Subsidies

Business Fights FASB on Corporate Welfare Disclosure

Large corporations spend a lot of time complaining about their obligations to government, such as paying taxes and complying with regulations, while saying very little about what they get from taxpayers in the form of financial assistance. The organization that sets corporate accounting standards now wants to see the magnitude of that assistance disclosed in financial statements, and the business world is howling in protest.

In November, the Financial Accounting Standards Board (FASB) issued a proposal that would require publicly traded corporations to disclose details on a wide range of government assistance — such as tax incentives, cash grants, and low-interest loans — when that help is the result of an agreement between a public agency and a specific firm, as opposed to provisions in tax codes that any business can claim. The proposal mirrors the one adopted by the Governmental Accounting Standards Board (GASB) that will require state and local government agencies to disclose the amount of revenue they are losing as a result of tax incentive deals.

The FASB proposal has some flaws, such as the decision not to require companies to provide estimates of the value of multi-year subsidy deals and a lack of clarity on the degree to which the information would have to be disaggregated. Still, it would be a major advance in financial transparency, giving investors and others important information on the extent to which companies are dependent on the public sector.

The business world sees it differently. During a recently completed three-month comment period, about two dozen trade associations and large corporations submitted statements on the proposal that were overwhelmingly negative.

At the center of the backlash are the U.S. Chamber of Commerce and the National Association of Manufacturers, which submitted joint comments arguing that the scope of the accounting standard is “overly broad,” that compliance costs would be “significant,” and that companies could place themselves in “legal jeopardy” by disclosing the information proposed by FASB.

The big-business-sponsored Council on State Taxation also invoked the privacy rights of corporate taxpayers and warned that the disclosures would “assist those who wish to harass a company regarding credits or incentives received pursuant to an economic development agreement.” Similar objections were presented by the American Banking Association, which represents entities that received trillions of dollars in assistance from the Federal Reserve and the U.S. Treasury in the wake of the financial meltdown that some of those same entities brought about.

Perhaps most infuriating are the negative comments submitted by large companies that are among the biggest recipients of public assistance. We know who they are because numerous government agencies already reveal a substantial amount of company-specific subsidy data, which my colleagues and I at Good Jobs First have collected for our Subsidy Tracker search engine. Although we’ve gotten a lot from the agency disclosure, having more information in the financial reports of all public companies would allow us to make Subsidy Tracker even more complete.

Several of the corporations commenting against the FASB rule have received more than $1 billion each in federal, state and local subsidies, including two whose totals put them among the top ten recipients: General Motors ($5.7 billion) and Ford Motor ($4 billion). These totals do not include the tens of billions they received in loans and loan guarantees, whose value after repayments is difficult to calculate.

GM, which survived only after being taken over by the federal government, whines that the FASB disclosure proposal “would be costly and difficult to prepare given the complexity of global entities and the wide variations of such arrangements” and claims that the information could be “misleading” or could benefit “special interest groups questioning tax incentives offered by governments as perceived abuses of the current taxation system.”

In what might be a dig at its competitor, Ford Motor, which did not require a federal takeover, suggests that FASB limit its disclosure requirement to bailouts and exclude “incentives” that are offered in exchange for a commitment to invest or create jobs.

IBM, which has been awarded some $1.4 billion in subsidies, asserts that the costs of the disclosure would outweigh the benefits and says that if FASB moves ahead with the new standard it should “not require disclosure of specific terms and conditions, which may include confidential or proprietary information for both governments and entities.” In other words, make it as vague as possible.

In case there was any doubt, these comments confirm that big business is in favor of transparency only when what is to be disclosed puts a company in a favorable light. Let’s hope FASB stands fast and joins with GASB in bringing corporate welfare out of the shadows.

California Schemin’

la stadium (2) — Rendering of proposed Rams Inglewood stadium

Guest Blog by Thomas Mattera

Most of the hot air released at last month’s National Football League owners meeting in San Francisco had nothing to do with ball deflation. Instead, the hyper-exclusive club, with three dozen members and a cumulative net worth of $77,000,000,000, discussed something much more important long-term than a month without Tom Brady’s chiseled jaw: the possible move of several teams to the Los Angeles area as early as the 2016 season.

The star-struck franchises in question, the St. Louis Rams, Oakland Raiders, and San Diego Chargers, have each ramped up their efforts in the last few months. The Rams have wasted no time imploding historic structures to make room on a plot of land in suburban Inglewood recently acquired by team owner Stan Kroenke. Meanwhile, the Raiders and Chargers are proposing a joint $1.7 billion stadium in nearby Carson, to be paid for largely by a certain vampire squid’s creative accounting.

These maneuvers are nothing new. Threatening to move your team to Los Angeles is as ubiquitous in the NFL as unpunished domestic violence and long term tax dodging. Since the league left the City of Angels in 1995, an owner claiming to be interested in moving there has become a perennial event, with more than half of the league’s franchises using the football-vacant city as leverage at one point or another. The playbook at this point is tried and true:

Claim your current stadium is too old to compete for paying customers and is fast becoming structurally unsound.
Insist taxpayers bear the cost of a new stadium or large-scale repairs to your old one.
If demands are not immediately met, float the possibility of moving to Los Angeles.
Champion the idea that a new stadium will bring much needed economic development to a struggling area. Pay no mind to the overwhelming evidence debunking this theory.
(optional) If local officials still wont capitulate, fly in a theoretically impartial high ranking NFL official to seal the deal.
When area politicians inevitably cave, announce that you will be staying because of your undying loyalty to the hardworking fans of (insert city here).
Reap the near instant private rewards as the value of your team skyrockets while the city deals with the decades-long impacts of unforeseen construction costs and hundreds of millions in public debt.

The owners of the Rams, Raiders, and Chargers have shown no interest in deviating from this well-worn gameplan. Kroenke, a billionaire six times over who built his empire by marrying into the Walton family and developing shopping centers (many of them subsidized projects anchored by Walmarts), has yet to even sit bother to sit down with officials in St. Louis to try to broker a compromise. Yet this has not stopped the cash-strapped city from offering a new stadium deal replete with public financing.

Not to be outdone, the owners of the Chargers and Raiders recently announced in a joint statement that “If we cannot find a permanent solution in our home markets, we have no alternative but to preserve other options to guarantee the future economic viability of our franchises.” Unlike the Rams, however, both current California teams face fierce pushback against public funding for new stadiums from legislators and residents. These cities are indicative of how American municipalities are slowly realizing the error of their ways and beginning to demand an end to subsidized billion-dollar boondoggles.

If the people of Oakland and San Diego stay organized in their resistance, the owners of the Rams and Chargers may be forced have to skip all the way down to the fine print at the bottom of the owners playbook:

If you cannot sufficiently extort a wildly favorable deal from your current city, just move to Los Angeles.

After all, teams do occasionally follow through on their threats and actually relocate. Case in point: The Rams left L.A. for St Louis 20 years ago, in large part because of the construction of the Edward Jones Dome, a building for which Missouri taxpayers still owe millions a year in annual maintenance payments for the next decade, even if the Rams move back West.

Additionally, there is an obvious reason teams have and continue to make the L.A. threat even if, for them at least, it is almost always an idle one. America’s largest traffic jam is the nation’s No.2 media market and in the past has shown it will support professional football. Moving there may be the best way for NFL owners to support their real favorite team: The Greenbacks.

These factors are not lost on the Rams, Raiders, or Chargers. Any of the three could ultimately decide to move past hypotheticals and formally propose a move at the next owners’ meeting in August. It is here where they will face a group significantly less generous than a bunch of local political pushovers. Any move to L.A. needs to be approved by 24 of the NFL’s 32 franchises, which figures to be a tall order. After all, with the L.A. vacancy filled what will the rest of the owners do the next time they feel the hankering for a shiny new stadium? Negotiate in good faith? Or..gasp..actually pay for it themselves?

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New in Corporate Rap Sheets: Alpha Natural Resources — the landing place for rogue corporations Massey Energy and Pittston Coal.

Uncle Sam’s Favorite Billionaires

Inequality is becoming so pronounced that presidential hopefuls of all ideological persuasions are acknowledging that something needs to be done. One issue they should consider is the extent to which the federal government itself contributes to the problem.

It’s clear that the federal tax code is structured in a way that favors wealthy individuals and corporations. But it turns out that Uncle Sam is also providing direct financial assistance to the billionaire class. The extent of that assistance can be estimated from the data my colleagues and I at Good Jobs First assembled for Subsidy Tracker 3.0, which we released recently.

We compiled 164,000 company-specific entries for federal grants, allocated tax credits, loans, loan guarantees and bailout assistance provided through 137 programs overseen by 11 cabinet departments and six independent agencies. These were added to 277,00 state and local awards in the database. Since 2000 the grants and allocated tax credits have amounted to $68 billion; the face value of the loans and bailouts, which we tally separately, have run into the trillions.

Along with the release of Tracker 3.0, we published a report called Uncle Sam’s Favorite Corporations that described the extent to which large corporations dominate federal subsidies. Some of those companies are owned in whole or in part by the country’s wealthiest individuals and families.

I subsequently matched the big federal subsidy recipients to the companies linked to members of the Forbes 400 list of the richest Americans. This exercise was an extension of an analysis my colleagues and I performed on state and local data for our December 2014 report Tax Breaks and Inequality.

Of the 258 companies controlled by a member of the Forbes 400, 39 have received federal grants and allocated tax credits. Their awards total $1.3 billion. The richest of the billionaires linked to these firms is Warren Buffett, whose Berkshire Hathaway conglomerate accounts for $178 million of the subsidies.

Two of the other companies are worth examining more closely, because they have also been embroiled in controversies over their business practices.

At the top of the list is Ocwen Financial, which received $434 million in subsidies through a provision of the Home Affordable Modification Program (a part of the TARP bailout) that provided incentives to mortgage servicers to revamp loans to homeowners whose properties were underwater or otherwise unsustainable.

Ocwen, which made extensive use of that program, was founded by William Erbey (photo), whose net worth was estimated at $1.8 billion in the most recent Forbes list, published when he was still chairman of the company. Subsequently, Erbey had to step down as part of a settlement the company reached with New York State financial regulators to resolve allegations of improper foreclosures and other abusive practices. Ocwen also had to provide $150 million in assistance to those whose homes had been foreclosed. It is also paying a smaller amount under a settlement with California regulators.

While Erbey is no longer running Ocwen, he may still be a major shareholder. As of last year’s proxy statement, he held the largest stake in the company (15 percent); this year’s proxy is not out yet.

The second largest subsidy recipient linked to a member of the Forbes 400 is SolarCity, which has received $326 million in grants and allocated tax credits, mostly through Section 1603 of the Recovery Act, which provides cash payments to companies installing renewable energy equipment. The chairman of SolarCity is Elon Musk, better known for his role in the electric car company Tesla Motors (which, by the way, got a $465 million federal loan and later repaid it). Musk, whose cousins Lyndon and Peter Rive are the top executives at SolarCity, has a net worth estimated by Forbes at $11.6 billion. Tesla Motors has business dealings with SolarCity.

It was recently reported that SolarCity is being investigated by Oregon prosecutors in connection with allegations that it used solar panels made by federal prisoners in renewable energy projects at two state university campuses for which it received $11.8 million in state tax credits designed to promote local employment.

Assuming the allegations turn out to be accurate, it is difficult to know where to begin in stating all that is wrong with this situation. A company chaired by the 44th richest person in the country that has received hundreds of millions of dollars in federal subsidies used prisoners paid less than a dollar an hour to install solar panels so that it can collect millions more in state subsidies.

Subsidies, whether federal or state, are by no means the largest contributor to inequality, but policymakers should try to find some way to limit their use by billionaires, especially those linked to shady business practices.

Uncle Sam’s Favorite Corporations

UncleSam_WebTeaser It’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.

Subsidies and Bad Actors

Are corporate subsidies a right or a privilege? Should a company’s accountability track record be a factor in determining eligibility? These questions take on increased relevance in light of two new developments.

The first is that utility giant Duke Energy is being fined $25 million by environmental regulators in North Carolina. The penalty, the largest in state history, relates to the contamination of groundwater by coal ash from Duke’s Sutton power plant near Wilmington. Federal prosecutors are reportedly pursing a separate and broader case against Duke in connection with its large spill of toxic coal ash from another plant into the Dan River.

The other development is that my colleagues and I at Good Jobs First are about to make public a new version of our Subsidy Tracker that for the first time extends coverage to the federal level (the release date is March 17). Without giving away too much ahead of time, I can say that Duke Energy is among the ten largest recipients of grants and allocated tax credits (those awarded to a specific company) for the period since 2000, with a total in the hundreds of millions of dollars.

Duke got about half of its subsidies in the form of grants from Energy Department programs designed to promote renewable energy and smart grid development. The other half came from a Recovery Act provision that allows companies to receive cash payments for the installation of renewable energy equipment.

Like other large utilities, Duke has taken steps in the direction of renewables while still deriving most of its power from fossil fuels and nuclear. Are federal subsidies helping to wean Duke off dirtier forms of energy, or are they simply enriching a company that is still committed to dirty energy and has shown some serious lapses in its management of its fossil fuel facilities?

Duke is hardly the only major subsidy recipient with a tainted track record. Previously, I discussed the fact that both U.S. banks and foreign banks that received huge amounts of bailout assistance later had to pay billions of dollars to settle allegations on issues such as currency market manipulation and abetting tax evasion.

Federal officials may argue that they were not aware of these practices when the bailouts happened (though these banks hardly had spotless records as of 2008), or they may claim that they had no choice but to bail them out, since they were too big to allow to fail.

Yet the list of large federal subsidy recipients includes other major corporate miscreants. Take the case of BP, which the new database will show as having receiving more than $200 million in federal grants and allocated tax credits. Much of that money postdates its 2010 catastrophe in the Gulf of Mexico, and even more came after the 2005 explosion at its Texas City, Texas refinery that killed 15 workers and for which the company $60 million in fines to the EPA and $21 million to OSHA.

In the wake of the Deepwater Horizon disaster, BP was barred from receiving federal contracts, though the debarment was later lifted. Perhaps an even stronger case can be made for disqualifying regulatory violators from receiving federal subsidies, since they are more akin to gifts than payment for goods or services rendered. This is not likely to happen anytime soon, but the release of the new Subsidy Tracker will make it a lot easier to identify which bad actors have been enjoying Uncle Sam’s largesse.

Bailouts and Bad Actors

Newly released transcripts of the 2009 meetings of the Federal Reserve’s open market committee show that monetary policymakers were still agonizing over whether they were doing enough to stabilize the teetering global financial system.

These documents have a special interest for me because, as I discussed in last week’s Digest, my colleagues and I at Good Jobs First recently collected a great deal of data about the Fed’s special bailout programs in 2008 and 2009 as part of the extension of our Subsidy Tracker database into the federal realm. The Fed’s info is part of the more than 160,000 entries we have amassed from 137 federal programs of various kinds. Subsidy Tracker 3.0 will go public on March 17.

In last week’s post I mentioned that the Fed programs involved the outlay of some $29 trillion (yes, trillion) and that the totals for several large banks (Bank of America, Citigroup, Morgan Stanley and JPMorgan Chase ) each exceeded $1 trillion. I pointed out that these totals referred to loan principal and did not reflect repayments (information on which is not readily available).

What I also should have pointed out is that some of the Fed lending consisted of relatively short-term loans that were often rolled over. In other words, the actual amount outstanding at any given time was considerably lower than the eye-popping trillion dollar figures. That’s not to say that the amounts were chicken feed. It’s safe to say that the loan totals were in the hundreds of billions of dollars, and here again company-specific amounts are not available.

This is still high enough to justify the point I was making about the bailout amounts far outstripping the sums these banks have been paying out in settlements with the Justice Department to resolve allegations about investor deception in the sale of what turned out to be toxic securities in the run-up to the financial meltdown. And the amounts still justify anger at the current crusade by the big banks to weaken the Dodd-Frank regulatory safeguards adopted by the same government that bailed them out.

What is also worth pointing out is that the bad actor-bailout recipients are not limited to the big U.S. banks. Large totals also turn up for major European banks that have been involved in their own legal scandals in recent years. The biggest foreign recipient of Fed support turns out to be Barclays, which has an aggregate loan amount (including rollover loans and excluding repayments) of more than $900 billion. Next is Royal Bank of Scotland with more than $600 billion and Credit Suisse with more than $500 billion.

In 2012 Barclays had to pay $450 million to U.S. and European regulators to settle allegations that it manipulated the LIBOR interest rate index. The following year Royal Bank of Scotland had to pay $612 million to settle similar allegations. In 2014 Credit Suisse had to pay $2.6 billion in penalties to settle Justice Department charges that it conspired to help U.S. taxpayers dodge federal taxes. This was a rare instance in which a large company actually had to plead guilty to a criminal charge.

The frustrating truth is that the global financial system is dominated by big banks that seem to have little respect for the law and for financial regulation, but they do not hesitate to turn to government when they need to be rescued from their own excesses.

Banks Bite the Hand that Rescued Them

Investment bank Morgan Stanley has disclosed that it will pay only $2.6 billion to settle U.S. Justice Department allegations that it deceived investors in the sale of toxic securities in the run-up to the financial meltdown.

I say “only” because the amount is substantially lower than the figures paid by Bank of America ($16.7 billion), JPMorgan Chase ($13 billion) and Citigroup ($7 billion) in similar cases. Thanks to the efforts of groups such as U.S. PIRG, we know that these amounts are less onerous than they appear because the companies are often allowed to deduct the payouts from their corporate income tax obligations.

My colleagues and I at Good Jobs First have been assembling data that does more to put the payouts in perspective. As part of an expansion of our Subsidy Tracker database to the federal level, we obtained information on the massive bailout programs implemented by the Federal Reserve in 2008 to stabilize the teetering financial system by purchasing toxic assets on the books of financial institutions and by serving as a lender of last resort.

These programs, with esoteric names such as the Term Auction Facility, the Term Asset-Backed Securities Loan Facility and the Term Securities Lending Facility, are not as well known as the Treasury Department’s Troubled Asset Relief Program, but the amounts involved are eye-popping. A 2011 paper by James Fulkerson of the University of Missouri-Kansas City estimates that the Fed made bailout commitments worth a total of more than $29 trillion. Yes, that’s trillion with a t.

We’ve been going through the recipient lists the Fed (reluctantly) made public for 11 bailout programs to match the entities to their parent companies. We’re not quite done with that process, but it appears that the totals for a few large banks, including Bank of America, Citigroup and JPMorgan Chase as well as Morgan Stanley, will end up being in excess of $1 trillion each (excluding repayment amounts). Our final figures will be released March 17, both in what we are calling Subsidy Tracker 3.0 and in an accompanying report.

It’s already clear that the settlement amounts paid by the banks (especially in after-tax terms) have been easily absorbed as costs of doing business. The Fed bailout data shows that another reason the banks have been little fazed by their legal expenses is that they received government assistance worth a thousand times more during their time of grave vulnerability in 2008 and 2009 — vulnerability that was largely of their own making due to reckless securitization of subprime mortgages and consumer loans.

After Lehman Brothers collapsed in 2008, the Fed was apparently willing to spare no expense in rescuing the other big financial players. Its efforts ensured the survival of the big banks that are riding high today. Perhaps the top executives of these banks should keep this fact in mind before criticizing the modest regulations put in place to save them (and us) from their excesses.

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New in Corporate Rap Sheets: Entergy, the utility that has bet heavily on nukes and engages in creative billing.

Corporate Subsidies and Economic Inequality

The intensification of economic inequality, one of the defining issues of our times, has many causes, ranging from the weakening of labor unions to the decimation of inheritance taxes. In Tax Breaks and Inequality, a report my colleagues and I at Good Jobs First have just published, we argue that another factor belongs on the list: subsidies given by state and local governments to large corporations in the name of economic development.

This conclusion is based on a mash-up of data from our Subsidy Tracker with two groups of corporations: firms linked to members of the Forbes 400 list of the wealthiest Americans and a list we created of large low-road employers.

The first part of the report is in effect a rebuttal to Forbes, which in this year’s edition of the 400 plays up those individuals who supposedly built fortunes entirely on their own (rather than through inheritance). We show that many of many of the super-rich – both those Forbes calls “bootstrappers” and those labeled “silver spooners” – received help of another kind: government assistance to the corporations through which they got filthy rich.

Development subsidies – in the form of business property tax abatements, corporate income tax credits, sales tax exemptions, training grants, infrastructure improvements and the like – are supposed to promote job creation and broad-based economic growth. Yet they are often awarded to profitable, growing companies that do not need tax breaks to finance a project, meaning that the subsidies serve mainly to increase profits. When these companies are owned in whole or substantial part by wealthy individuals or families, especially the billionaires in the 400, the subsidies are serving to enlarge those private fortunes — directly in privately held firms or through stock price appreciation and dividends in publicly traded ones.

We find that more than one-third of the 258 companies currently linked to members of the Forbes list are substantial recipients of subsidies. Ninety-nine of them have received awards totaling $1 million or more. The combined value of those awards is $19.4 billion, or an average of $196 million per company.

Five of the 99 firms have been awarded more than $1 billion in subsidies, including Intel ($5.9 billion), Nike ($2 billion), Cerner ($1.7 billion), Tesla Motors ($1.3 billion) and Berkshire Hathaway ($1.2 billion).

About one-third of the individuals on the Forbes 400 are linked to one or more of the 99 highly subsidized companies, including every one of the 11 wealthiest individuals and all but two of the top 25. These include Bill Gates, whose $81 billion fortune comes mainly from his holdings in Microsoft, which has been awarded $203 million in subsidies; Warren Buffett, whose $67 billion net worth derives from Berkshire Hathaway, which has been awarded $1.2 billion in subsidies; Larry Ellison, whose $50 billion net worth comes from Oracle, which has been awarded $18 million in subsidies; the Koch Brothers, each worth $42 billion from Koch Industries, whose subsidies total $154 million; and four members of the Walton Family, each worth more than $35 billion from Wal-Mart Stores, which has been awarded more than $161 million in subsidies.

The second part of the report looks at subsidies awarded to corporations notorious for stingy pay rates and other low-road employment practices. We identify 87 such companies that have each been awarded more than $1 million in state and local subsidies, for a total of $3.3 billion. Retailers dominate the list, with 60 firms awarded more than $2.6 billion in subsidies. Twelve firms in the hospitality sector (restaurants, hotels and foodservice companies) account for more than $245 million in subsidies. The low-wage companies with the most in subsidies are: Sears ($536 million), Amazon.com ($419 million), Cabela’s ($247 million), Convergys ($202 million), Starwood Hotels & Resorts ($166 million) and Wal-Mart Stores ($161 million).

Eight companies are both linked to members of the Forbes 400 and pay low wages. Listed in order of their subsidy totals, they are: Sears, Amazon.com, Wal-Mart, Best Buy, Bass Pro, Meijer, Menard, and Allegis Group. These are all retailers except for the staffing services company Allegis.

Subsidies are not the primary source of the Forbes 400’s wealth, but they contribute to it in a way that makes things more difficult for working families. When large corporations controlled by billionaires are given lavish taxpayer subsidies, the rest of society — especially working families — gets stuck with a larger share of the cost of essential public services. And when those subsidies go to low-road employers, they are promoting the substandard jobs that keep so many people at the bottom of the income spectrum.

By enriching those at the top and helping to impoverish those at the bottom, subsidies are part of the inequality problem rather than part of the solution.

Corporate America’s Government Bonanza

moneybagsontherun We’re taught to believe that government is a system for protecting the country, ensuring justice and helping people pursue happiness. For large corporations, on the other hand, government amounts to a big investment opportunity.

One of the most detailed assessments of the return on that investment has just been produced by the Sunlight Foundation. Not surprisingly, it turns out that the interaction big business has with the public sector is very profitable. What’s amazing is Sunlight’s estimate of the magnitude of those gains.

In its report called Fixed Fortunes, Sunlight takes great pains in estimating both what 200 of the largest and most politically active firms spend on government – in the form of campaign contributions and lobbying expenditures – and what they receive in benefits. Sunlight puts those benefits in two categories: federal business and federal support.

The first includes federal contracts as well as foreign sales enabled by the Export-Import Bank and certain transactions involving commercial banks in the wake of the financial meltdown. Federal support includes grants, loans and loan guarantees as well as other forms of assistance to banks following the meltdown.

Sunlight finds that the 200 companies spent $5.8 billion on political influence during the period from 2007 to 2012 while receiving $1.3 trillion in federal business and $3.2 trillion in federal support. This shows, Sunlight says, that for every dollar spent on influencing federal policy, these corporations received $760 in benefits. And that’s just the average. Some of the big banks got vastly more. Goldman Sachs received about $229 billion in business and support combined, more than 6,000 times what it spent on influence. For Bank of America it was more than 10,000 times. These are rates of return even the most successful hedge funds couldn’t imagine.

In some ways, Sunlight’s benefit numbers are understated, since they do not include the payoff from lobbying for corporate income tax reductions. The report includes figures from Citizens for Tax Justice showing the low effective tax rates most large companies enjoy, but Sunlight does not attempt the probably impossible task of estimating the dollar value of the tax benefits individual companies have gained from their lobbying efforts. Sunlight points out other examples of unquantifiable benefits corporations receive from Uncle Sam, such as those deriving from the artificially low rates charged to petroleum companies for drilling on federal land.

Moreover, Sunlight acknowledges that its estimates apply only at the federal level, though in its summary list of the results for the 200 companies it includes links to the state and local subsidy totals my colleagues and I at Good Jobs First have assembled in our Subsidy Tracker database.

On the other hand, one could take issue with the way in which Sunlight calculates some of the categories of federal support. For loan and loan guarantee programs, for example, it apparently uses the face value of the funding, whereas the actual cost (except in cases of default) is much lower. It would have been helpful if Sunlight had listed the totals derived from each form of assistance; it is not always clear which numbers it used in the underlying spreadsheets it makes available.

Despite these quibbles, Sunlight has performed a great service in documenting the extent to which the federal government functions as a giant ATM for corporate America. We at Good Jobs First will soon be contributing to this effort by extending Subsidy Tracker to the federal level. We’ve been gathering data on many of the same programs examined by Sunlight, plus others, and we will be including entries for all companies, both large and small.

Let’s hope that as more light is shined on the ways government benefits corporations, we can shame elected officials into remembering who it is they are supposed to be serving.

Corporate Benefit Cutters Still Shifting Costs to Taxpayers

walmart_jwj_subsidies Wal-Mart’s recent announcement that it will snatch health coverage away from 30,000 part-timers is not just the latest in a long series of Scrooge-like actions by the giant retailer. It is also a sharp reminder of both the necessity of the Affordable Care Act and the deficiencies of that law.

If we think back to the time before Obamacare became a political lightning rod, we may recall that it was precisely the behavior of corporations such as Wal-Mart that created the need for healthcare reform.

In addition to paying low wages, Wal-Mart had long been criticized for providing inadequate benefits to its employees. In 2003 the Wall Street Journal published an article describing the various ways in which the company kept its spending on health benefits as low as possible. This was explored in more detail in an AFL-CIO study that came out about the same time.

This evidence, combined with reports that the company was encouraging its workers to apply for Medicaid and other government social safety net programs, prompted critics to argue that Wal-Mart was in effect shifting some of its labor costs onto taxpayers. In 2004, the Democratic staff of the House Committee on Education and the Workforce published a report estimating that the average Wal-Mart employee used federal safety net programs costing $2,103 per year.

Over the following few years, state governments were encouraged to reveal which employers accounted for the most enrollees (including dependents) in Medicaid, the State Children’s Health Insurance Program and other forms of taxpayer-funded health coverage. For those states that did disclose those lists, Wal-Mart was almost always at or near the top. My colleagues and I at Good Jobs First still maintain a compilation of these disclosures, though most of the data is now woefully out of date.

Healthcare reform should have put an end to all this, ideally by creating a system of Medicare for all funded with higher taxes on business. Of course, what we got was something else. Ironically, one of the most positive aspects of the Affordable Care Act – the expansion of Medicaid eligibility in some states – may be increasing the amount of hidden taxpayer costs generated by employers such as Wal-Mart. Yet that’s less important that the extension of those benefits to families desperately in need.

The ACA’s impact on the large portion of the workforce not enrolled in public programs is even more complicated. Although the law depends heavily on private insurance, it does not, strictly speaking, require employers to provide group coverage. Instead, what is often called the law’s employer mandate is a half-baked arrangement that will simply require larger companies (50 or more FTEs) that fail to provide adequate group coverage to pay a penalty.

That penalty is likely to be less than the cost of providing coverage and it will kick in only if at least one full-time employee of a company ends up getting federally subsidized coverage through the state or federal exchanges created by the ACA. It thus appears that companies such as Wal-Mart, Target and Home Depot that dump part-timers from their plans will be able to avoid the penalties, which in any event are not yet in effect as a result of several postponements by the Obama Administration.

While the ACA is helping more people get coverage, it does nothing to thwart low-road employers from continuing to shift what should be their health coverage costs onto taxpayers. It also appears to do nothing to help us discover which corporations are guilty of this practice, since there are no explicit provisions for making public the coverage reports that large employers will be required to file with the IRS.

Not only does the ACA fail to impose a meaningful employer mandate; it also misses an opportunity to shame those freeloading employers which expect taxpayers to pick up the tab for their failure to provide decent coverage to all their workers.