The Myth of Corporate Welfare

Corporate Welfare is a catch-phrase you are likely to hear tossed into discussions involving welfare in general. The catch phrase is used by the left to defend Social Welfare programs they support, as if social welfare was some kind of moral high-ground and corporate welfare was some kind of dastardly activity. There are numerous articles and graphs describing the evils of Corporate Welfare, but most are not totally factual. If you were to ask the average tax-paying citizen what Corporate Welfare was, their answer would most likely be a vague reference to overpaid CEO’s riding around in their corporate jets, receiving tax breaks they don’t deserve. You mean like Social Welfare, where the recipients receive something they didn’t earn?

What is corporate welfare?

Once you cut through the noise, corporate welfare, as it’s called, can be broken down into two categories: One, tax write-off’s (what you and I would refer to as deductions, or income exclusions), and two, subsidies.

When you do your personal tax return at the end of the year there are certain things that you can claim as deductions. Every deduction has a dollar value, and that dollar value is referred to as adjustments to income. In other words the dollar value of that adjustment is removed from your total taxable income. Children, or dependents are adjustments to income, as well as:

Health care costs, state and local income taxes, Interest paid on a home mortgage, cash contributions to charities and churches, even gambling losses, just to name a few.

Most Americans claim the standard deduction, which is an IRS pre-determined amount covering most of the deductions you would otherwise itemize (list individually). The standard deduction is $6300 for individuals. The amount of income which is taxable or non-taxable is based on the IRS tax code.

Corporations can claim similar deductions as adjustments to their taxable income. In the business world taxable income is referred to as profits. Now here is where Progressives take issue with tax code (legal deductions to deductions) and decry Corporate Welfare; they are unhappy with the deductions allowed in the corporate tax code. Some rightfully so. They like to highlight rare instances where corporate jets were claimed as deductions and so on.

On the flip-side: If a couple decides to have a child, that child is considered an exemption having a dollar value of $1050. So if you or I decide we don’t want to have a child we have to pay more income tax than those who do have a child. The exemption is quite a bit higher for low income families who can claim up to $3250, based solely on the fact they earn less money. Looking at this, it be fair to say if you have a middle class income and don’t have children you have to pay more in taxes than those who have a lower income and a house full of children. Is that fair?

The origin of the term “Corporate Welfare” is traceable to 1990-1995. For most of those years Democrats (Progressives) controlled the Senate and/or the Whitehouse. Which means they could have easily modified the tax code, limiting or eliminating those corporate deductions. But they didn’t. They cried foul, but were themselves guilty of supporting corporate deductions.

Kind ‘a like political double-speak wouldn’t you say? Crying about corporate welfare and refusing to do anything about it.

Now, on to another form of Corporate Welfare, subsidies.

What is a subsidy?

There are two definitions, so let’s consider both.

First; “money that is paid usually by a government to keep the price of a product or service low or to help a business or organization to continue to function.”

Where do subsidies come from? The government! Yet all of the Progressive banter would have you believe it is a creation of those evil corporations. Corporations take advantage of the tax code available – don’t you do the same on a personal level?

The point is; subsidies keep the price of a product or service low enough to be affordable to the general public. Who do products and services benefit? The public of course. You and I are consumers, rich or poor, no matter where our income comes from, we all buy products and employ services.

When did subsidies begin? The first U.S. subsidies were Farm Subsidies. They were offered briefly in the late 1800’s and were quickly withdrawn on a constitutional basis, but re-appeared and took permanent root in the 1930’s under a Democratic President, Franklin Roosevelt. Since then government subsidies have only increased in number and cost.

We can argue about the worth of various subsidies all day long, but subsidies are subsidies no matter if they are corporate or individual.

Let’s consider this:

A gallon of milk today retails for $3.32 (national average). According to the govt. the production cost of a gallon of milk in 2015 was $3.21 and the retail value was $3.11.

If you wanted to buy raw milk at cost, you would need to provide your own jugs, drive to the nearest dairy, and find a dairy farmer willing to sell you a gallon of milk at cost ($3.21 a gallon). Would you be willing to do that? No, you would rather go to the local grocery store and pick up that gallon of milk for $3.32.

According to government information, in 2015 dairy farmers lost an average of .11 cents a gallon on what they produced. Just for the record dairy farmers lost about .57 cents a gallon in 2013. How long would you run a fairy farm if you lost money every year without someone making up the difference? Now add in pasteurization, packaging, transportation, storing, and retailing the true cost of that gallon of milk is now about $8.00 a gallon. Would you continue to buy the same amount of milk at $8.00 a gallon that you currently buy for $3.32? Probably not.

Let’s assume you are on a $50.00 a week food stamp allowance (social welfare), and the price of milk rose from $3.32 to $8.00 a gallon, will you continue to buy the same amount of milk? You couldn’t without cutting back on something else.

But you can still buy your gallon of milk for $3.32 a gallon because the government is subsidizing the dairy industry, or you personally – subsidies allow you to buy milk for $3.32 instead of $8.00. Corporate Welfare in action. So who benefits from this again?

Government welfare programs such as SNAP (food stamps) are managed under the same government agency as farm subsidies; the USDA (United States Department of Agriculture). Corporate and social welfare is managed by the same government agency. So the lines of social and corporate welfare become intertwined and at times indistinguishable.

We can dissect any industry and wind up at the same conclusion- corporate and social welfare working hand-in-hand.

The favorite evil industry target seems to be oil companies, which brings us to the second definition of subsidies; “a grant by a government to a private person or company to assist an enterprise deemed advantageous to the public.” Would you admit oil companies are advantageous to the public? Absolutely; virtually every technological advance made in the last 100 years is connected, in some way, to the oil industry.  Plastics, medicine, medical care, fertilizers, insecticides, cars, computers, cell phones and so on, none of which would exist with the oil industry.

You see, the oil industry is absolutely advantageous to the public, and absolutely necessary to our way of life

The Oil industry is a popular target because of the shear dollars involved, $multi-million companies garnering millions in subsidies.

Let’s use the same dissection we used in the gallon of milk to see the subsidies involved: The cost of production of a gallon of oil in Nov of 2015 in the United States was about .86 cents a gallon (at barrel price of $36) according to the government.  The yield of gasoline from a 42 gallon barrel of oil is 19 gallons, which means a gallon of gasoline cost $1.89 to produce.

The average retail price of gasoline in 2015 was $2.26 a gallon. So far we are at .37 cents a gallon above production cost before we add in transportation, storage, and retail cost of making gasoline available at the pump (which is about .16 cents per gallon). Now subtract the federal and state taxes (which average .47 cents a gallon), and we are selling gasoline for a $1.63 a gallon retail, which is selling gasoline at a loss of .26 cents a gallon. That loss is made up by government subsidies (or tax breaks, whichever you prefer).

While the oil industry enjoys large subsidies, it’s products are a huge source of tax revenue for the same government who issued subsidies for the production of the same product.

In 2013 gasoline sales generated over $30 Billion in tax revenue (which was supposed to fund infrastructure repairs).

Consider this: if the price of gasoline goes up, people purchase less, decreasing the federal revenue, and if the price goes down, people buy more and federal revenue goes up.

Once heralded as the green energy answer to fossil fuels, ethanol has turned out to be an over-priced flop; costing taxpayers twice as much as fossil fuels in tax-credits (subsidies), and because it is made from corn, which is subsidized as well, ethanol companies receive two subsidies.

The green energy crowd was gut-punched when it discovered ethanol damages the atmosphere more than fossil fuel do.  Not to mention, it is far less efficient than gasoline.

In the end, everyone screams about the profits made by oil companies, the years when things go right, but you never hear anything from the same crowd when those same companies break even or lose money in a given year. A gallon of gasoline is like a gallon of milk, the subsidies, or tax breaks issued by the government, benefit you and I the consumer as well as the oil companies.

Are corporations guilty of exploiting loop-holes in the tax code? Absolutely! Are individuals guilty of exploiting loop-holes in the tax code? Absolutely! Are individuals guilty of exploiting the social welfare system in this country? Absolutely!

So who’s fault is it the tax code allows ridiculous corporate deductions? The corporations? Or the politicians? The truth is, politicians make mucho-dinaro from the tax codes as is.

Maybe we should focus on political welfare – you know the subsidies those politicians receive.

Originally corporate subsidies were intended to protect the public from extreme price fluctuation and shortages in basic food stuffs; i.e. milk being $1.00 one year and $10.00 the next, and there being no milk at all the next, much like social subsidies were intended to be a temporary helping hand for those in need, not a full time occupation.

There is little distinction between social and corporate welfare. Call it what you will; tax breaks, deductions, subsidies, earned income credit, or school lunch programs, it’s either all or none. One cannot exist without the other. Not without serious re-thinking and an adjustment period which would cause untold social upheaval for half a decade.

But, alas, maybe we should have heeded the warning of President Calvin Coolidge when he vetoed the McNary-Haugen bill, saying: “I do not believe, that upon serious consideration the farmers of America would tolerate the precedent of a body of men chosen solely by one industry who, acting in the name of the Government, shall arrange for contracts which determine prices, secure the buying and selling of commodities, the levying of taxes on that industry, and pay losses on foreign dumping of any surplus.”

His reason for doing so, and an unheeded prophetic warning: “There is no reason why other industries— copper, coal, lumber, textiles, and others—in every occasional difficulty should not receive the same treatment by the Government. Such action would establish bureaucracy on such a scale as to dominate not only the economic life but the moral, social, and political future of our people.”

Welfare is welfare; corporate or social. You cannot justify the one and defend the other since they come from the same government.