are talking about economic growth, I think there is
no question that we can substantially increase our growth rate and
also substantially reduce the budget deficit, which I think everyone
agrees, whether they are on the left or right or the middle, is a
substantial deterrent to economic growth right now.

Mr. Shapiro. Let me give you one other example that is not fi"om
the corporate tax side. We have all estimated $50 to $100 billion
a year. For about $9 billion a year, you could replace current pro-
grams for tuition support for higher education with a commitment
that the Federal Government would pick up the tuition at a state



26

university of any high school graduate with a B average; that is,
the current Georgia Hope program could be nationalized, could be
provided to every high school graduate who graduated with a B av-
erage. The Federal Government could pick up the tuition at a state
university in their state for $9 billion. So, I mean, we are talking
about a potentially enormous investment in either capital invest-
ment through the kinds of tax provisions that Steve is talking
about or human capital investment for a relatively small share of
the amount currently given to influential industries in subsidies.

Chairman Stevens. Tremendous policy decision there. Think of
the number of people who really didn't blossom in college and have
become our leading thinkers and inventors, and you would say only
if you got a B average, a freshman in college, would you continue
to get any assistance?

Mr. Shapiro. No, well, I am saying

Chairman Stevens. The policy judgments behind what you gen-
tlemen are suggesting are enormous.

Mr. Shapiro. I am just giving you a sense of dimension, Senator,
of the kind of alternative uses of resources. If you chose to main-
tain current programs, current Federal programs, you could still
provide this for less than $9 billion. It is just a matter of scale.

Chairman Stevens. I think targeted tax benefits are, without
question, a form of corporate pork. But if you get down into — for
instance, on Mr. Moore's list is the Minority Business Development
Agency, without which we would not have broken the glass ceiling,
without which we would not have had the advent of Indian partici-
pation in telecommunications businesses, without which you would
not have had a lot of the change in our society that we have seen.

Now, there, again, today it may be considered corporate pork, but
in the days when there wasn't a black member on any corporate
board and the days when you didn't have any women participating
and you had no Indian businesses, it was an absolute necessity. As
a matter of fact, Dixon did it.

Now, when you look at it, has it lived too long? Has it lived so
long now it is called corporate pork? So my friends here and I dis-
agree about that. But, again, I am not worried as much about the
issues that I am worried about we are going to have a commission
coming up here and dumping on our lap something that says that
is corporate pork, when those of us with an institutional memory
know that it was not intended to be. That is the problem.

Gentlemen, any more questions?

Senator McCain. Thank you, Mr. Chairman.

Chairman Stevens. I shouldn't be arguing from this pulpit,
John; is that what you will tell me, John?

Senator McCain. No, sir. No, sir. I thank you, Mr. Chairman,
and I think you have raised some very legitimate concerns. But I
also would suggest that unless we address this in a way that is im-
mune from the influence of special interests, then I don't think we
are going to address it. And when we buy a B2 bomber which has
no earthly use in the post-Cold War era, when we fund a highway
demonstration project in some powerful Senator's or Congressman's
district, when we subsidize the sale of military equipment to over-
seas purchasers — which, by the way, from time to time we have
ended up fighting those same people that purchased those weapons



27

systems — when we have a Jones Act which requires only domesti-
cally owned ships to carry commerce to our domestic ports, there
is only one person that suffers from all this. There is only one per-
son that doesn't get anything from this, and that is the average cit-
izen, who right now has a huge tax burden, who right now has
voiced their concerns about the fact that they are working harder
and not able to keep up. I would suggest the primary reason for
that is the crushing tax burden which they carry. And yet we con-
tinue to support programs which help particular individuals and
corporations and companies that have a lot of influence here in the
Capitol.

Yet I never get to see at the witness table the person who says,
gee, you know, back in 1950 my parents sent one out of every $50
that we made in the form of taxes to Washington, and now today
I am sending one out of every $4 that I earn to Washington in the
form of taxes.

I don't know why the B2 bomber, just because it is built in Cali-
fornia, which has a large number of electoral votes, should be nec-
essary for me to spend my tax dollars to the tune of $18 billion
over 7 years, when the Pentagon says they don't want it, every
thinker that I know of militarily says that we don't need it, when
we have an Export-Import Bank that basically subsidizes large cor-
porations and not small business that you are talking about. And
you referred to Native Americans. There is one thing that I have
become convinced of, is that with all these subsidies and payments
and socialistic attitude that we have had toward Native Americans,
we have harmed them a heck of a lot more than we have helped
them.

There is a tribe down in Mississippi that was just written up in
the last couple of days in one of the major newspapers — I think it
was the New York Times — called the Cherokee Nation, that they


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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 4 of 10)