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Criticism of 'Corporate Welfare' Heats Up in Congress

By Alan K. Ota, CQ Staff Writer

McDonald's Corp. sells Big Macs in 18 countries with the help of $105 million worth of insurance subsidized by taxpayers.

Bethlehem Steel Corp. makes iron in its blast furnace in Burns Harbor, Ind., with the help of $32 million from the Energy Department to build an injection system permitting use of a cheaper grade of granular coal than it would otherwise use.

Such government spending is sometimes called "corporate welfare," and is the target of both conservatives and liberals who want to cut government aid to some of the nation's biggest corporations. Though such attempts over the last two years have been largely unsuccessful, House Budget Committee Chairman John R. Kasich, R-Ohio, and others are pledging to renew their efforts this year.

In an interview, Kasich stressed that no targets have been set for 1998. He said he would try to get an agreement from House leaders to permit a single vote on cuts in programs for "narrow special interests."

"We are gaining ground," he said.

Kasich set his sights on a brief list of programs, including those that helped McDonald's and Bethlehem Steel when he launched his Stop Corporate Welfare Coalition in 1997. His efforts were endorsed by a range of supporters, such as consumer advocate Ralph Nader and former Labor Secretary Robert B. Reich.

"This is enormously popular with the public, which believes that favored companies are getting all sorts of special subsidies and tax breaks," said Reich in a telephone interview from Brandeis University, where he is now a professor of social and economic policy.

The Cato Institute estimated that the annual federal budget contained $60 billion in federal subsidies to businesses, not including special tax breaks enjoyed by some companies.

But despite the popularity of the issue and legislators' ambitions, Kasich's campaign faced strong opposition in 1997.

Democratic Rep. Robert E. Andrews of New Jersey, one of Kasich's allies in the coalition, said that cutting programs has been difficult. "It's easy to organize opposition to things that affect a few people in a big way," Andrews said.

Business groups have opposed Kasich's efforts. "I object to the term 'corporate welfare.' It's demeaning," said Jerry J. Jasinowski, president of the 14,000-member National Association of Manufacturers. "It puts the emphasis on programs that allegedly have no return -- which welfare did not."

Jasinowski defended federal support for international investment and exports as important to nurture global economic growth and help increase American jobs and wages. "The coalition has been unsophisticated about the importance of international programs," Jasinowski said.

A New Commission?

Facing strong opposition and prospects that rising tax revenues might erase the federal deficit, some groups in Kasich's coalition are shifting tactics to focus on fewer targets and to push for a commission to help the president and Congress find cover for cuts opposed by business.

"When you have a deficit, you can make a stronger case. But when it looks like a balanced budget, or a surplus, it's much harder," said Janice Shields, who heads the corporate welfare project for the Institute for Business Research, a nonprofit group specializing in taxpayer and consumer issues.

Her group joined the Stop Corporate Welfare Coalition. Last year, it set out to get cuts in 12 programs -- half of them energy research and water projects -- worth $2.1 billion annually in federal funding over five years.

The coalition achieved only one rescission, of $101 million, for the Energy Department's clean coal technology research program, and it managed to cut timber roads' assistance by $5.6 million.

Now, Shields said the coalition has tentatively agreed to a shorter hit list in 1998. She identified four projects likely to be on the list:

  • The Overseas Private Investment Corp. (OPIC), which provides loans and insures the nation's biggest companies against losses from political upheaval overseas that could result in the taking or freezing of assets. The projects insured range from McDonald's restaurants in 18 countries to soft drink bottling plants in Russia for Coca-Cola Co. OPIC supports its own budget with insurance and finance fees, but taxpayers are liable for $19 billion for potential loan and insurance losses.
  • The Agriculture Department's $90 million market access program to help finance advertising to sell crops, wines and food products overseas.
  • The Energy Department's clean coal technology program, which has a balance of $500 million in unspent money for projects that are under construction or have been delayed.
  • The Energy Department's $365 million fossil energy research and development program, which studies ways to develop reserves of coal, oil and gas.
  • Defenders of these programs said they provide important financial support. For example, the Energy Department said research is needed to promote cleaner fuels and less dependence on foreign oil. George Munoz, president and chief executive officer of OPIC, said his 200-employee quasi-governmental company fulfills a foreign policy goal by giving companies a "partner in countries that might have political problems."

    Facing opposition, Shields and some other coalition members are now backing a bill (S207) sponsored by Sen. John McCain, R-Ariz., to create a Corporate Subsidy Reform Commission to propose cuts in programs. It would be modeled after the Base Realignment and Closure Commission, which proposed closing military bases.

    McCain said he would seek a floor vote for his bill, which was approved by the Senate Governmental Affairs Committee, 9-5, on May 22. "I think this bill is very important. But the forces arrayed against it are significant," McCain said.

    Under McCain's bill, the president would have the option of approving the group's findings and submitting them to Congress, asking the panel for revisions or disapproving its work and terminating the process.

    Opposition to Commission

    Andrews said the commission proposal probably faces strong opposition. Jeff Eshelman, a spokesman for the Independent Petroleum Association of American, agreed: "It's a slippery slope when you have a commission in charge of raising costs for any industry."

    Rep. Ed Royce, R-Calif., has introduced a bill of his own (HR271) to create a 12-member panel appointed by the president to propose cuts in government waste, including programs that provide subsidies to business.

    While supporting a commission, Royce and other backers of the coalition said they would press for specific cuts.

    Shields said the coalition probably would not continue efforts to cut funding for timber roads or for the $432 million Animas-La Plata irrigation project in southern Colorado. Shields said some conservative groups would have preferred to privatize public lands instead of eliminating funding for timber roads on public property. Other coalition members questioned whether irrigation projects should be a target, because beneficiaries are mainly farmers, not big corporations.

    Stephen Moore, director of fiscal policy studies at the Cato Institute, said efforts to cut subsidies and aid for business have been hindered by weak support in Washington.

    "Both the president and Congress have shown little enthusiasm for cutting the corporate safety net," Moore said.

    © 1998 Congressional Quarterly Inc. All rights reserved.
    In CQ News This Week

    Saturday Jan. 17, 1998

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