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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 6 of 10)
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partial analysts attests.

The system set forth in S. 1376 could fall victim to such triangles. First, it re-
quires agencies to evaluate their very own programs, determining which represent
undue degrees of subsidization. In many instances, agencies will be far from impar-
tial observers and will have a bias toward justifying the status quo. Then, the agen-
cies, whose very mission in many instances, is to make the programs run well and
which may have been "reinvented" to serve their corporate clients even more effi-
ciently, must recommend whether to retain, modify or terminate their own pro-
grams. Nothing in the bill requires them to recommend termination or modification.

Even if the commission, with the help of the Government Accounting Office,
catches such inadvertent blind spots, when the proposals reach Congress they again
could fall prey to "iron triangulation." It appears that the President's recommenda-
tions will be transmitted as separate legislative proposals, which will be parcelled
out to the appropriate committees of jurisdiction. Again, it could turn out that some
members of some of these committees will see themselves more as the protectors
and advocates for the programs than as vigilant subsidy-busters. Since S. 1376 per-
mits amendments, commission legislation could be "defanged" at the Committee
stage or at subsequent floor or conference stages.

Moving to specific examples makes the dilemma clear.

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, 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 — to name
only a few of the areas that have been repeatedly targeted only to escape with most
subsidies intact.

One of the reasons that the answer to most of these questions will be "no" is that
unjustified subsidies are in eye of the beholder. What some analysts label as out-
rageous squandering of taxpayer dollars, others will describe as not only desirable
but necessary provisions to protect vital national interests or to promote the kind
of productivity-enhancing investments that are required to spur economic growth.

Conclusion

The fact that the process will be difficult does not mean that it should not be un-
dertaken. The Concord Coalition Citizens Council commends the sponsors of S. 1376
for this initiative and believes that a process along these general lines would be
helpful. However, we believe that even if the Corporate Subsidy Review, Reform and
Termination Commission is created, the chances are that it will succeed in making
only a small inroad in the first attempt. There have been several rounds of the mili-
tary base closing commissions and recommendations. Although the process achieved
much more than could have been accomplished piecemeal, the process was messy
and incomplete. More should have been done.

Generally, Concord believes that too much attention to changing budget processes
only diverts attention and energy away from working directly on eliminating the
deficit. And we usually scoff at the idea of setting up yet another commission to per-
form some unpleasant part of the job Representatives and Senators and Presidents
were elected to do. Among the commissions proposed in recent months are a com-
mission to recommend Medicare reform, a commission to study how to accurately



35

measure CPI, another entitlements commission with teeth, a commission to weed
out national park sites, and a commission to recommend Executive Branch restruc-
turing. Voting for process changes and commissions is popular because eliminating
the deficit requires spending political capital— angering constituents, alienating con-
tributors, and irritating colleagues. That helps explain why the goal of balancing the
budget is so elusive. The "easy" targets were picked off years ago. It is now nec-
essary to go after the well protected, well triangulated, areas.

On balance, we think that, with some modifications, the commission approach of-
fers promise of making some progress.

What the bill would do

S. 1376 would establish a Corporate Subsidy Termination Commission, with 8
members and not more than 25 staff, to be appointed no later than January 31,
1997 and to end no later than December 31, 1997.

Federal agencies would, no later than January, 1997, submit a list of programs
and policies under their respective jurisdictions that "provide direct payments, serv-
ices, or benefits to entities and industries engaged in profitmaking enterprise." For
each program or policy, agencies are to provide a detailed description, a statement
detailing its magnitude, and a recommendation regarding whether the program or
policy should be terminated, modified or retained. By April 15, the Comptroller Gen-
eral would transmit to Congress and the commission a detailed analysis of the agen-
cies' recommendations.

The commission's task is to review the listed subsidy programs to determine if
such payment, service, or benefit predominantly serves the pecuniary interest of a
specific entity or industry rather than a clear and compelling public interest; pro-
vides an unfair competitive advantage to one entity within an industry or market
segment, or to one particular industry; or has the effect of creating any other inequi-
table federal direct or indirect subsidy.

Similarly, the commission would review the tax system to determine if current
laws and practices result in inequitable tax advantages that provide financial bene-
fits to an entity or industry in excess of that intended by the applicable law; or ben-
efits to an entity or entities that are disproportionate to those available to similar
entities within the same industry; or benefits to an industry or industries that are
disproportionate to those available to comparably sized industries that are not eligi-
ble for such benefits and which create an undue tax advantage for such industries;
or the creation of any other inequitable tax benefit or advantage.

The commission is to report to the President, no later than July 1, 1997, its find-
ings and recommendations for termination, modification or retention of all the items
submitted. If the commission determines that the agency deviated substantially
from the guidelines for submitting their lists, after conducting public hearings the
commission can add or delete subsidies to the termination list or to the modification
list. It can also increase or decrease the extent of modification recommended by the
agencies. (It is reassuring to see that the bill was drafted so that the commission
cannot add programs to the retention list.)

The President, not later than July 15, 1997, is to transmit to the commission and
Congress a report recommending approval or disapproval of the Commission's rec-
ommendations. In the case of disapproval, the commission has until August 15, 1997
to transmit a revised list of recommendations to the President.

If the President agrees to the commission's recommendations, the entire package
of recommendations is then transmitted to Congress in legislative form, along with
justifications, budget and economic impact estimates. If nothing is submitted to Con-
gress by September 1, 1997, the process terminates.

S. 1376 provides for expedited consideration of the corporate subsidy package
through both Houses. However, the package can be broken into separate bills and
the bills can be amended in committee and on the floor. Thus, a House-Senate con-
ference could very well be required, and the procedures for expediting conference
agreements are spelled out in the bill.

Chairman Stevens. Ms. McBride?

TESTIMONY OF ANN McBRIDE, PRESIDENT, COMMON CAUSE

Ms. McBride. Thank you, Mr. Chairman. I am Ann McBride. I
am President of Common Cause, and I appreciate so much the op-
portunity to testify today and appreciate your holding these hear-
ings.



36

I also want to thank Senator Thompson and Senator McCain for
cosponsoring this bill, bringing it forward, and bringing this issue
into the public debate.

This issue has, interestingly, broad cosponsorship, broad biparti-
san support, and from all parts of the political spectrum. It is true
from our previous panel which shows that a range of the outside
groups that are concerned about corporate welfare. But it has also
been a problem that is a bipartisan problem. It has not been a Re-
publican problem or a Democratic problem or a problem simply of
the Congress, but also of the Presidency.

While Congress and the President have failed to reach a final
agreement on the budget, there has been agreement on a goal of
a balanced budget in 7 years, and reaching this goal is going to re-
quire some tough decisions and tough setting of priorities.

The American people, I believe, are concerned about fiscal re-
sponsibility. But they are also concerned about fairness, and what
has happened in this last budget process. While significant cuts
have been made and have been proposed, in many areas the part
of the budget that has been left virtually untouched is the area of
corporate welfare.

Colin Powell said, "You see a lot of politicians attacking welfare
queens, but you see them a little reluctant to attack the welfare
kings on K Street" — referring, of course, to the corridor where most
Washington lobbyists reside.

Failure, as I said, to address the corporate welfare problem is not
simply a congressional problem. We are talking about why do you
need a commission. What is a story that might tell the real reason
why we have believed that you do need a commission like that pro-
posed by Senator McCain and Senator Thompson and others? That
is one that was raised earlier, and that was what happened on eth-
anol during the budget process.

What happened is that Congressman Archer very courageously
came forward and proposed ending the ethanol subsidy. An oil
newsletter reported on September 25th, "Archer Tax Bill Ends Eth-
anol Tax Breaks." A week later, the newsletter's headline read, "At
Behest of Gingrich, Archer Shifts on Ethanol."

What happened in the intervening time was enormous influence
and pressure put on the entire Congress by an industry that in the
period 1988 through 1994, Dwa3nie Andreas and ADM contributed
$1.6 million in soft money to the Republican Party and $814,000
in soft money to the Democratic Party.

What you have then is the President not coming forward and
fighting for this, but instead the President also continuing to ask
for full funding of the ethanol subsidy. What you have is a system
which has not been addressed, which for years has not been ad-
dressed, and which has really been pointed up and come to center
stage as there are cuts being made in the budget. And we think
something needs to be done.

I know, Mr. Chairman, this is not a hearing about campaign fi-
nance reform, but I would only say there is no question in my mind
and in the minds of many that the campaign finance system has
served to buoy, defend, and protect the corporate welfare system.
The average citizens that Senator McCain has been talking about
do not have a PAC, do not have a lobb3rist here in Washington,



37

and, therefore, are not able to compete with the power of money
and the power of special interest. And what happens is these issues
do not get discussed; they do not get debated; they get tucked in
somewhere in a bill. And when an effort is made, as was made re-
cently to knock out just a tiny portion of them, they receive very
few votes.

I understand the question that you raised, Mr. Chairman, about
how this process would work. I think that this commission is im-
portant because what it will do is bring these programs to light by
people, one presumes, who have expertise in these areas, who bring
independence and credibility. And then it shifts to the Congress.

I don't think and I would hope that these things would not be
made just because they appeared on the list. What I see the spon-
sors doing is trying to establish a serious process for attempting to
deal with a very difficult problem by highlighting it and then let-
ting the legislative process work. It has its pitfalls, but it also, I
think, has a flexibility that could begin to address these issues.

We support the commission. We, of course, would love to work
and continue to work with the sponsors to improve it. And we also
would hope and believe that one of the most important decisions
that could be made in this Congress to break the deadlock of cor-
porate welfare is to pass the bipartisan campaign finance reform
bill, S. 1219, which is also sponsored by Senators McCain, Thomp-
son, and Feingold.

Thank you very much.

[The prepared statement of Ms. McBride follows:]

Common Cause,
Washington, DC, March 7, 1996.

Hon. Ted Stevens,

Chairman, Senate Governmental Affairs Committee, Washington, DC.

Dear Chairman Stevens: Thank you for the opportunity to testify at the hearing
on March 5 regarding S. 1376, the Corporate Subsidy Review, Reform and Termi-
nation Commission Act of 1995. I request that this letter be included in the record
of the hearing along with my prepared statement and my spoken remarks.

As I said at the hearing, Common Cause believes a corporate welfare commission
could be an effective approach to addressing wasteful programs in the federal budg-
et. As other witnesses noted, over the past year, as Congress engaged in a broad
effort to reduce federal spending, most corporate welfare programs were left un-
touched.

We believe that S. 1376 represents a useful starting point for developing a process
which will bring Congress to confront directly, and in a comprehensive manner,
these wasteful and often outdated programs.

However, Common Cause shares your concerns about generalizing the commission
approach to any difficult issue facing this Congress. In particular, we would strongly
oppose establishing a commission this year on the issue of campaign finance reform.
The issues of campaign finance reform and corporate welfare are quite differently
situated. While a commission approach could well be an effective way to expedite
action on cutting corporate welfare, a commission would serve only to delay and un-
dermine efforts to deal with campaign finance reform.

Congress has a unique opportunity in the coming months to pass a strong cam-
paign finance reform measure. Fair and comprehensive legislation with bipartisan
support has been introduced in both the House and Senate, and has growing sup-
port from the public.

As you know, the campaign finance issue has been thoroughly debated both at the
Committee level and on the floor of both the House and Senate over the past three
Congresses. Campaign finance reform should not be delayed until the next Congress
by appointing a commission. Indeed, there is an urgent need to restore the public's
trust in Congress by enacting strong bipartisan campaign finance reform legislation
before end of this session.



38

As I stated in my testimony, the first and most important step this Congress
should take to eUminate corporate welfare is to quickly pass a strong, comprehen-
sive campaign finance reform bill.
Sincerely,

Ann McBride,

President.



PREPARED STATEMENT OF ANN McBRIDE

Mr. Chairman, Members of the Committee:

I appreciate the opportunity to testify on behalf of Common Cause. We applaud
Senators John McCain (R-AZ), Russell Feingold (D-WI), Fred Thompson (R-TN),
Edward Kennedy (D-MA), and Daniel Coats (R-IN) for raising the public visibility
of the corporate welfare issue by introducing S. 1376, the Corporate Subsidy Review,
Reform, and Termination Commission Act of 1995. We commend the Committee for
holding this hearing on this critically important issue.

Secretary of Labor Robert Reich has characterized corporate welfare as "business
subsidies that don't make sense." Corporate welfare comes in various guises: direct
payments to companies, provision of public goods or services at below-market value,
federal purchases of goods or services at above-market value, federal tax breaks,
and exemptions from otherwise applicable laws. While there is no single set of uni-
versally accepted criteria that can be used to identify just what constitutes corporate
welfare, most definitions revolve around several standards:

• Whether the program is difficult to justify economically and whether it provides
the government with a fair return on its investment;

• Whether the beneficiaries of the program are wealthy interests not in need of
federal subsidization;

• Whether the program undervalues resources, which encourages exploitative or
environmentally destructive activity; and

• Whether the program conflicts with other federal policies.

Corporate Welfare and the Budget

While Congress and the President have yet to reach a final agreement on a bal-
anced budget, they have agreed on the goal of a balanced federal budget in 7 years.
Reaching that goal will require serious reductions in many federal programs. It is
a goal that will be reached only after many pitched battles over the nation's prior-
ities.

Already in this Congress, there have been substantial cuts in funding for edu-
cation programs, children's nutrition, Medicaid and many other federal programs.
But one area of the budget has thus far remained largely untouched — corporate wel-
fare: direct subsidies, tax breaks and other benefits for some of the nation's wealthi-
est corporations.

As Colin Powell has said, "You see a lot of politicians attacking welfare queens
but you see them a little reluctant to take on the welfare kings on K Street."

According to a study by the Center on Budget and Policy Priorities in October
1995, "Congress is failing to reduce the overall level of corporate subsidies and is
charting a course that could increase such subsidies over time." The study, based
on a conservative estimate of federal subsidies to businesses by the Congressional
Budget Office (CBO), concluded that legislation passed by the House of Representa-
tives by late October 1995 would achieve only an $8 billion savings over 7 years,
of an estimated "$722 billion in corporate subsidies the Federal Government is slat-
ed to provide over the next 7 years."

The Center's director, Robert Greenstein, said, "Although reducing corporate sub-
sidies could help balance the budget, these subsidies are essentially receiving a free
ride. Congressional rhetoric to cut corporate welfare is not being matched by Con-
gressional action."

In the House of Representatives, these special provisions continue to be included
in legislating changes in tax law. When the House Ways and Means Committee
passed a tax bill as part of the budget reconciliation process in fall 1995, a report
in The Wall Street Journal noted, "The giant budget bill the House passed ... in-
cludes special tax favors for a handful of companies that lobbied hard for tailor-
made changes. Such favors are hardly unusual. But these come amid much Repub-
lican boasting that their bill largely avoids special-interest breaks, particularly for
corporations."



39

The Clinton Administration also has left most corporate welfare programs un-
touched. For example, the Administration has continued to recommend full funding
for two of the most glaring and well-publicized examples of corporate welfare — the
Agriculture Department's Market Promotion Program, a subsidy that pads the for-
eign advertising budgets of huge corporations, and the funding of ethanol subsidies.

As Stephen Moore, director of fiscal policy studies at the CATO Institute, recently
noted, "One of the lessons we've learned this [past] year is that the corporate lobby
is extraordinarily powerful in this town. What we found is their strength is in direct
proportion to the amount of subsidy they get from these programs."

Examples of Corporate Welfare

Corporate welfare programs have been detailed and analyzed by a number of or-
ganizations, including the CBO, CATO Institute, the Progressive Policy Institute
and a coalition of groups who authored the Green Scissors reports.

Agribusiness giants, commercial ship owners, huge defense contractors and count-
less other special interests reap billions of dollars in taxpayer-financed subsidies,
tax breaks and perks.

One program provides $3.6 billion over 5 years in highly controversial subsidies
to the manufacturers of ethanol — an alcohol-based fuel. The primary recipient of
this subsidy is Dwayne Andreas, a huge campaign giver and soft money donor to
both the Republicans and the Democrats.

The mining industry earns nearly $300 million every year from the minerals it
extracts from federal lands — royalty free. Tobacco interests receive millions of dol-
lars to help administer their price supports program. And wealthy companies like
Sunkist, Gallo Winery, Pillsbury and others share in a $100 million a year subsidy
that allows them to pad their overseas advertising budgets with federal funds. An-
other federal program provides about $95 million annually to construct new forest
roads that are built primarily to benefit private timber interests.

Congress must find a way to assure taxpayers that corporate welfare programs
will be given the same close scrutiny as other programs, and that they will receive
their fair share of cuts.

Corporate welfare programs often survive criticism because of the strong influence
of special-interest money.

By contrast, many other federal programs for the disadvantaged and for average
Americans do not have powerful special interests supporting them with expensive
lobbying activities and huge campaign contributions. In the past year, these pro-
grams have been the prime targets of congressional budget cutters.

Americans rightly distrust a government that is not fair, that gives special access
and influence to powerful interests. Congress' failure to address the problem of cor-
porate welfare can only lead to further erosion of its standing with the American
people.

The Ethanol Switch — A Story of Corporate Welfare

Last year, as the tax bill began to move forward in the legislative process, lobby-
ists descended on the Capitol and rescued at least one well-known corporate tax
break in an episode that illustrates why corporate welfare remains virtually un-
touched.

Headlines in an oil industry newsletter explained, in a nutshell, the difliculties
faced by opponents of corporate welfare. On September 25, the newsletter reported
that "Archer Tax Bill Ends Ethanol Tax Breaks." A week later, the newsletter's
headline read, "At Behest of Gingrich, Archer Shifts on Ethanol."

Ethanol is a corn-based gasoline additive whose primary manufacturer is Archer
Daniels Midland (ADM), a company owned by Dwayne Andreas. In the period 1988
through 1994, Andreas and ADM contributed $1.6 million in soft money to the Re-
publican Party and $814,000 to the Democratic Party.

Ethanol is touted as an environmentally sound and renewable source of fuel
which will reduce the nation's reliance on a limited supply of oil. But many critics
claim it does not reduce pollution and is economically viable only because of federal
tax breaks for its producers.

Senator Bill Bradley (D-NJ), who with Senator Don Nickles (R-OK) has intro-
duced legislation to phase out the ethanol tax subsidy, said the ethanol industry
"has been living off the public dole long enough. The billion-dollar tax break is noth-
ing more than a gift to a single, politically connected industry."

According to the oil industry newsletter, "Gingrich has previously opposed the eth-
anol incentive, and as recently as 2 months ago lambasted the ethanol subsidy to
a natural gas group: 'It appears corn growers and ADM (Archer Daniels Midland,
the United States' largest ethanol producer) are more clever than natural gas . . .
they got a gimmick and got it passed,' he said."


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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 6 of 10)