How they work
Foreign sales corporations
The initial rationale for FSCs was to encourage exports and thereby reduce the U.S. trade deficit and save jobs
Must be established in U.S. possessions or one of 32 foreign countries in order to qualify for a 15% tax break on export income
Any U.S. firm can establish an FSC, but the big dollar savings go to the larger companies
YOUR COST $1.7 Billion per year
Old laws, new consequences
The bank that never closes
In 1934 the country was in terrible shape. President Roosevelt launched an agency to create jobs by offering loans, grants and long-term guarantees to exporters, in hopes of getting the country out of the darkest years of the Depression. Those days, of course, are long gone, but the Export-Import Bank lives on and guarantees billions in loans to aid huge corporations.
The Boeing Company of Seattle is the largest recipient of Eximbank guarantees. From 1990 through 1997, Boeing received $11 billion, most of it in the form of long-term guarantees to finance aircraft sales to countries worldwide. During that period, Boeing's single largest customer was China.
Other companies that benefit:
YOUR COST $4.3 Billion, cumulative cost 1993-97
On the dole
Bossidy has complained about the "hundreds of thousands of able-bodied people who stay on welfare for years at a time"--but his company is a major recipient of corporate welfare
A company that thrives...
Over the past five years, Allied's profits nearly tripled to $1.2 billion. For the entire period, the company earned more than $4 billion
...But is still on welfare
During that same period of soaring profits, Allied collected more than $150 million in state and federal corporate welfare
...From multiple sources
Allied gets export subsidies, loans and guarantees overseas, breaks on real estate taxes, federal research contracts and incentives to build new offices.
Old laws, new consequences
Water, water everywhere
In 1902 Congress passed the Reclamation Act to build dams and irrigation canals to supply water to small farmers and their families. The intent of both Congress and President Theodore Roosevelt was to help out farmers cultivating 160 acres or less. Roosevelt's first reclamation chief declared the law was to help "a man with a family" and was not to aid corporations.
1998 Subsidized water now flows to scores of corporate farms in the American West. Water once earmarked for struggling family farmers goes to agribusinesses the size of entire cities. Big farmers buy the water at a fraction of its real cost.
YOUR COST $5 Billion, cumulative cost 1993-97
Profits up, jobs down
One of the world's best-run and most successful companies, GE has moved smartly to become a global powerhouse
Bringing in the bucks...
Over the past 11 years, GE's profits rose 228%--from $2.5 billion in 1986 to $8.2 billion in 1997
...But still on welfare
GE gets export subsidies, tax credits, loan guarantees, government-research contracts and federally provided insurance for overseas projects
...And still cutting jobs
In 11 years, GE has cut more than 120,000 jobs, reducing its work force nearly one-half
Greasing the wheels
Archer Daniels Midland
The world's largest agricultural commodity firm deals in many products, including ethanol, a corn-based fuel. Subsidies to promote ethanol have cost taxpayers $5 billion this decade
A company that makes money...
Over the past five years, ADM has gathered profits of $2.9 billion. Last year alone, ADM collected revenues of $13.9 billion worldwide
...But still receives welfare
ADM collected more than $3 billion in corporate welfare in the 1990s and now takes in $400 million a year--more than $1 million every day
...And lobbies to keep it
In this decade alone, ADM has contributed nearly $3 million to Democrats and Republicans in Congress to preserve the ethanol subsidy
Searle & Co.: A case study
The mysterious midnight favor
Sometimes members of Congress debate long and loud about specific programs that represent corporate welfare. Other times they resort to arcane paragraphs tucked into unrelated legislation during late-night sessions, hoping no one will notice the giveaway.
Even hotly debated legislation--and even legislation meant to cut costs--can end up containing handsome gifts for targeted corporations. That's what happened with the Balanced Budget Down Payment Act of 1996, a long and bitterly debated piece of legislation. So long and bitter that the country went without a budget for seven months and endured two partial Federal Government shutdowns.
In the end Congress carved $22 billion out of the budget, prompting Representative John Kasich, the Ohio Republican who chairs the House Budget Committee, to declare that the new law made "the most significant reductions in Washington spending since World War II."
Well, maybe. But buried in the thousands of words that slashed government spending on everything from legal aid to the poor to helping the needy pay their home-heating bills was this intriguing sentence:
"In General: Any owner on the date of enactment of this Act of the right to market a nonsteroidal anti-inflammatory drug that (1) contains a previously patented active agent; (2) has been reviewed by the Federal Food and Drug Administration for a period of more than 120 months as a new drug application; and (3) was approved as safe and effective by the Federal Food and Drug Administration on October 29, 1992, shall be entitled, for the two-year period beginning on October 29, 1997, to exclude others from making, using, offering for sale, selling, or importing into the United States such active agent, in accordance with section 154(a)(1) of Title 35, United States Code... "
Those 112 words obviously had nothing to do with cutting funds to departments and programs of the U.S. government. On the contrary, they would end up costing consumers many tens of millions of dollars--and fattening up G.D. Searle & Co. by the same amount.
The words, planted in the legislation by friendly members of Congress, extended for two years Searle's patent protection on Daypro, an anti-inflammatory drug that is the second best-selling drug for arthritis in the country. They also meant that for two more years, no cheaper generic versions of the drug could be sold.
Searle is a subsidiary of Monsanto Co., a global chemical and pharmaceutical giant with annual revenues of $7.5 billion. How important was Daypro to Searle and Monsanto? The company sells $300 million worth of the stuff a year.
Most lawmakers were unaware of the handout. It was not in the original bill passed by the House nor in the one passed by the Senate. As often happens with special interests, the stealth provision was slipped into the legislation during a conference session, when the two houses were ironing out differences between their respective bills.
No record exists identifying the lawmaker who inserted it. To this day, no one claims credit. But it is worth noting that in December 1995, four months before the budget bill was passed, then Senator Paul Simon, Democrat from Chicago--the home of G.D. Searle--introduced on the floor of the Senate a bill to specifically extend Daypro's patent protection. The bill was co-sponsored by Senator Carol Moseley-Braun, also a Chicago Democrat, and Senators John Ashcroft and Christopher Bond, both Republicans from Missouri, the home of Searle's parent, Monsanto. That bill went nowhere.
Not all drug companies are as lucky as Searle. American Home Products later sought to have the patent extended on one of its arthritis drugs, Lodine. Following Searle's lead, American Home Products arranged for a friendly member of Congress to drop the required paragraphs into an unrelated piece of legislation: the Health Insurance Portability and Accountability Act of 1996.
Once again, the wording was not in either the House bill or the Senate bill. Rather, it was slipped into the conference-committee report in the middle of the night. And again no one seemed to notice.
No one, that is, until Senator Edward Kennedy, Massachusetts Democrat, blew the whistle two days later. Kennedy denounced this legislative gimmick and noted that Lodine brought in $275 million a year for American Home Products. Paul Wellstone, the Democratic Senator from Minnesota, chimed in, assailing "the mysterious manner in which [the] giveaway [was added to the legislation late at night] at the expense of patients and senior citizens."
The furor was so great that Trent Lott, Mississippi Republican, Senate majority leader and the bill's original sponsor, ordered the offending paragraphs removed.
As it turned out, however, American Home Products almost prevailed after all. Last June the company announced that it would acquire Monsanto and its G.D. Searle unit for $34.4 billion in stock. The merger, however, soon unraveled and by last month both companies had decided that it was "not in the best interests" of either.
MORE TIME STORIES:
Cover Date: November 16, 1998
Fall of the house of Newt
Alas, poor Gingrich, I knew him well
Goodbye, brave Newtworld
Engineer, stop this train
A deal cutter with a bit of a temper
The GOP thought it was its year
Oops! The top gaffes of Election '98
Minnesota's excellent Ventura
Big winners, hot issues
Our subtleties explained
Give 'em Hillary
Fantasy islands and other perfectly legal ways that big companies manage to avoid billions in federal taxes
How they work