McClaughry: Combating 'Welfare for the Rich'

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McClaughry: Combating 'Welfare for the Rich'

Tue, 12/01/2020 - 4:42am -- tim

by John McClaughry People seeking and using political influence to make themselves richer by enlisting government to their advantage has long been a deplorable practice in the history of this country .

Enrichment techniques are legion. Outright cash grants and credits. Preferential taxation. Tariffs and quotas to block competing imports. Regulatory favoritism and obstructionism.  Subsidized insurance and guarantees. Stringent occupational licensing. Government-sanctioned cartels.

Fourteen years ago Tim Carney’s “The Big Ripoff: How Big Business and Big Government Steal Your Money” exposed the advanced corporate welfare schemes of Enron, Big Tobacco, Big Sugar, and Big Ethanol.

Now comes another valuable contribution, this one from libertarians Phil Harvey and Lisa Conyers, titled “Welfare for the Rich: How Your Tax Dollars End Up in Millionaires’ Pockets and what you can do about it.”

Harvey and Conyers go beyond Carney in documenting a vast collection of laws and regulations that disproportionally favor the rich, and do little, nothing, or worse for the not-rich. Big Sugar is the absolute worst example. The sugar program is an intricate combination of fixed prices, import quotas, subsidized loans and tariffs and distribution of political contributions to make a few powerful people very rich, notably the Fanjul brothers of Miami.

The authors walk readers through the labyrinthine income tax code, the estate tax, bewildering tariff schedules, farm price supports, the ethanol scam, the carried interest ripoff, never- ending bank bailouts, and “state subsidies for stadiums, movies, and Mickey Mouse”.

A particularly annoying corporate welfare scheme involves grants, rebates, infrastructure improvements and tax concessions to a large company that is shopping around for the most lucrative deal to locate a big job-producing project or pricey sports arena in a state or city. These almost always leave taxpayers holding the bag.

To be fair, it’s hard to blame a company for shopping for the best deal for locating a plant. For the local government to offer a sewer extension or a traffic flow improvement or even a limited tax abatement is not wholly unreasonable. But all too often job-hungry politicians give away the benefit store, so to speak, to create a ribbon-cutting photo op the next election year.

There’s only one Vermont example in the book, dating to 1980. It wasn’t corporate welfare, but labor unions using the Federal government to put unorganized workers – in this case, dozens of home knitters of ski caps – out of business. The union’s weapon was a 1943 regulatory payoff to unions that prohibited women from working at home, often while watching their small children, and selling their products to a local manufacturer. The Reagan Secretary of Labor repealed the regulation. The ILGWU got a court to block the repeal on technical grounds. Eventually the next Secretary invented a workaround that kept at least some of the women earning much needed family income.

Not discussed are the huge - for Vermont - benefits shoveled out to the renewable industrial complex: feed in tariffs, standard offer, production tax credits, sales tax exemptions, bonus depreciation, free use of the highways by subsidized electric vehicles, and the Renewable Portfolio Standard that requires utilities to buy high-priced electricity from wind and solar producers.

I avoid the authors’ populist practice of citing the high salaries earned by corporate CEOs,  that seems more appropriate to a Bernie Sanders envy outburst, and I am skeptical of demands for the rich to pay their unascertainable “fair share”.

But those aren’t consequential objections. This is a valuable book. It boldly shines a searchlight beam onto a wide range of government policies that by accident or design - mostly design - make the rich richer. The problem rarely solved, or even diminished, is how to mobilize ordinary not-rich people to force their politicians to roll back the most egregious feed-the-rich policies.

In old English villages the Committee of Watch and Ward kept a sharp eye out for threats to the peace and the schemes of Ye Olde Deluder. When such were spotted they raised the “hue and cry” to put a stop to the wrongdoing. Our Vermont forebears established a Council of Censors to review every seven years the workings of the state government to make sure they remained in line with the frugal principles of the Constitution. (It was regrettably discontinued in 1871.)

Perhaps the best available method to rein in Welfare for the Rich today is for citizens to draw on the expertise of think tanks to understand the multifarious schemes, and raise an organized hue and cry, focused on legislators and governors, every time some new feed-the-rich scam rises to public attention.

John McClaughry is vice president of the Ethan Allen Institute (www.ethanallen.org)