Our Tax Dollars Are Being Used to Lobby for More Government Handouts
The First Amendment guarantees our freedom to petition the government, which is one of the reasons why the statists who wants to restrict or even ban lobbying hopefully will not succeed. But that does not mean all lobbying is created equal. If a bunch of small business owners get together to lobby against higher taxes, that is a noble endeavor. If the same group of people get together and lobby for special handouts, by contrast, they are being despicable. And if they get a bailout from the government and use that money to mooch for more handouts, they deserve a reserved seat in a very hot place.
This is not just a hypothetical exercise. The Hill reports on the combined $20 million lobbying budget of some of the companies that stuck their snouts in the public trough:
Auto companies and eight of the country’s biggest banks that received tens of billions of dollars in federal bailout money spent more than $20 million on lobbying Washington lawmakers in the first half of this year. General Motors, Chrysler and GMAC, the finance arm of GM, cut back significantly on lobbying expenses in the period, spending about one-third less in total than they had in the first half of 2008. But the eight banks, the earliest recipients of billions of dollars from the federal government, continued to rely heavily on their Washington lobbying arms, spending more than $12.4 million in the first half of 2009. That is slightly more than they spent during the same period a year ago, according to a review of congressional records.
…big banks traditionally are among the most active Washington lobbying interests in the financial industry, and the recession has done little to dent their spending. …Since last fall, companies receiving government funds have argued that none of the taxpayer money they were receiving was being spent on lobbying.
…American International Group, the insurance firm crippled by trades in financial derivatives that received roughly $180 billion in bailout commitments, closed its Washington lobbying shop earlier this year. AIG continues to spend money on counsel to answer requests for information from the federal government, but the firm said it does not lobby on federal legislation.
The most absurd part of the story was the companies claiming that they did not use tax dollar for lobbying. I guess the corporate bureaucrats skipped the classes where their teachers explained that money is fungible.
The best part of the story was learning that AIG closed its lobbying operation, though that does not mean much since AIG basically now exists as a subsidiary of the federal government. The most important message (which is absent from the story, of course) is that the real problem is that government is too big and that it intervenes in private markets. Companies would not need to lobby if government left them alone and/or did not offer them special favors. Indeed, that was the key point of my video entitled, “Want Less Corruption: Shrink the Size of Government.”
Why Fear Leviathan U.?
The Harriet Tubman Agenda – ordinarily a pretty rational blog — takes issue with my recent post expressing unease about a proposal to have Uncle Sam create and furnish free college courses. Accurately noting that American institutions of higher education, including private and for-profit schools, are addicted to government subsidies, the blogger asks what the problem is “if a free curriculum (defined by designated text books and tests), coupled with a competitive market in examination services, reduces the burden on taxpayers”?
Here’s the problem: From the perspectives of both freedom and effectiveness, why would we ever want the federal government creating free college curricula and, potentially, a giant federal university that, thanks to the internet, would not even be bound by the need to have a physical campus? Do we really want both state-run and private institutions, which despite huge subsidies still have to charge tuition and compete with one another, to have to go up against a free, Leviathan University? And why would it matter if the examinations accompanying Leviathan U’s curriculum were created by private companies? If you have to master The Little Red Book — to use an extreme example — does it matter if the testing contract is competitively bid?
The Harriet Tubman Agenda is absolutely right that, engorged with government subsidies, American higher education is grossly wasteful. But replacing it with utterly unconstitutional federal courses that could someday yield a mammoth, federal university? For reasons even more basic than saving taxpayer money, that would be a terrible move.
States “Creating” Jobs – One Corndog at a Time
A couple weeks ago, I blogged about the foolishness of press release economics: states “creating” jobs by handing out taxpayer money to select businesses. I concluded by saying that “journalists should be on the lookout for more press-release economics schemes coming from the states as revenues remain tight and politicians become desperate to demonstrate they’re “doing something.” Journalists should examine a state’s tax structure when a taxpayer giveaway is announced to see if perhaps the governor is masking economic-unfriendly fiscal policies.”
Sure enough, the Pew Center’s Stateline.org has an article up detailing the efforts of state governors dealing with the recession by giving businesses taxpayer money to “create” jobs. Of course, it would make more sense for a state to simply reduce the tax and regulatory burden on a businesses looking to expand or relocate operations within its borders. But then state politicians might miss out on the short-term benefit of issuing fluffy press releases that are particularly helpful when a state is bleeding jobs.
Stateline notes that “You’d never know Michigan has the nation’s highest unemployment by visiting the Michigan Economic Development Corporation’s Web site, which trumpets a string of successes in recent months that have resulted in thousands of jobs in a state battered by the decline of auto manufacturing.” And in neighboring Indiana, the state’s economic central planners are celebrating the “creation” of 50 jobs at a corndog and fritter manufacturer. Anyone familiar with Hoosier waistlines knows there’s no shortage of corndogs in the state to justify taxpayers having to subsidize their production.
However, Stateline reports that Wisconsin officials are targeting Minneapolis-St. Paul manufacturers with a study that shows relocating to west central Wisconsin would save the Minnesota businesses millions of dollars due to lower worker’s compensation costs, corporate income taxes, and property taxes. Whatever else Wisconsin’s economic development bureaucrats are up to, this is the right idea.
Injustice of State Subsidies
My colleague Chris Edwards made a good point yesterday in his post on the injustice of federal subsidies. The wrangling between the states to haul in the federal largesse is wasteful, and getting worse. But the underlying issue in the article Chris cites — a state using taxpayer money to lure a company away from another state — is another wasteful activity that is all too common.
Instead of competing with other states to attract industry by lowering taxes and reducing regulations, it seems most state governors prefer a politically opportunistic method I call “press release economics.” Here’s how it works:
A state “economic development” agency offers an out-of-state company (or even an out-of-country company) tax breaks and/or direct subsidies to locate some or all of its business operations in that state. Most likely, the business would have located there anyhow due to myriad factors including demographics, transportation logistics, and workforce capabilities. Sometimes several states will engage in a “bidding war” to get a business to set up shop within their borders. The governor of the “winning” state will then issue a press release citing the new jobs and capital his administration has just brought to the state. The locating company usually tells the press that the winning state’s package helped seal the deal. The company and the governor’s press staff then typically arrange a photo-op at an orchestrated ground-breaking ceremony for the new facilities.
If a state is already bleeding jobs, as is often the case in the current economy, such press releases and photo-ops can be a political coup. Moreover, the governor will have given up, or foregone, relatively little in tax revenue in comparison to, say, cutting the state corporate income tax. This also leaves the governor with more money to spend on various vote-buying programs. I’m picking on governors, but the legislature generally prefers the press-release economics route for similar reasons. And if you’re a governor, why risk the headache of engaging the legislature in a fight over reducing corporate taxes, unemployment taxes, or any other tax — including personal income taxes and sales taxes — that effect industry when you can take the easy win?
Am I too cynical? Actually, I had first-hand experience with this issue when I worked in state government. My suggestion that the governor eliminate or reduce the state’s high corporate income tax rate, and “pay for it” — at least in part — by getting rid of the state’s corporate welfare apparatus, was routinely ignored for the reasons I cited above. That one would be hard-pressed to find support among the economics profession for the state corporate welfare give-away game means little to the majority of policymakers and their minions who naturally favor short-term political gain over long-term economic gain. That other companies already located within the state are stuck paying the regular tax rate, and are thus put at a competitive disadvantage, is a secondary or non-concern as well.
Another issue that I won’t delve into here is the fact that these giveaways often blow up in a state’s face when the locating company ends up not producing the jobs it promised and/or it relocates to another state or country after pocketing the free taxpayer money. Anyhow, journalists should be on the lookout for more press-release economics schemes coming from the states as revenues remain tight and politicians become desperate to demonstrate they’re “doing something.” Journalists should examine a state’s tax structure when a taxpayer giveaway is announced to see if perhaps the governor is masking economic-unfriendly fiscal policies.
Note: South Carolina Gov. Mark Sanford proposed late last year to do exactly what I recommended: eliminate the state’s corporate income tax, offset in part by the elimination of corporate tax incentives. There is hope.
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