Uncle Sam’s Favorite Corporations

March 17th, 2015 by Phil Mattera

UncleSam_WebTeaserIt’s said that the partisan divide is wider than ever, but there is one subject that unites the Left and the Right: opposition to the federal business giveaway programs popularly known as corporate welfare.

These programs include cash grants that underwrite corporate R&D, special tax credits allocated to specific firms, loan guarantees that help companies such as Boeing sell their big-ticket items to foreign customers, and of course the huge amounts of bailout assistance provided by the Treasury Department and the Federal Reserve to major banks during the financial meltdown. The costs to taxpayers is tens of billions of dollars a year.

Back in 1994 then-Labor Secretary Robert Reich gave a speech arguing that it was unfair to cut financial assistance to the poor while ignoring special tax breaks and other benefits enjoyed by business. Reich inspired a strange bedfellows coalition led by public interest advocate Ralph Nader and then-House Budget chair John Kasich (now governor of Ohio). Ultimately, the effort was stymied, as every business subsidy’s entrenched interests lobbied back. The subsidy-industrial complex emerged largely unscathed.

Nonetheless, the anti-corporate welfare movement has continued up to the present, with the latest battled being waged mainly by some Tea Party types against the Export-Import Bank.

Throughout these two decades of subsidy analysis and debate, the focus has been on aggregate costs, either by program, by industry or by type of company. Except for bailouts, very little analysis has been done of which specific corporations benefit the most from federal largesse.

My colleagues and I at Good Jobs First have just completed a project which will allow those on all sides of the debate to identify the companies enjoying corporate welfare. Today we are releasing Subsidy Tracker 3.0, a expansion to the federal level of our database which since 2010 has provided information on the recipients of state and local economic development subsidy awards.

We have collected data on 164,000 awards from 137 federal programs run by 11 cabinet departments and six independent agencies. Much of the data, covering the period from FY 2000 to the present, is extracted from the wider range of content on USA Spending, which also covers non-corporate-welfare money flows such as federal grants to state and local governments and federal contracts. We also tracked down about 40 other sources from a variety of lesser known reports and webpages. Farm subsidies are excluded as they are already ably covered by the Environmental Working Group’s agriculture database.

Our data does not cover the full range of federal business assistance, given that most tax breaks are offered as provisions of the Internal Revenue Code that any qualifying firm can claim. We include only the small number of tax credits (mostly in the energy areas) that are allocated to specific firms. But we’ve got plenty of company-specific grants, loans, loan guarantees and bailouts.

Today we are also releasing a report, Uncle Sam’s Favorite Corporations, that analyzes the federal data. While we don’t endorse or critique any of the wide-ranging programs themselves, we do find some remarkable patterns among the recipients.

The degree of big business dominance of grants and allocated tax credits is comparable to what we previously found for state and local subsidies. A group of 582 large companies account for 67 percent of the $68 billion total, with six companies receiving $1 billion or more.

At the top of the list with $2.2 billion in grants and allocated tax credits is the Spanish energy company Iberdrola, whose U.S. wind farms have made extensive use of a Recovery Act program designed to subsidize renewable energy.

Mainly as a result of the massive rescue programs launched by the Federal Reserve in 2008 to buy up toxic securities and provide liquidity in the wake of the financial meltdown, the totals for loans, loan guarantees and bailout assistance run into the trillions of dollars. These include numerous short-term rollover loans, so the actual amounts outstanding at any given time, which are not readily available, were substantially lower but likely amounted to hundreds of billions of dollars. Since most of these loans were repaid, and in some cases the government made a profit on the lending, we tally the loan and bailout amounts separately from grants and allocated tax credits.

The biggest aggregate bailout recipient is Bank of America, whose gross borrowing (excluding repayments) is just under $3.5 trillion (including the amounts for its Merrill Lynch and Countrywide Financial acquisitions). Three other banks are in the trillion-dollar club: Citigroup ($2.6 trillion), Morgan Stanley ($2.1 trillion) and JPMorgan Chase ($1.3 trillion, including Bear Stearns and Washington Mutual). A dozen U.S. and foreign banks account for 78 percent of total face value of loans, loan guarantees and bailout assistance.

Other key findings:

  • Foreign direct investment accounts for a substantial portion of subsidies. Ten of the 50 parent companies receiving the most in federal grants and allocated tax credits are foreign-based; most of their subsidies were linked to their energy facilities in the United States. Twenty-seven of the 50 biggest recipients of federal loans, loan guarantees and bailout assistance were foreign banks and other financial companies, including Barclays with $943 billion, Royal Bank of Scotland with $652 billion and Credit Suisse with $532 billion. In all cases these amounts involve rollover loans and exclude repayments.
  • A significant share of companies that sell goods and services to the U.S. government also get subsidized by it. Of the 100 largest for-profit federal contractors in FY2014 (excluding joint ventures), 49 have received federal grants or allocated tax credits and 30 have received loans, loan guarantees or bailout assistance. Two dozen have received both forms of assistance. The federal contractor with the most grants and allocated tax credits is General Electric, with $836 million, mostly from the Energy and Defense Departments; the one with the most loans and loan guarantees is Boeing, with $64 billion in assistance from the Export-Import Bank.
  • Federal subsidies have gone to several companies that have reincorporated abroad to avoid U.S. taxes. For example, power equipment producer Eaton (reincorporated in Ireland but actually based in Ohio) has received $32 million in grants and allocated tax credits as well as $7 million in loans and loan guarantees from the Export-Import Bank and other agencies. Oilfield services company Ensco (reincorporated in Britain but really based in Texas) has received $1 billion in support from the Export-Import Bank.
  • Finally, some highly subsidized banks have been involved in cases of misconduct. In the years since receiving their bailouts, several at the top of the recipient list for loans, loan guarantees and bailout assistance have paid hundreds of millions, or billions of dollars to U.S. and European regulators to settle allegations such as investor deception, interest rate manipulation, foreign exchange market manipulation, facilitation of tax evasion by clients, and sanctions violations.

 

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