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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 5 of 10)
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have decided the heck with all these subsidies, the heck with all
of this BIA heavy-handedness, we are going to start a free enter-
prise system on our reservation. And guess what, Mr. Chairman?
They are doing fine.

Chairman Stevens. I don't disagree with that. Don't argue with
me about that.

Senator McCain. I guess my point is that we need to understand
that it distorts the market to provide these special benefits to ear-
marked special interests, but we also harm the taxpayer. The tax-
payer who really doesn't benefit from any of these programs really,
although certain small numbers of them may, but overall they are
the ones that are hurt by it. And when we brought up this bill.
Senators Thompson and Feingold and Kerry and myself, I knew
full well it would lose. I was just curious by how much. We got 24
votes.

The interesting thing about that amendment was that we have
the Cato Institute and PPI here, who are really, in the judgment
of most, at different ends of the spectrum politically, who are cer-
tainly not — let me put it a better way. They are not in tune philo-
sophically on many major issues, yet they were able to come to-
gether and come up with a dozen programs that they both were in
strong agreement that we should eliminate as a beginning. And,
Mr. Chairman, there was a famous executive who had a sign on his



28

wall that said, "The Lord so loved the world that he didn't send a
commission." And I am sure you could put the word "committee"
in place of that, and I don't like the Committees. I didn't like it
when the base-closing commission reported out that they were
going to close Williams Air Force Base, which I thought was the
finest air training facility that the Air Force had. But I also knew
that no other base was going to be closed if we didn't leave it in
the hands of the commission, because we had proven over the last
30 years or so that we weren't going to be able to close a single
military base in America. And I view this as the same problem we
are facing with corporate pork.

And let me just say again, Mr. Chairman, your corporate mem-
ory is far in excess of mine and Fred's, and I think you bring up
some very important points here. I really do, because we don't want
to put people out of work, we don't want to destroy family busi-
nesses that people have been in for a long time. But I would hope
that the commission's charter would say that these things have to
be taken into effect.

I am not so naive as to believe we could make these changes
overnight. Some of them would have to be extremely gradual. Fred
pointed out that there has been a reduction in TVA funding, and
hopefully there will be in others.

So I would just ask one question of the witnesses, and that is,
do you think from your experience that we could count on Congress
to enact some of these reforms, or would we need some kind of com-
mission concept?

Mr. Moore. Senator, interesting that you should ask that ques-
tion, because I remember it was about 6 months ago that I first got
together with your staff, John Raidt and others, and they sug-
gested this idea of a commission. And I have to confess to you that
originally my attitude was very negative towards it. I said. What
do we need a commission for? We know what to do. Take some of
the programs on this list and the PPI list, and it should be
straightforward.

Quite frankly, it is a sad commentary that we do need a commis-
sion for this kind of thing. But as we went through the first year
of a Republican Congress dedicated to cutting spending, I saw all
of these programs surviving. And I think the last straw was when
the Agriculture Marketing Program survived, which, you know, ev-
eryone virtually agreed was a terrible subsidy program, where you
had in the House of Representatives conservative Republicans in
California voting to sustain these programs.

And so I have come around begrudgingly to concede that this
probably is the only way to get rid of some of these subsidies. It
is a sad commentary that we need to have an independent body,
because Congress should be able to do these things themselves.
But, unfortunately, the history of the last 12 months and 12 years
is that unless there is some kind of commission that comes up with
a list, I think that 5 years from now many of these programs will
still exist.

Mr. Shapiro. I certainly agree. As PPI was developing this origi-
nal analysis years ago, we began looking at the particular pro-
grams. And the thing that was most striking was the longevity of
these programs.



29

The first one I had thought of as an economist was, fi-ankly, farm
supports. This is farm supports — the current program has had vir-
tually no support in the economics profession for decades. And yet
it is — and I think Congress has taken an important step this year,
incidentally, and they deserve credit on it. But it was clear that
these subsidy programs don't exist because they can make a sound
economic case. And in many cases, it was clear there was not much
of a social case. And so we concluded that it was — the reasons they
exist precluded Congress from cutting them on a one-by-one basis.
And we have seen it so many times in the past, and I had a little,
some small hopes that 1995 would be a Httle different. But, frank-
ly, those hopes were disappointed very quickly when the House
protected the Archer Daniels Midland's break, the ethanol break,
a billion-dollar-a-year tax subsidy, $800 miUion of which goes to
one single corporation to produce something that the market would
never produce. And I concluded that

Senator McCain. Is that an argument to move the Iowa caucus
to a later date? [Laughter.]

Mr. Shapiro. I think it is an argument for a lot of things, Sen-
ator, a lot of changes in current politics. So, yes, I think the com-
mission is — the commission idea recognizes, as you have described
it, the nature of the political problem and addresses it directly.

Senator McCain. Thank you very much, Mr. Chairman. Again,
I want to thank you for holding this hearing today.

Chairman STEVENS. Yes, sir. Well, we are going to continue with
the hearing, but I just hope you understand what I am sajang. I
don't see that it does any good to give us a commission to give us
a chance to vote again on a series of things that have been voted
down because they weren't getting at the cause of the expenditure,
they were just getting at the expenditure. I hope we can find some
way to deal with that.

I am not opposed to a commission. I think many of us would
favor one. But I don't think many people are willing to go back and
look at what started these programs, what has to be changed to
make the program unnecessary. That is the problem.

Thank you very much, gentlemen.

Mr. Moore. Thank you.

Mr. Shapiro. Thank you.

Chairman Stevens. Martha Phillips and Ann McBride, are you
here now, please? I appreciate your coming at the odd hour, by the
way.

Ms. Phillips, you are first on my list. Will you start off, please?

TESTIMONY OF MARTHA PHILLIPS, EXECUTIVE DIRECTOR,
CONCORD COALITION CITIZENS' COUNCIL

Ms. Phillips. Thank you. I am Martha Phillips. I am with the
Concord Coalition, which is a grass-roots movement formed to bal-
ance the Federal budget. It is chaired by Paul Tsongas and Warren
Rudman. It is a bipartisan organization, and we have chapters
across the country of citizens who are trying to mobilize support for
a balanced budget.

Why balance the budget? Concord says not for its own sake or
out of a petty bookkeeping concern. Despite all of the attention fo-
cused on the budget since 1990, our nation is still borrowing more



30

than $1 trillion in every Presidential term of office. This borrowed
money drains off savings from the economy that should instead be
available for investment in making us more productive and increas-
ing our nation's economic well-being. So the bottom line for the
Concord Coalition is that we support balancing the budget as the
foundation for other policies that will help the economy grow.

Balancing the budget is tough. All the so-called easy decisions
have long since been made, and now the remaining options are far
less attractive and they involve spending your political capital, an-
gering constituents, alienating contributors, and irritating col-
leagues and allies.

It will be possible to make tough budget decisions, we believe,
only if the principle of shared sacrifice is adopted. This is what
makes tough choices also be seen as fair choices.

The Concord Coalition runs a 2-hour program called "Debt Bust-
ers" in towns and cities across the country. People come in and
work out their own versions of the balanced budget and debate,
argue back and forth, make trade-offs. One thing that we have no-
ticed in program after program, almost without exception, is that
people are willing to do their share to balance the budget. But they
don't want to be chumps. They don't want to be the only one called
on for sacrifice. They want to feel that everybody else is also doing
a fair share. When opponents of balancing the budget come in and
haul up one group that is not doing its share, such as so-called
large corporations, it makes average people feel that maybe they
are being taken to the cleaners and other people aren't helping.

They want to know that, other than the truly needy, no group
or interest has been deemed too special or too precious to have to
participate. Therefore, we do support the idea of setting up a com-
mission and a process to systematically review corporate subsidies.
But I have to add a note of caution. Setting up a commission and
process does not necessarily guarantee success. Process changes
perhaps can help, but they don't replace the necessity sooner or
later of making the tough choices and burning up that political cap-
ital.

The commission will be taking on what political scientists call
the "iron triangles": the agencies whose administrators are gearing
up to most efficiently help their clients, the corporations that are
receiving the subsidies in some cases; the congressional patrons,
some of whom invented the programs or inherited the programs
and who see themselves as the protectors of the programs; and the
organized interests, several of whose representatives hands I shook
as I walked in the door to this hearing, who monitor the process
to protect the program. These triangles make a very cozy relation-
ship. They are what this commission is being asked to take on. It
is a daunting job, a very tough job.

Just to take a current example that was already mentioned, ask
about how this commission will deal with agriculture programs.
First, as you have set it up, the agency will make a list of rec-
ommendations, a review of their programs. Well, will the USDA
recommend termination or reform of special subsidies for sugar,
peanuts, cotton, or dairy producers or manufacturers? And if they
do not make those recommendations, will the commission add those
recommendations? And if the commission adds the recommenda-



31

tions, will the President go along? And if the President goes along
and it comes back to Congress as legislation, will the Agriculture
Committee go along? And if the bill gets to the floor, what will hap-
pen in the amendment stage on the floor and in conference?

It is a long, long road that you are setting up. You could ask the
same questions about subsidies to oil, gas, coal, ethanol, and non-
conventional fuel producers, extractive industries, timber-producing
corporations, manufacturers, builders of low-income housing and
office buildings, publishers, multinational corporations, insurance
companies, credit unions, and defense builders, to name a few.

I did look over the bill, and I had a couple of ideas that you
might want to consider if you are looking for ways to improve it.
I wonder whether you intend to send up the recommendations from
the agencies to Congress as one single bill or as a series of bills.
One single bill probably would work better, and I think that you
might want to think about setting up a procedure to incorporate
that one single bill into the reconciliation process if there is a rec-
onciliation bill moving in a particular year.

You might want to think about separate waves. I am not sure
that one pass of a commission or a bill will get the job done.

There is a bill in the House that is similar, and it sets up dollar
targets, and the targets, as I recall, were quite low. I would not rec-
ommend setting up dollar targets or minimums, because minimums
have a way rapidly of becoming ceilings. And if you do establish a
target and you don't quite make it, the headlines will cry, "Failure,
failure," even though you might have done a pretty substantial
amount of heavy lifting.

As has already been mentioned, the bill permits the legislation
to be amended in committee and on the floor. This is a strength
of the bill, but it is also a weakness at the same time because it
sort of is an invitation to de-fang any sharp teeth that have been
put into the bill.

So it is with some reservations that the Concord Coalition Citi-
zens' Council says we think the proposed Commission is a good
idea in general. We generally believe putting too much attention on
process diverts attention and energy away from just doing the job,
tackling the deficit, and we usually, like Steve Moore mentioned a
few moments ago, scoff at setting up yet another commission to do
the unpleasant part of the job that Representatives, Senators, and
Presidents were elected to do. But in this case, we believe the Cor-
porate Subsidy Commission offers the promise of at least making
some progress, some substantive progress, in an area that has been
notoriously difficult, either through its own actions or at least by
focusing the spotlight and bringing up these programs for another
review and examination and public scrutiny. And that alone would
probably be worth the effort.

[The prepared statement of Ms. Phillips follows:!

PREPARED STATEMENT OF MARTHA PHILLIPS

SUMMARY

1. Balancing the federal budget is necessary in order to increase long-term eco-
nomic growth.

2. Shared sacrifice is required — both the perception as well as the reality. Other
than the truly needy, no sector of the economy or population is too precious to be
excluded from participating in balancing the budget. If it appears that one sector



32

is escaping scot-free, it is all the harder to ask others to shoulder their part of the
burden.

3. Balancing the budget is said to involve hard choices. But it also requires
undoing many choices that were made in the past — repealing programs, subsidies
and tax breaks.

4. Corporate program and tax subsidies should not be exempt from the budget
balancing process. The Commission would create a highly visible process that poten-
tially could help make sure that the corporate sector is fully participating. It would
help remedy the perception that balancing the budget falls only on the backs of "lit-
tle people" and not on highly profitable corporations.

5. We are pleased that the Commission is specifically charged with reviewing tax
subsidies as well as program subsidies. But the official tax subsidy list should be
only the beginning point. Some subsidies, such as deductibility of corporate owned
life insurance, do not appear on the list. They come about because of the way cor-
porations use one or more provisions of the tax code, not because the code bestows
specifically defined subsidies.

6. It's important not to let expectations get too high for what such a commission
can accomplish. It is taking on the age-old "iron triangles" that have for literally
generations locked in programs. The very agencies and legislators whose task it will
be to end some of the subsidies may turn out to be among the strongest proponents
for keeping the subsidies.

7. Defining what is an unnecessary subsidy and what is a necessary investment
is often not a clear cut decision but rather involves various shades of gray. What
some analysts label as outrageous squandering of taxpayer dollars on narrow vested
interests, others describe as provisions vital to protecting national interests.

8. The criteria spelled out in Section 2002(b)(2) of the bill are broad enough to
allow dedicated "subsidy-busters" to identify the provisions that most informed citi-
zens would agree should be modified or terminated. The problem is making sure
that the people whose responsibility it is to apply these criteria will do so in the
way intended.

Will the Department of Agriculture recommend termination of programs that pro-
vide special subsidization of sugar, peanuts, cotton, or dairy producers or manufac-
turers?

If they do not, will the commission add such recommendations on its own or
strengthen tepid ones made by the Department?

If the commission so recommends, will the President agree to leave the rec-
ommendations in his report?

If the President sends recommendations to Congress to eliminate or modify these
agricultural subsidies reach Congress, will the Agriculture Committees agree to
them without amendment? And what will happen on the floor and in conference?

The same series of questions could be asked about subsidies to oil, gas, coal, etha-
nol and nonconventional fuel producers, extractive industries, timber producing cor-
porations, builders of low income and other housing, publishers, multi-national cor-
porations, insurance companies, credit unions, or the defense industry — just to name
a few of the areas that have been repeatedly targeted only to escape with most sub-
sidies intact.

9. Suggested modifications:

• The corporate subsidy recommendations should be transmitted to Congress as
a single bill and should be processed- by Congress as a single bill.

• A procedure should be spelled out for incorporating the corporate subsidy bill
into a budget reconciliation bill if the budget resolution has called for one that
year.

• Consideration should be given to successive waves of corporate subsidy reviews.
One pass may not be enough to get the entire job done.

10. Generally, Concord believes putting too much attention on budget process
changes diverts attention and energy away from the actual task of balancing the
budget. And we usually scoff at the idea of setting up yet another commission to
perform some unpleasant part of the job Representatives and Senators and Presi-
dents were elected to do. In this case, however, we believe that a corporate subsidy
commission offers promise of making progress in an area that has been notoriously
difficult in the past.



The Concord Coalition Citizens Council is pleased to respond to your invitation
to testify on S. 1376. Balancing the federal budget is the immediate mission of our
organization. We believe that, with some modifications, the approach outlined in the
bill would help to balance the federal budget and keep it in balance.



33

Why balancing the budget is so important

Concord is a grass roots citizens movement with chapters in all 50 States and
most towns and cities across the country. Our mission is to strengthen the American
economy and increase the rate of long-term economic growth. As we see it, economic
growth works through a sort of "food chain" that leads back to deficit elimination.
Robust long-term sustainable economic growth depends on constantly increasing
amounts or quality of the goods or services produced by American workers. In-
creased productivity, in turn, requires investment in human capital, plants, equip-
ment and processes, research and development and in our national transportation
and communications infrastructure. These investments, in turn, cannot be made
without heavy reliance on foreign capital unless our own nation has savings that
can be invested. Unfortunately Americans are notoriously poor savers, and our sav-
ings rate has steadily declined decade after decade. We now trail far behind most
nations in this regard. What's worse, half or more of the paltry savings that Amer-
ican do amass are used to finance our federal budget deficits. Therefore one of the
surest ways we can make more money available for investments needed to make
our economy grow is to balance the federal budget.

Thus, Concord does not advocate balancing the budget for its own sake or because
of a petty bookkeeping mentality. We believe that a balanced federal budget is the
foundation for building the kind of robust economic growth that once characterized
the United States and that will be required again as we begin to shoulder the bur-
den of supporting the baby boom generation through its retirement years. As long
as we continue to borrow more than a trillion dollars in each presidential term and
use the borrowed funds for current consumption, the vibrant economy we want for
the future will remain only a dream and not a reality.

Tough choices

Important as it is to balance the budget, it is not easy — as the last year's impasse
demonstrated. It is sometimes said that balancing the budget requires making hard
choices. But it also requires undoing many choices that were made in the past. Re-
pealing programs, subsidies, and tax breaks.

It has been observed, not entirely in jest, that in the past when Congress had to
choose between spending money on X or Y, it usually said, "Yes." Those days are
long past, and now, it is necessary not only to set priorities regarding what precious
few new initiatives will be undertaken, but also to go back and reexamine the wis-
dom and affordability of the choices that were made years ago. We now must ask,
"If this program or subsidy were not already on the statute books, would we create
it today?" And, "What would we give up to make room for it?"

Shared sacrifice

Balancing the federal budget will be accomplished only if it is undertaken as a
program of shared sacrifice. It is extremely important that both the perception and
the reality be that, other than the truly needy, no group, no sector and no interest
is too precious to be spared from making sacrifices to achieve this goal. A prime tac-
tic used by opponents of deficit reduction is to emphasize the pain one economic or
geographic sector feels from program cuts while at the same time pointing out other
sectors that seem to be getting off scot-free. No individual or group wants to be
taken for a chump and singled out for a disproportionate part of the burden. But,
as Concord has discovered in public forums and "debt busters" programs held in
towns and cities across the nation, most citizens are ready and willing to do their
share if they believe that everyone else is also doing their fair share.

That is why bills like S. 1376, the Corporate Subsidies Review, Reform and Ter-
mination Act of 1995, are important. This legislation would establish a system for
an intensive review and re-evaluation of corporate subsidies, many of which have
been on the books for half a century, and some for even longer. Many hearken back
to bygone industrial era concerns that have little or waning relevance to today's
economy. To the extent that there is a public perception that programs being tar-
geted to balance the budget affect only "little people" while fat cats and corporations
escape unscathed, the highly visible commission and procedures proposed by S. 1375
could provide an antidote.

Corporate tax subsidies

It is particularly commendable that S. 1376 proposes a review and reexamination
of tax subsidies as well as direct programmatic subsidies. The official list of tax ex-
penditures — which Concord believes should really be called "tax entitlements" since
they operate in a way almost identical to direct spending for entitlements, contains
some 75 separate provisions affecting corporations. That list should be viewed as
only a beginning point, however. Some corporate tax subsidies and inequitable ad-



34

vantages do not show up on the official "tax expenditures" lists. For example, almost
every balanced budget proposal in 1996 called for curbing interest deductions for
corporate-owned life insurance policy loans, the so-called COLI provision. However,
it is not listed as a separate tax expenditure.

Can the commission defeat iron triangles?

Once programs have become well enough established to develop "iron-triangles"
of interlocking relationships of Congressional advocates, Administration proponents,
and organized non-governmental interest groups, it becomes extraordinarily difficult
to trim or terminate them. Doing so one at a time is a formidable undertaking, as
the survival of many such subsides over decades despite repeated targeting by im-


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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 5 of 10)