Special Report Corporate Welfare and Foreign Policy
By Janice C. Shields Annual Subsidies for Exporters, Importers, and International Investors Tax Breaks Benefiting Exporters, Importers, and International Investors Laws Benefiting Exporters, Importers, and International Investors
The U.S. government doles out more than $167 billion annually in what critics dub “aid for dependent corporations (AFDC).” This corporate welfare includes: (1) cash payments by governments to businesses; (2) government provision of below-cost products and services, such as loans and insurance, to businesses; (3) tax breaks for businesses; (4) laws—and changes in laws—that help business bottom lines; and (5) government purchases of goods and services from businesses at inflated prices (though laws are supposed to prevent this).
U.S. aid for international investors, exporters, and importers exceeds $32 billion annually and benefits such “needy” recipients as General Motors, Citibank, Archer Daniels Midland, and Boeing. The Market Access Program (MAP), for example, uses taxpayer money to reimburse corporate foreign advertising costs. The Overseas Private Investment Corporation (OPIC) supplies loans and insurance to companies investing abroad. Federal tax law allows exporters to exempt a portion of revenues from taxation.
The Sugar Program, which limits U.S. sugar imports, increases the sweetener industry’s income by keeping supplies lower, leading to higher prices. The validity of corporate arguments supporting their welfare programs is often questionable. For example, some executives claim that subsidies and tax breaks are needed to create or maintain U.S. exports and jobs. Proponents of MAP contend that these subsidies generate $16 in export revenue for every $1 in taxpayer costs. Yet, U.S. General Accounting Office studies could not document any increase in exports due to MAP expenditures. Similarly, the Congressional Research Service could not confirm the job creation claims of OPIC beneficiaries.
The tax break that allows U.S. corporations to defer payment of more than $1.3 billion annually in U.S. taxes on foreign earnings until remitted actually encourages U.S. companies to invest overseas. Corporate welfare may also harm international relations, especially when companies force countries to compete against each other to attract businesses by offering more subsidies and tax breaks or when countries use subsidies and tax breaks to retaliate against each other’s policies.
For example, the U.S. Secretary of Agriculture recently threatened to provide Export Enhancement Program cash bonuses to U.S. flour exporters as a signal to the European Union that he was concerned about European flour subsidies. Elements of both the progressive and conservative political camps are campaigning to cut corporate welfare, though they seek different outcomes. Progressives argue that the money should be used instead to provide housing, food, medical care, and education for truly needy families and children. Conservatives want to downsize government by cutting corporate welfare. If these subsidies aren’t cut, each government agency that disburses corporate welfare and each company recipient should be required to provide detailed annual public reports disclosing the amount of welfare disbursed/ received, how the welfare was used, and how the taxpayer expenditure benefited the company and the public.
Corporate welfare programs should be periodically reviewed and, if costs exceed public benefits, eliminated. Government agencies doling out corporate welfare should bar companies with bad labor, environmental, and social records from obtaining benefits; business “AFDC” recipients should be required to follow codes of good corporate conduct and to refund the welfare if they fail to meet their commitments, such as creating promised jobs. Janice Shields is coordinator of the Corporate Welfare Project and TaxWatch, projects of the Institute for Business Research.
Annual Subsidies for Exporters, Importers, and International Investors Defense Industry Subsidies: $8,093 Million Military Export Sales Subsidies $500 million Prices assessed foreign purchasers of U.S. weapons don’t cover government research and development costs. Foreign Military Financing $3,300 million Provides grants and subsidized loans to foreign countries for purchase of military goods and materials. Excess Defense Articles/Emergency Drawdowns $750 million Defense articles given away or sold at steep discounts.
No-Cost Leases of U.S. Equipment $63 million U.S. government equipment provided free for foreign trade shows. Forgiven/Bad Loans for Arms Exports $1,000 million U.S. government-guaranteed loans—to foreign importers of U.S. arms—that have been forgiven. Economic Support Funds Bolstering Arms Exports $2,040 million Provide cash payments to foreign importers to repay debts incurred to buy U.S. weapons. Government Support for Arms Export Promotion $440 million Use of departments of State and Commerce and U.S. military to promote arms sales. Shipping Subsidies: $100 Million Maritime Subsidies $100 million Subsidies to U.S. merchant fleet and purchasers of U.S. ships.
Agricultural Subsidies: $790 Million Export Enhancement Program $300 million Subsidizes foreign purchasers of U.S. agricultural products by paying bonuses to U.S. exporters, which allows them to decrease foreign prices. Dairy Export Incentive Program $100 million Subsidizes exporters of U.S. dairy products. Market Access Program $90 million Subsidizes overseas advertising by U.S. agricultural companies and trade associations. U.S. Department of Agriculture Export Guarantees $100 million Provide loan guarantees for foreign purchasers of U.S. agricultural commodities. Public Law 480 Program $200 million Provides subsidized loans to purchasers of U.S. agricultural products.
Fishing Subsidies: $14.4 Million International Fisheries Commission $.4 million Promotes fishery trade and exports. Access Payments for South Pacific Fisheries $14 million Annual payment to several Pacific Island states to guarantee fishing access to about 45 U.S. tuna boats. Other Subsidies for Exporters, Importers, and International Investors: $1,113 Million Export-Import Bank Loan Subsidies $742 million Subsidize loans to foreign purchasers of U.S. products. International Trade Administration $200 million Provides export services to U.S. companies. Small Business Administration Export Assistance Centers $3 million Provide export assistance to small businesses. Trade and Development Agency $40 million Provides grants to U.S. companies for feasibility studies and planning services for foreign economic development projects. Overseas Private Investment Corporation $110 million Administrative costs and subsidy outlays of OPIC, which provides loans, loan guarantees, and political risk insurance to U.S. companies investing overseas. U.S. Travel and Tourism Office $18 million Promotes U.S. travel and tourism overseas. “Foreign Aid” that Assists U.S. Exporters, Importers, and Investors: $1,250 million International Monetary Fund $700 million Protects risky investments of large U.S. banks and corporations by providing loans to countries experiencing currency problems. Support for Multilateral Development Banks $550 million The U.S. government makes payments to multilateral development banks that fund projects to develop infrastructure in developing countries, which supports investment by multinational corporations. Total Benefits from Subsidies: $11,360.4 Million
Tax Breaks Benefiting Exporters, Importers, and International Investors Inventory Property Sales Source Rule Exception $3,900 million Allows revenue from selling U.S. inventory to be counted as foreign source income, which increases the foreign tax credits that U.S. exporters may deduct from U.S. tax bills.
Companies with Foreign Sales Corporations $1,800 million Allows U.S. exporters to exclude a portion of their export income from U.S. taxation. Tax Deferral of Income of Controlled Foreign Corporations $1,300 million
Allows U.S. companies to defer foreign subsidiary income from U.S. taxes until it is remitted to the United States. Transfer Pricing at least $12,000 million Allows multinational companies to avoid U.S. income taxes by shifting income to lower tax countries. Lack of Minimum Tax on Foreign-Owned Businesses $100 million U.S.-owned businesses must pay at least a minimum tax on their earnings; foreign-owned businesses with U.S. income are not subject to the minimum tax rule. Total Benefits from Tax Breaks: $19,100 Million
Laws Benefiting Exporters, Importers, and International Investors Cargo Preference $200 million Increases shipping costs by requiring certain government cargo to be shipped on U.S.-flagged vessels. Sugar Program $1,400 million Increases prices of sugar and corn sweeteners by limiting sugar imports. Total Benefits from Laws: $1,600 Million
Total Federal Corporate Welfare for Exporters, Importers, and International Investors: $32,060.4 Million
Foreign Policy In Focus Corporate Welfare Package $5.00 The Foreign Policy In Focus Program has combined a series of its briefs dealing with corporate welfare and related subjects into a single package. This package provides a superior overview of how the U.S. government is subsidizing wealthy corporations at the expense of taxpayers and the social programs that will benefit all citizens. The briefs in this package are: Overseas Private Investment Corporation (vol. 4 no. 19) Export-Import Bank (vol. 4 no. 18) World Bank’s Private Sector Agenda (vol. 3 no. 40) Small Arms Trade (vol. 3 no. 10) Taxing Overseas Investments (vol. 3 no. 1) Investment Funds (vol. 2 no. 44) Export Promotion Programs (vol. 2 no. 34) Warfare vs. Welfare: Subsidies to Weapons Exporters (vol. 2 no. 30) Controlling Transnational Corporations (vol. 1 no. 6) To get your Corporate Welfare Package, you may order it one of the following ways: print and fill out the standard order form (include check, money order, or credit card info) or for faster delivery, call (505) 842-8288 (credit card orders only) Sources for more information Corporate Welfare Shame Page at The Progress Report
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