For Immediate Release
Contact: Keith Ashdown
June 30, 1999
(202) 546-8500 x110
TCS Testimony on Corporate Welfare
Prepared Testimony of Jill Lancelot, Legislative Director at Taxpayers for
Common Sense before the House Budget Committee Hearing on Corporate
Welfare:
Good afternoon. My name is Jill Lancelot, and I am Co-founder and
Legislative Director of Taxpayers for Common Sense (TCS). Mr. Chairman,
thank you for the opportunity to testify before the House Budget Committee’s
hearing on Corporate Welfare. I want to thank you, Mr. Chairman for your
leadership on this issue.
TCS is dedicated to cutting wasteful government spending and subsidies and
keeping the budget balanced through research and citizen education. We are
a politically independent organization that seeks to reach out to taxpayers of
all political beliefs in working toward a government that costs less, makes
more sense and inspires more trust. Taxpayers for Common Sense receives
no government grants or contracts.
Mr. Chairman, today I am here to speak about federal subsidies to business
through direct federal payments as well as tax breaks. This practice has come
to be known as "corporate welfare." TCS believes that corporate welfare both
drains the US Treasury and misuses taxpayer money.
The projected budget surplus making headlines this week in no way obviates
the need to reduce unnecessary and wasteful government spending. There is
never a time to waste the hard-earned tax dollars of the American people.
Instead, Congress should work to further bolster America’s current economic
strength by removing the drain of corporate welfare, a misguided spending
priority that needs to end.
Not only is corporate welfare a misuse of taxpayer money, but it can have
other ramifications as well. It can distort the market by maintaining industries
that may not be able to compete on their own. Generally speaking, picking
and choosing corporate winners is best left to the market. Corporate welfare
can also encourage an unhealthy relationship between politicians and
industry with each coming to depend on favors from the other. All, of course,
at the expense of the taxpayer. Let me expand on these points with several
examples.
Nuclear Insurance and Research
The nuclear power industry provides a prime example of the government
propping up an industry that the market is unwilling to support. Beginning
after World War II with the Atoms for Peace program, America was
determined to convert nuclear power into a productive rather than a
destructive force. Then in 1957 the government released its first nuclear
reactor safety study. This study concluded that a nuclear power accident
could result in $7 billion of property damage and thousands of injuries.
Recognizing the potential costs, a Vice President from GE told Congress that
his company and others would not build nuclear power reactors unless they
could be shielded from full liability in the event of such an accident. Since no
private insurance companies would insure the reactors, Congress stepped in
by passing the Price Anderson Act of 1957, a federally underwritten insurance
scheme that paved the way for the construction of nuclear power reactors.
Although originally enacted for only ten years in an effort to jump-start the
fledgling industry, it has been periodically extended and continues today to
shield the nuclear industry from its full financial responsibility.
Forty-two years ago the government defied signals from the private sector
and prematurely pushed the nuclear power industry into the market place.
And still, after $47 billion in subsidies and no reactor orders since 1974, the
government continues to throw money at the industry to help it keep its head
above water.
Congress made history during the FY98 appropriations process when, for the
first time since 1950, it did not give any direct money to the nuclear power
industry. This was quickly reversed when Congress provided $19 million in
FY99 for the Department of Energy’s Nuclear Energy Research Initiative
(NERI). To date, the Senate-passed Energy and Water Appropriations bill for
FY00 has provided $25 million for NERI and $5 million for the Nuclear Energy
Plant Optimization program.
These programs will examine reactor aging issues -- work already being
performed by the Nuclear Regulatory Commission (NRC). Once again the
government is subsidizing research for the mature commercial nuclear
reactor industry by setting up brand new programs that are duplicative and
unnecessary. The nuclear power industry generated $141 billion in 1996
revenues -- surely it can afford to improve mature products without more
taxpayer subsidies.
Barge Subsidies
Second, consider the barge industry. Federal programs perpetuate an uneven
playing field by subsidizing financially flush corporations that have it well
within their means to pay at least 50 percent of the costs associated with
operating and maintaining the nation’s inland waterways.
The Congressional Budget Office has declared the barge industry the most
heavily subsidized mode of transporting goods. It is estimated that Congress
appropriates about $500 million annually for the operation and maintenance
(O&M) of inland waterways. The O&M of this system requires, among other
activities, the dredging of shipping channels and the rehabilitation and repair
of locks and dams, costing taxpayers millions each year. TCS believes that,
as major beneficiaries, the barge industry should contribute at least 50
percent to the overall costs of inland waterway O&M.
Among the beneficiaries of this subsidy are a small group of 20 wealthy barge
owners. These corporations include:
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American River Transport Co., a division of Archer-Daniels-Midland
Co. (a company with sales in FY '97 of $13.9 billion)
Cargo Carriers, Inc., a subsidiary of Cargill, Inc. (a company with
sales in FY '97 of $67.7 billion)


Peavey Barge Lines, a subsidiary of Conagra, Inc. (a company with
sales in FY '97 of $24.0 billion)
Consolidation Coal Co., a subsidiary of Dupont Nemours & Co.(a
company with sales in FY '97 of $46.7 billion)
Inland waterway operation and maintenance is a cost of doing business.
Taxpayers paid to build the waterway system. At least let the users contribute
to its maintenance.
Hard Rock Mining
The General Mining Law of 1872 is the granddaddy of all subsidies and is
often at the top of many lists of outrageous give-aways. With good reason.
The 1872 mining law governs the extraction of precious hard-rock minerals
such as gold, silver, and platinum that are located on public lands belonging
to the American people.
First, under the law the mining industry is entitled to take free of any charge,
gold and other precious minerals found on public lands. By comparison, oil
and natural gas companies are charged a 12.5 percent royalty for extracting
resources from public lands; for coal mined on the surface a royalty rate of
12.5 percent is paid and 8 percent for coal mined underground.
Second, the law entitles large multinational corporations to take full title
(called patenting) to mineral-rich lands for no more than $5.00 an acre.
Through patenting or royalty-free mining the U.S. government has had to give
away more than $245 billion of minerals.
Clean Coal Technology Program
Third, consider the Clean Coal Technology Program. Since 1985 at least $1.2
billion has been spent for this program. A 1991, General Accounting Office
(GAO) report found a history of waste and mismanagement -- a large number
of projects had either been terminated within a few years of being funded,
experienced substantial schedule delays, or exceeded their budgets.
This mismanagement continues. Currently, there are seven projects that have
been in the design phase for between 5 and 10 years and have yet to go to
construction. Two of those projects are in bankruptcy. Other projects have
been moved from site to site not finding any place suitable. The Department
of Energy still has a $610 million commitment to these projects that are still in
the "design phase".
Furthermore, the program is duplicative because similar research is being
funded by the coal industry and by states in coal producing regions in an
effort to promote the coal industry.
In 1996, the total value of domestic coal production exceeded $19 billion. This
mature industry hardly needs a subsidy program, especially one that has
serious questions regarding its effectiveness and productivity.
The CCTP is a glaring example of the government’s poor track record when it
comes to selecting viable corporations. If left on its own, the CCTP most likely
would not have survived the vagaries of the marketplace. However, as with so
many corporate welfare programs, the subsidies allow an inefficient and
impractical program to survive thanks to taxpayer dollars.
Defense Contractor Merger Subsidies
Corporate welfare involving defense mergers currently has fallen out of the
spotlight as mergers have declined, but nevertheless could reappear at any
time. Under existing policy, the Pentagon can spend appropriated funds to
reimburse defense contractors for expenses related to corporate mergers.
Called "restructuring funds" these handouts reward contractors for expenses
for an activity that they presumably would have done anyway for sound
business reasons.
Recipients of the funds have included defense giants such as General
Electric, Northrop Grumman, and Hughes Aircraft. Since the merger subsidy
program began in 1993, these and other defense companies have billed over
$817 million to the Pentagon. The decision to merge and any related
expenses are solely the responsibility of the companies involved. Taxpayer
handouts should not fund these or any of the other many business decisions
that private companies must make every day.
Conclusion
In August of 1996, anger at America's public welfare system culminated in the
passage of the Personal Responsibility and Work Opportunity Reconciliation
Act, legislation that ended welfare as we knew it. Today we need similar
legislation that calls for an end to taxpayer subsidized hand-outs to financially
strong businesses and mature industries.
Note: Attached is TCS’s ten top corporate welfare items
TEN TOP CORPORATE WELFARE ITEMS
1. SUBSIDIES TO THE HARD ROCK MINING INDUSTRY
2. The 1872 Mining Law governs the extraction of precious hard-rock
3.
4.
minerals such as gold, silver, and platinum that are located on public
lands belonging to the American people. First, it entitles the industry
to take free of any charge, gold and other precious minerals found on
public lands. Second, the law entitles large multinational corporations
to take full title to mineral-rich lands for no more than $5.00 an acre.
Under 1872 mining law the government has had to give away more
than $240 billion worth of minerals.
SUBSIDIES TO THE TIMBER INDUSTRY
The U.S. Forest Service loses hundreds of millions of dollars selling
trees from our National Forests to private timber companies.
According to reports from the General Accounting Office (GAO) the
Forest Service lost more than $2 billion from 1992 to 1997. One of
5.
6.
7.
8.
9.
the primary reasons for these huge losses is due to money-losing
timber sales. More often than not, the Forest Service loses money
when it sells National Forest trees because the agency charges
timber companies far less than it costs to prepare and administer the
sales. Furthermore, taxpayer dollars are spent on the construction of
logging roads to assist timber companies in cutting and removing
timber. The GAO reported that timber road construction cost
American taxpayers $387 million from 1992-1997.
SUBSIDIES TO THE LIVESTOCK INDUSTRY
Grazing on public land by privately-owned domestic livestock is
subsidized by taxpayers because the fee charged is not enough to
cover the costs of the program administered by the U.S. Forest
Service and the Bureau of Land Management. The program costs at
least $5.76 per animal unit month (AUM) yet the current fee is only
$1.35 per AUM. Recipients of grazing subsidies include major
companies such as Union Oil, Getty Oil, Newmont Mining, and
Anheuser Busch.
DEFENSE CONTRACTOR MERGER SUBSIDIES
Under existing policy, the Pentagon can spend appropriated funds to
reimburse defense contractors for expenses related to corporate
mergers. Recipients of the funds include corporations such as
General Electric, Northrop Grumman, and Hughes Aircraft.
OVERSEAS PRIVATE INVESTMENT CORPORATION: The
Overseas Private Investment Corporation (OPIC) provides subsidized
loans and insurance to corporations for overseas investment. The
insurance covers expropriation, political violence and currency
inconvertibility. OPIC also finances joint ventures in which foreign
enterprises can own up to 75% of the project. Taxpayer money
should not be used to encourage unstable overseas investment by
multinational corporations who likely have the resources to find their
own financing and insurance.
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Taxpayers for Common Sense is a non-partisan budget watchdog that serves as an independent voice for American taxpayers. Now in its
second decade of service to the nation, TCS works to ensure that our government spends taxpayer money efficiently and responsibly by
working to eliminate wasteful and harmful federal spending.