The definition of corporate welfare is sometimes restricted to direct government subsidies of major corporations, excluding tax loopholes and all manner of regulatory and trade decisions, which in practice could be worth much more than any direct subsidies.
Origin of term
"Socialism for the rich, capitalism for the poor"
Variations on this adage have been used in criticisms of the United States' economic policy by Joe Biden, Martin Luther King Jr., Gore Vidal, Joseph P. Kennedy II, Robert F. Kennedy, Jr., Dean Baker, Noam Chomsky, Robert Reich, John Pilger, and Bernie Sanders.
"Privatizing profits and socializing losses" refers to the idea that corporations want to reserve financial gains for themselves and pass along losses to the rest of society, potentially through lobbying the government for assistance. This practice was criticized in the Wall Street bailout of 2008.
Subsidies considered excessive, unwarranted, wasteful, unfair, inefficient, or bought by lobbying are often called corporate welfare. The label of corporate welfare is often used to decry projects advertised as benefiting the general welfare that spend a disproportionate amount of funds on large corporations, and often in uncompetitive, or anti-competitive ways. For instance, in the United States, agricultural subsidies are usually portrayed as helping independent farmers stay afloat. However, the majority of income gained from commodity support programs actually goes to large agribusiness corporations such as Archer Daniels Midland, as they own a considerably larger percentage of production.
Alan Peters and Peter Fisher, Associate Professors at the University of Iowa, have estimated that state and local governments provide $40–50 billion annually in economic development incentives, which critics characterize as corporate welfare.
Some economists consider the 2008 bank bailouts in the United States to be corporate welfare. U.S. politicians have also contended that zero-interest loans from the Federal Reserve System to financial institutions during and after the financial crisis of 2007–2008 were a hidden, backdoor form of corporate welfare. The term gained increased prominence in 2018 when Senator Bernie Sanders introduced a bill, singling out Amazon and Walmart in particular, to require a company with 500 or more employees to pay the full cost of welfare benefits received by its workers.
Policy analysis conducted by the Cato Institute, an American libertarian think tank, argued that United States fiscal policy allocated approximately US$92 billion in the 2006 federal budget toward programs that the authors considered to be corporate welfare. Subsequent analysis by the institute estimated that number to be US$100 billion in the 2012 federal budget.
Daniel D. Huff, professor emeritus of social work at Boise State University, published a comprehensive analysis of corporate welfare in 1993. Huff reasoned that a very conservative estimate of corporate welfare expenditures in the United States would have been at least US$170 billion in 1990. Huff compared this number with social welfare:
In 1990 the federal government spent 4.7 billion dollars on all forms of international aid. Pollution control programs received 4.8 billion dollars of federal assistance while both secondary and elementary education were allotted only 8.4 billion dollars. More to the point, while more than 170 billion dollars is expended on assorted varieties of corporate welfare the federal government spends 11 billion dollars on Aid for Dependent Children. The most expensive means tested welfare program, Medicaid, costs the federal government 30 billion dollars a year or about half of the amount corporations receive each year through assorted tax breaks. S.S.I., the federal program for the disabled, receives 13 billion dollars while American businesses are given 17 billion in direct federal aid.
In 2015, Kevin Farnsworth, a senior lecturer in Social Policy at the University of York published a paper in which he claimed that the government was providing corporate subsidies of £93 billion. This amount includes the role of the government in increasing trade, tax relief for businesses that invest in new plants and machinery (estimated by Farnsworth at £20 billion), not charging fuel duty on fuel used by railways or airlines, green energy subsidies, a lower corporation tax rate for small companies, regional development grants and government procurement for businesses (which Farnsworth suggests often favours British businesses even when these are not the best value option available). However, The Register wrote that Farnsworth's figure for tax relief for investment was incorrect and that he had made mistakes in his calculations, noting that he was not an accountant. It also stated that not charging businesses taxes under certain circumstances (when the reliefs applied) was not the same as giving them a subsidy. Fuel duty is not charged on airlines due to the Convention on International Civil Aviation (a UN agency) which specifies that aeroplanes should be exempt from fuel duties.
In 2015, Labour Party leader Jeremy Corbyn said he would "strip out" the £93bn of "corporate tax relief and subsidies" Farnsworth referred to and use the proceeds for public investment. Corbyn did not say which specific policies he would change. The Guardian wrote the policy "sounds wonderful, but careful scrutiny of 'corporate welfare' shows that it includes capital allowances designed to persuade companies to invest, regional aid to boost growth in rundown parts of the UK, and subsidies to keep bus and rail routes open – none of which Corbyn would presumably like to see stopped."
The New Democratic Party in Canada picked up the term as a major theme in its 1972 federal election campaign. Its leader, David Lewis, used the term in the title of his 1972 book, Louder Voices: The Corporate Welfare Bums.
The Reform Party and its successor the Canadian Alliance were known for opposing most business subsidies, but after their merger with the Progressive Conservative party, they dropped their opposition.
It was observed by The Wire that the effective tax rate was low for the larger corporations which meant companies making smaller profits are competing in an unequal environment against bigger companies with substantial taxation benefits, with the gap in effective tax rates widening over the years. Prime Minister of India Narendra Modi criticised this practice and said
"Why is it that subsidies going to the well-off are portrayed in a positive manner? Let me give you an example. The total revenue loss from incentives to corporate tax payers was over Rs 62,000 crore... I must confess I am surprised by the way words are used by experts on this matter. When a benefit is given to farmers or to the poor, experts and government officers normally call it a subsidy. However, I find that if a benefit is given to industry or commerce, it is usually an 'incentive' or a 'subvention'."
- Crony capitalism
- Fossil fuel subsidies
- Political corruption
- Pork barrel
- Public choice theory
- Regulatory capture
- Ralph Nader on Corporations, OnTheIssues, retrieved September 3, 2014
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- Michael Harrington (1962) The Other America, p.58, quote: This is yet another case of "socialism for the rich and free enterprise for the poor," as described by Charles Abrams in the housing field
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Pointing to the hundreds of billions of government dollars that have been spent to keep banks from failing, he recalled a "great expression" of his grandfather, Ambrose Finnegan: "It's socialism for the rich and capitalism for the poor,"" Biden said.
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- Baker, Dean (2006). The Conservative Nanny State: How the Wealthy Use the Government to Stay Rich and Get Richer. Washington, D.C.: Center for Economic and Policy Research. ISBN 978-1-4116-9395-1. Reviewed in: Scott Piatkowski: Socialism for the rich Archived February 4, 2008, at the Wayback Machine, rabble.ca, May 25, 2006
- Noam Chomsky, "The Passion for Free Markets", Z Magazine, May 1997. Reproduced on Chomsky's official site.
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- Reutter, Mark (July 13, 2011). "Tax breaks for developers – economic development or corporate welfare?". Baltimore Brew. Retrieved November 3, 2019.
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- Robertson, Adi (September 5, 2018). "Bernie Sanders introduces "Stop BEZOS" bill to tax Amazon for underpaying workers". The Verge. Retrieved September 14, 2018.
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- "The British Corporate Welfare State: Public Provision for Private Businesses" (PDF).
- "The £93bn handshake: businesses pocket huge subsidies and tax breaks".
- "Taxpayers are NOT giving businesses £93bn".
- "Convention on International Civil Aviation".
- "Does the government subsidise airlines by £10 billion?".
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- Lewis, David (1972). Louder voices: the corporate welfare bums. Toronto: James Lewis & Samuel. ISBN 9780888620316.
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