The unprecedented distribution of taxpayer money to publicly-traded corporations, small business, and individuals, has created a lot of confusion about socialism.
What is socialism? How does it work? Who benefits?
These are all valid discussions for a complex political philosophy. But, in the practical world, socialism is best understood if we look at how public taxpayer money is distributed, or more accurately, re-distributed, and most importantly, who gets the money: individuals or corporations.
If the money goes to average American taxpayers, socialism often takes the form of social programs, such as those started under the New Deal and later under the LBJ Great Society. These include Medicare, Medicaid, food stamps, urban renewal projects, investments in elementary and high school education, such as Head Start, and college aid. These are well known.
But the US has a very sophisticated, extensive, high-level form of corporate socialism largely unknown to the public. This corporate socialism has been developing since the military-industrial complex began after World War II. It has since become more sophisticated and arcane through high-level political connections, regulations, legislation, and lobbying.
“…tax benefits defer corporate recipients from paying federal, state, and local real estate taxes for a decade and possibly forever.”
How big are the subsidies? Conservatively, the Tax Foundation calculated that “special tax provisions” generate over $100 billion annually in lost revenue. Then, states and localities offer subsidies, often through grants, free property, and tax preferences to attract businesses to a particular area. The estimates of these costs run between around $50 billion and $80 billion.
Even the conservative Cato Institute said “in real capitalism, there are no guaranteed profits. But corporate welfare eliminates this handicap for the well‐connected.” In a well-researched article, author Doug Bandow of the Cato Institute wrote “few in Washington really want to cut spending. But ending corporate welfare would be a start to restoring fiscal sanity in Washington.”
A World of Subsidies
This huge federal redistribution of revenues to large corporations and specialized industries relies on legal structures at the federal, state, and local levels. The subsidies are tied to IRS regulations, and tax loopholes, such as carried interest, a loophole that supports the hedge fund and private equity industries. Carried interest allows general partners in investment funds to pay the lower capital-gains tax on “carried interest,” which is really employment income that should be taxed at regular income tax rates,” according to The Americans for Tax Fairness. This loophole is so significant that if it was closed, many hedge funds would cease to operate. If the loophole was closed, this alone would raise $14 billion in tax revenues, according to the Congressional Budget Office.
There are now about 21 federal and state types of subsidies, ranging from federal allocated tax credits and tax abatements to grants and tax increment financing. These are all available to investment firms and corporations, according to Good Jobs First.
But There is More
There are about 153 federal subsidy programs, ranging from aid to small shipyards to truck security programs and wood utilization assistance, according to a Good Jobs First search database.
These subsidies and programs rely on little or no public transparency. They benefit from favoritism, and deals that are never intended for public or press scrutiny. Finding out the story and amounts behind these subsidies is intentionally hidden.
As a result, numbers that researchers find are often years old, and the corporate structures used to receive this money, especially in public-private partnerships, such as enterprise zones, and Community Redevelopment Agencies, involved limited liability corporations, hidden ownerships, and complex paper trails that would be the envy of any money laundering operation.
The federal money today that supports corporate socialism is huge. This money takes many forms. Cash grants make the news, but there is a trail of tax benefits that defer corporate recipients from paying federal, state, and local real estate taxes for a decade and possibly forever.
The list of tax deals that fuel corporate socialism is found in the Good Jobs First search database. In most cases, you need a lawyer to understand them, and most of these deals are off-limits to the individual investor since they lack the net worth.
Basically, as a result of decades of lobbying, the subsidies and financial benefits affect almost every industry in the US. Some could be considered essential to the national good, but many programs are designed to help public, profitable corporations. Others are public-private partnerships that often miss their promises made to fulfill and economic or housing needs. Much of this money goes to non-US corporations, such as Aldi, and its subsidiary, Trader Joes, and non-US banks.
Here are just a few examples of how federal state and local money is distributed to corporations:
The Principal Financial Case Study
Principal Financial Insurance, the largest employer in Iowa, received state and local subsidies of $25.4 million since 2008, according to Good Jobs First. This included a $22.5 million tax credit/rebate for Principal Life Insurance and $2.8 million for Principal Financial for training reimbursement, all from the state of Iowa.
Northwestern Mutual Case Study
Northwestern Mutual, another large employer in Wisconsin, received $51.5 million state and local subsidies for grants, tax increment financing, including a package of subsidies from state and local sources. To put these subsidies in perspective, Northwestern Mutual Life and its subsidiaries had annual revenues of more than $20 billion, so every little subsidy helps.
The Amazon Case Study
According to Good Jobs First, a non-profit that tracks state tax breaks, since 2000 Amazon has received $1.115 billion in 129 communities in the U.S., rocketing past the previous leader in this category, Walmart, the group said.
This was the result of a concerted strategy by Amazon. In 2012, the company hired Michael Grella, a specialist in economic development tax credits. The company created an entire team just to seek out these subsidies, in a continuation of its strategy to work the tax code to its advantage—first by not collecting sales tax and offering an effective discount on every product, and more recently to lower the cost of building new shipping facilities.”
The author of this report on Good Jobs First, David Dayen, asked: “Economic development incentives don’t create jobs as much as they shift them around, pitting communities against one another for who can pony up the most corporate welfare.” He then asked: “But why aren’t they demanding that companies, in exchange for job-creation tax incentives, pay those new workers a livable wage?”
Corporate Social Impacts Federal, State, and Local Tax Revenues
The cover story for corporations in all industries, investment and real estate firms, and publicly-traded corporations that get this assortment of taxpayer money or reductions in taxes is that they create jobs and serve as anchors in the community. This is certainly true. But when do the subsidies outweigh the benefits to citizens?
Many subsidies are internationally hard to track and quantify. This makes it easier to see a causal relationship between the subsidy programs and the public interest. Do the subsidies help alleviate blighted neighborhoods, income gaps, wage disparities inside of corporations between executive and line workers? Not usually.
If so, we would hear about it from the corporate public relations department. If anything, we hear about volunteer efforts from corporations, but many of these volunteers are off of work, while their time off is being subsidized from some other federal or state source.
And while his article did not cover the recent COVID bailout programs, Good Jobs First also has a great site on the publicly-traded corporations that received federal money but had bad records on how they treated their employees, the environment, or on CEO pay, among other criteria.
For instance, American Airlines got a $4.1 billion COVID subsidy, but the company has a bad record in its CEO pay-to-worker ratio, environmental-safety record, contracting consumer, and employment records. In most cases, these funds were issued with no-strings-attached. With the COVID money, corporations could get money, but avoid making changes to their internal operations.
So, the next time you hear about socialism in America, find out what is being discussed. You can surprise people that corporate socialism is larger and more vibrant than any social program being offered to individual citizens.