Category: 1%

Subsidizing the 1%

Seeking to counter the criticisms raised by the growing Occupy movement, Herman Cain and other apologists for the super-wealthy insist that those who get rich do so only by dint of their own hard work and risk-taking.

This is ridiculous, of course. Accumulating a great fortune requires, among other things, a legal system oriented to property rights, a tax system biased in favor of investment income, and government spending on infrastructure ranging from interstate highways to the internet.

The 1% do not only benefit from the general social and economic framework: in many cases they also receive financial assistance directly from taxpayers. This can be seen most clearly in the economic development subsidies that corporations receive from state and local governments. These are usually awarded in the name of job creation, but often few or no good jobs are created, making the subsidies little different than a handout to powerful business entities.

The closest approximation we have to a roster of the 1% is the Forbes 400 list of the wealthiest Americans. The companies used by those individuals as the vehicles for amassing billions have in many cases been on the receiving end of taxpayer subsidies. Here are some examples drawn from the data my colleagues and I at Good Jobs First have compiled for our Subsidy Tracker database and other sources:

Bill Gates: No. 1 on the Forbes 400 with a net worth of $59 billion

When Microsoft, the source of Gates’ wealth, builds giant server farms to meet its growing data needs it looks for locations that can provide dirt-cheap electricity. Yet the huge company also seeks special tax breaks from state and local governments. In 2010 the company took the lead in pressuring the legislature in its home state of Washington to enact a special sales tax exemption on equipment purchased for rural data centers. After deciding in 2007 to build a $550 million data center in Bexar County, Texas near San Antonio, Microsoft pushed for a subsidy package that turned out to be worth more than $32 million, including $27 million in city and county property tax abatements. State officials in Iowa agreed to provide a $3.4 million grant to pay for infrastructure improvements around a Microsoft data center being built in West Des Moines. These data centers provide tiny numbers of jobs.

Warren Buffett: No. 2 with $39 billion

When General Re, an insurance firm owned by Buffett’s Berkshire Hathaway holding company, decided in 2009 that it was no longer satisfied with its headquarters in Stamford, Connecticut, it gave the impression that it might move out of state. Panicked state officials put together a subsidy package that included a $19.5 million tax credit and a $9 million low-cost loan to subsidize the company’s move to another location within Stamford. No new jobs were to be created.

Larry Ellison: No. 3 with $33 billion

In 2008 Ellison’s software company Oracle obtained $15 million in state tax credits to subsidize the cost of a $300 million data center in Utah that was expected to create only about 100 full-time jobs. In addition, the city of West Jordan agreed to divert $11.8 million in property taxes over ten years to pay for infrastructure costs.

Charles Koch and David Koch: No. 4 with $25 billion

Although the Koch Brothers are rabid proponents of “free” market policies, their Koch Industries has taken more than $10 million in subsidies under Oklahoma’s Investment/New Jobs Tax Credit program.

Christy Walton & family: No. 6 with $24.5 billion (and three other Waltons worth more than $20 billion)

The descendants of Wal-Mart founder Sam Walton are the richest group of relatives in the country. In addition to lousy wages and cheap imports, Wal-Mart’s growth has been funded by taxpayers. At Good Jobs First we have documented more than $1.2 billion in state and local economic development subsidies that have gone to Wal-Mart stores and distribution centers around the country.

Jeff Bezos: No. 13 with $19.1 billion

Bezos built Amazon.com into an online retailing powerhouse by exploiting what amounts to an unofficial subsidy. The company’s resistance to collecting sales taxes on customer purchases gives it a competitive advantage over brick-and-mortar rivals. Amazon also plays the conventional subsidy game. When it opened fulfillment centers in Kentucky about a decade ago it obtained more than $27 million in financial assistance from the state.

Mark Zuckerberg: No. 14 with $17.5 billion

Zuckerberg’s Facebook also rides the data center subsidy gravy train. In 2010 the company chose to locate a server farm in an enterprise zone in Prineville, Oregon, enabling it to enjoy property tax breaks that could be worth more than $40 million over the next 15 years. Facebook also applied for a 10-year waiver of all income and excise taxes under the Oregon Investment Advantage program. The facility opened in April with a total staff (including security guards) of 40 people. In 2010 Facebook also got a $1.4 million grant from Texas Gov. Rick Perry’s Texas Enterprise Fund to help pay for the creation of a sales office in Austin.

Sergey Brin and Larry Page: No. 15 with $16.7 billion

Founded by Brin and Page, Google is yet another tech darling in the data center racket. In 2007 the company announced it would build one of those facilities in the western North Carolina town of Lenoir after pressuring state and local officials to come up with a subsidy package that turned out to be worth $260 million. In 2008 Google turned down a small portion of the subsidy package – $4.7 million from the Job Development Investment Grant program – apparently because it did not expect to reach its original goal of creating 210 jobs within four years. Google also got about $49 million in subsidies for a data center it opened in Iowa in 2009.

Michael Dell: No. 18 with $15 billion

At one time, the founder of computer company Dell was one of the few members of the Forbes 400 whose firm was creating manufacturing jobs in the United States. On that basis, Dell got officials in North Carolina to put together a $242 million subsidy package in 2004 for a PC assembly plant in Winston-Salem. The facility opened in 2005 with 350 workers and grew to about 1,100 before cutting back to about 900. State and local officials were stunned in 2009 when Dell announced plans to shut the operation (and others in the U.S.) and outsource the work to contract plants in Mexico and other countries. Officials pressed Dell to return the subsidies it had received. The company agreed to give back about $26 million of the local subsidies but balked at repaying state tax credits it had claimed.

 

These subsidies, by themselves, did not ensure the success of the companies or propel the members of the Forbes 400 into the realm of ten-figure net worths. Yet the amounts of money involved are not insignificant—especially to the governments that had to forgo the revenues. In the aggregate, state and local subsidies take about $60 billion a year out of the funding for education, healthcare, fire protection and other public services.

Such subsidies are also a prime example of how this country caters to wealthy individuals and large corporations, and how they in turn demand to be compensated by taxpayers for what they should be doing at their own expense. It’s time for the 1% to do less taking and more giving back.

A Rogues Gallery of the One Percent

For the past 30 years, Forbes magazine has used its annual list of the 400 richest Americans as a platform for celebrating the wealthy. This year, amid the persistent jobs crisis and the growing challenge posed by the Occupy movement, the Forbes list has to be viewed in a different light. Rather than a scorecard of success, it comes across as a rogues gallery of the 1 Percent who have hijacked the U.S. economy.

Start with the overall numbers. Combined, the 400 are worth an estimated $1.5 trillion, up 12 percent from the year before. This at a time when both the net worth and annual income of the typical American household have been sinking. When the first Forbes list was published in 1982 there were only about a dozen billionaires. Today, every single member of the 400 has a ten-figure fortune. Their average net worth is $3.8 billion.

And where did this wealth come from? Forbes tries to justify the skyrocketing assets of the 400 by saying that “an alltime-high 70% are self-made…This is the working elite.” New riches may indeed be better than inherited wealth, but how did this “elite” climb the ladder of success?

The question is all the more pertinent, given the current inclination of conservatives to refer to the wealthy as “job-creators” as a way of rebuffing efforts to get the plutocrats to pay their fair share of taxes.

How much job creation can be attributed to the Forbes 400? In a chart on Sources of Wealth, the magazine notes that the largest single “industry” is investments, accounting for the fortunes of 96 of the 400. By contrast, manufacturing, which is more labor intensive, is listed as the source for only 17 of the tycoons.

Within the investments category, about one-sixth of the people in the top 100 made their fortunes from hedge funds, private equity and leveraged buyouts—activities that are more likely to result in the destruction than the creation of jobs. For example, Sam Zell (net worth: $4.7 billion) was ruthless in laying off workers after his takeover of the Tribune newspaper company.

Forbes no doubt would respond by pointing to the 48 people on the list who got fabulously wealthy from the technology sector. Yet many of these companies create very few jobs: Facebook, which made Mark Zuckerberg worth $17.5 billion, has only about 2,000 employees. Or, like Apple, which gave the late Steve Jobs a $7 billion fortune, they create most of their jobs abroad in low-wage countries such as China rather than manufacturing their gadgets in the United States. The same is now true for Dell—source of Michael Dell’s $15 billion fortune—which has closed most of its U.S. assembly operations.

The few people on the list who are associated with large-scale job creation in the United States got rich from a company known for paying lousy wages and fighting unions. Christy Walton and her immediate family enjoy a net worth of more than $24 billion deriving from the notorious Wal-Mart retail empire (other Waltons are worth billions more). The Koch Brothers ($25 billion) are bankrolling the effort to weaken collective bargaining rights and thereby depress wage levels, while satellite TV pioneer Stanley Hubbard ($1.9 billion) has been an outspoken critic of labor unions and was an aggressive campaigner against the Employee Free Choice Act.

Poor job creation performance and anti-union animus are not the only sins of the 400 and their companies. Some of them have a checkered record when it comes to other aspects of accountability and good corporate behavior.

Start at the top of the list. Bill Gates, whose $59 billion net worth makes him the richest individual in the United States, is known today mainly for his philanthropic activities. Yet it was not long ago that Gates was viewed as a modern-day robber baron and Microsoft was being prosecuted by the European Commission, the U.S. Justice Department and some 20 states for anti-competitive practices. In the 1990s there were widespread calls for the company to be broken up, but Microsoft reached a controversial settlement with the Bush Administration that kept it largely intact.

Today it is Google, whose founders Sergey Brin and Larry Page are estimated by Forbes to be worth $16.7 billion, that is at the center of accusations of monopolistic practices.

Amazon.com, headed by Jeff Bezos ($19.1 billion), has fought against the efforts of a variety of state governments to get the online retailer to collect sales taxes from its customers. By failing to collect taxes on most transactions, Amazon gains an advantage over its brick-and-mortar competitors but deprives states of billions of dollars in badly needed revenue.

Cleaning products giant S.C. Johnson & Son, the source of the combined $11.5 billion fortune of the Johnson family, recently admitted that it has used aggressive tax avoidance practices to the extent that it pays no corporate income taxes at all in its home state of Wisconsin. Forbes ignores this issue, but instead describes in detail the criminal sexual molestation charges that have been filed against one member of the family.

And then there are the environmental offenders, such as Ira Rennert ($5.9 billion.) His Renco Group was for years one of the country’s biggest polluters, and the Peruvian lead smelter of his Doe Run operation is one of the most hazardous sites in the world.

This is only a small sampling of the transgressions of the 400 and their companies. Rather than being hailed as job creators, they should be made to answer for their job destruction, their tax avoidance, their anti-competitive practices, their environmental violations and much more.  Rather than celebration, the Forbes 400 and the rest of the 1 Percent are in need of investigation.