Hearing of the Senate Government Affairs Committee
February 13, 1997
Senator John McCain (R-AZ)
Senator John Kerry (D-MA)
Senator Russell Feingold (D-WI)
Thomas Schatz, President, Citizens Against Government Waste
Grover Nordquist, President, Americans for Tax Reform
Courtney Cuff, Director, Green Scissors Campaign, Friends of the Earth
Dean Stansel, Fiscal Policy Analyst, Cato Institute
The Government Affairs Committee held this hearing "to examine the merits of a commission approach that could actually succeed in making a big dent in corporate subsidies." Corporate subsidies have continued to grow, even in a political climate of budget reduction aimed at eliminating the deficit and reducing the $5.3 trillion national debt. Estimates of expenditures vary widely. The Cato Institute estimates at least $60 billion in corporate welfare is paid each year, and the Progressive Policy Institute has identified 120 programs that subsidize industry by $265 billion over 5 years. Senator John McCain (R-AZ) proposed a corporate subsidies reform bill, S. 1376, during the last session Congress, but it did not make it to the floor.
S. 207, the Corporate Subsidy Reform Commission Act, introduced by Senator McCain on January 28, 1997 reflects the changes made to S. 1376 during committee meetings and mark-up sessions in the 104th Congress. S. 207 calls for a task force similar to the base closings task force to take over the difficult job of determining which corporate subsidies can be eliminated. The bill instructs the commission to look both at direct contributions to corporations as well as tax loopholes. This bill relates to the geoscience community through programs conducted by the Department of Energy. Several DOE programs, such as Energy Supply, Research and Development Activities; the Clean Coal Technology Program; and Fossil Energy Research and Development activities, have been targeted as corporate welfare to be eliminated.
Senator Kerry cited figures demonstrating that by 2002 the total amount lost by the government from tax loopholes for corporations will eclipse total discretionary spending. He compared the subsidy reform process to military base closings, where legislators agreed elimination was necessary but were not willing to cut their own programs. The commission approach was very successful in that situation, and Senator Kerry expressed optimism that it would work for corporate subsidies.
Senator McCain began his testimony by expressing his appreciation for the bipartisan support of the bill and explaining the bill's history. He emphasized his desire make all companies follow the same rules and compete on a level playing field. He also expressed his belief that you cannot make cuts to Medicare and welfare, while still giving large subsidies to corporations.
Senator Feingold kept his remarks brief and reiterated the concerns of the other Senators.
The sentiment from the diverse group of panelists was much the same: end corporate subsidies. Each of the groups represented, however, proposed somewhat different ways to achieve this common goal. It is noteworthy that none of the groups represented receive federal funding, and all of the representatives commented that they wanted to keep it that way.
The Green Scissors Campaign of Friends of the Earth is a collaborative effort of taxpayer, environmental, consumer and deficit-hawk groups that target wasteful and environmentally harmful spending practices. Courtney Cuff, campaign director, testified in favor of S. 207. She strongly advocated eliminating both subsidies and tax loopholes. Ms. Cuff also expressed her desire for the work to be done not by a commission but by legislators who had the courage to do what was the best for the country as a whole, not just for their district projects. Furthermore, Cuff explained that taxpayers actually pay twice for these corporate projects- once in the subsidy and again in the environmental clean up of these programs.
Citizens Against Government Waste is a 600,000 member organization that is a direct outgrowth of the President's Private Sector Survey on Cost Control. Thomas Schatz, President, defines corporate welfare as "unfair competitive advantage that eliminates fair competition because of political barriers toward reform." He supports the formation of a commission that has the independence to make decisions outside of the political arena. The main change he would like to see made to the bill is to allow the commission to submit the bill directly to Congress if the President fails to act on it.
Americans for Tax Reform is an organization of over 70,000 individuals, corporations, and associations concerned about high levels of taxation. They define corporate welfare spending as "direct government payments to public and private companies and corporations where the federal government does not receive a good or service in return--particularly when the money goes to aid or assist a profit- making activity, or where it creates or fosters competition with private, for profit business." Grover Nordquist, President, reasoned that their omission of tax breaks in the definition is that allowing tax payers to keep more of their own money is not welfare. He also expressed his disagreement with the bill's exclusion of programs that return a profit to the federal government. These profits are generally minimal, with a loss occurring from the opportunity cost of the money, and also on the principle that the government should not be involved with profit-making activities.
Dean Stansel, a fiscal policy analyst for the Cato Institute, defines corporate welfare as spending programs that provide unique benefits or advantages to specific companies or industries. If all the spending subsidies covered by this definition were eliminated today, the budget deficit could be cut in half or the capital gains tax and the federal estate tax could be eliminated. The Cato Institute supports elimination of these expenditures but opposes a change in the tax laws because they allow companies to keep more of their earnings. If the tax loopholes are closed, however, tax rates should be reduced to prevent a tax hike on businesses. Stansel had three provisions for the commission: It should be unamendable, it should only focus on spending programs, and restrictions on what programs can be considered should be eliminated. S. 207 contains none of these provisions
In conclusion, all panelists agreed that eliminating corporate welfare is necessary, although participants disagreed on whether welfare definitions included tax breaks. All also agreed that the commission's recommendations should be unamendable. While all groups support the theory behind S. 207, none see it as an ideal bill, and all feel changes should be made.
Contributed by Kasey Shewey, AGI Government Affairs.
Last updated February 26, 1997