When cutting back on welfare, don’t forget corporate welfare

December 8, 2012

When a poor person gets a government handout, it’s called welfare. When a rich corporation gets one, it’s called an economic development incentive.

With local, state and federal government budgets tighter than ever, social programs are getting a hard look. But what about corporate welfare?

The New York Times started a good conversation last week with a three-part investigative series called the United States of Subsidies. Reporter Louise Story spent 10 months analyzing corporate tax breaks, gifts and other incentives in all 50 states, which she figured add up to at least $80 billion in annual taxpayer subsidies to business.

Business subsidies have mushroomed since the 1980s, when automakers started pitting states against one another to host new assembly plants. The strategy worked so well that other industries demanded freebies, too.

A big reason corporate welfare has flourished is that politicians love being able to announce lots of new jobs coming to their area. (They often are out of office when those jobs never materialize or leave for another state offering better incentives.)

From a national perspective, it is a zero-sum game. State and local incentives do little or nothing to grow the national economy; they just determine where in the nation the growth will occur.

But it’s more insidious than that. Incentives redirect billions of tax dollars to corporate bottom lines instead of to improving education, health, safety, infrastructure and making other public investments that will create genuine, long-term economic development.

The Times website (Nytimes.com) has state-by-state breakdowns of incentives and a searchable database of recipients. It shows that the nation’s biggest business incentive Santa is high-growth, low-wage, high-poverty Texas, at $19 billion a year. West Virginia and Oklahoma give up incentives equal to one-third of their budgets.

The Times calculates Kentucky’s annual incentives at $1.41 billion — about 15 percent of the state budget, or $324 per Kentuckian. Those include $264 million in personal income tax credits; $108 million in sales tax refunds, exemptions and discounts; and $69.2 million in corporate income tax reductions, credits or rebates.

The Times reports that most Kentucky incentives, $569 million worth, go to mining, oil and gas industries — no surprise there, given their political clout. That is followed by $341 million for agriculture and $180 million to manufacturers.

As is true nationally, some of the biggest Kentucky incentive recipients in recent years were automakers: $307 million for Ford; $83.8 million for Toyota and $10 million for General Motors. Given their high wages and large supplier networks, those might be good investments.

But the big head-scratcher in the Times’ database was $94.1 million in incentives to Tyson Foods from 1995-2009 for a low-wage chicken-processing plant in Henderson County. Is that the kind of economic development Kentucky taxpayers should be subsidizing?

While the Times’ report is impressive in its national scope, there has long been debate about the value of incentives. The Herald-Leader published an investigative series in 2005 that questioned the value of many Kentucky tax breaks and other giveaways. The report resulted in some improved accountability, but did little to stem the flow of tax money into corporate pockets.

A state-commissioned study issued this summer came up with incentive figures smaller than the Times reported, but still pretty staggering: $1.29 billion between 2001 and 2010. The report said 577 companies took incentives to locate 55,173 jobs in Kentucky at a cost to taxpayers of $23,385 per job.

The incentive system favors large corporations over small businesses — often the employers who are already in a community and aren’t looking to leave. Officials have responded by coming up with some incentives for them, too, which just further drains government coffers.

How do we stop this racket, where cities and states compete to steal jobs from one another? It would be great if Congress could pass a law, but it probably can’t. Still, with about 20 percent of state and local government budgets coming from federal dollars, somebody needs to be looking out for the national interest.

Taxpayers should demand reform of these corporate welfare systems, just as they did social welfare systems in the 1990s. But it won’t be easy. Corporations employ more lobbyists and make more campaign donations than poor people do.


UPike plan should lead to discussion about raising coal severance tax to improve Kentucky education

January 15, 2012

The political wild card in this year’s General Assembly is a high-powered proposal to make private University of Pikeville a state-supported school.

The idea is being pushed by House Speaker Greg Stumbo and former Gov. Paul Patton, who is now the University of Pikeville’s president. The idea has solid support from southeast Kentucky legislators and community leaders. Gov. Steve Beshear has ordered a thorough study.

Like many ideas that sound good but get complicated as you dig into them, this proposal needs thorough study. But it also provides an excellent opportunity for broader public discussion about how more educational attainment could improve life in Kentucky and how we should go about paying for it.

Having the state assume ownership of a private school is a very Kentucky thing to do. That is how five of the state’s eight public universities came to be: Western and Eastern in 1906, Murray and Morehead in 1922 and the University of Louisville in 1970.

“This sounds like the same thing: We’ve got a campus here and all we have to do is make it a state school,” said Bill Ellis, a history professor at Eastern Kentucky University and author of the new book, A History of Education in Kentucky. “It all comes down to politics and who has the votes.”

Creation of those state universities was generally a good thing for Kentucky, Ellis said. It made education more accessible and brought economic development and culture to communities across the state.

Many people in southeast Kentucky argue that their region — with some of the state’s highest rates of poverty and lowest levels of educational attainment — has been shortchanged.

Southeast Kentucky is part of the service areas of Eastern and Morehead state universities, but both campuses are a long way from many of the region’s towns and hollows. Pikeville and surrounding areas would no doubt benefit economically and culturally by having a state university.

But for years now, the General Assembly has cut state support for higher education. Given that, can Kentucky taxpayers afford another university mouth to feed? Stumbo and Patton say that is not a problem: Rather than using general fund money, state support can come from Eastern Kentucky’s coal severance tax revenues.

At this point, let’s step back and look at the big picture. What do legislators really need to do to help Appalachian Kentucky catch up with the rest of the state — and Kentucky catch up with the rest of the nation?

Let’s begin with the notion that more state support for education is essential. That is because nothing has more power to improve Kentucky’s economy and society than educational attainment.

Regardless of whether Pikeville becomes a state university, lawmakers should find ways to reverse the budget-cutting trends that have contributed to skyrocketing tuition at Kentucky’s state universities and made them less affordable.

The stated goal of the University of Pikeville proposal is to make higher education more affordable and attainable for mountain students. But are there more cost-effective ways to do that?

Rather than taking on another campus, would Kentucky get more bang for the buck by using coal severance tax money to finance scholarships for mountain students at Kentucky’s existing public and private universities, including Pikeville?

Perhaps those scholarships could be supplemented with loans from severance tax money that would be forgiven if students lived and worked in the mountains for a few years after graduation. That could curb the region’s historic “brain drain.”

But let’s not stop there. The Pikeville proposal creates a perfect opportunity for a broader discussion about the severance tax that Kentucky has levied on the coal industry since the 1970s, and how that money should be used.

The severance tax rate of 4.5 percent, which hasn’t changed in decades, is among the lowest of major coal-producing states. It generates more than $200 million a year. But over the years, much of that money has been wasted on building vacant industrial parks and other political pet projects, plowed back into subsidies for the coal industry or gone to benefit parts of Kentucky nowhere near the coalfields.

If the severance tax’s goal is to improve life and create a new economy in the coalfields for when all of the coal is gone, there could be no better use for that money than improving educational attainment.

So regardless of whether the University of Pikeville receives state support, the General Assembly should take this opportunity to raise the coal severance tax to national norms and focus the money on education. That’s right: Turn this political wild card into a trump card for Kentucky’s future.


Debt obsession will only make economy worse

August 8, 2011

If your home caught fire, would you put out the flames, or ignore them and focus on fixing a leaky pipe that could eventually flood your basement?

You would call firefighters, of course, and deal with the pipe after the emergency had passed. Unless, that is, you were a member of Congress.

Think of government debt as a pipe that has been springing leaks for a decade. If not fixed, it will eventually ruin the house. The fire in this analogy is America’s stagnant economy and high unemployment rate.

With that in mind, here is the best way to describe what Congress and President Barack Obama did last week: They wrapped tape around a small piece of the leaky pipe and poured gasoline on the fire.

The debt-ceiling fiasco did little to solve America’s real debt problems, although they were a start. But the bipartisan compromise will make our economic slump worse instead of better. Fears of a relapse into recession sent stocks plunging last week in the steepest market slide since October 2008.

The only realistic way to reduce government debt is to cut some spending, increase tax revenues, bring down soaring health care costs and make long-term adjustments to entitlement programs that will put them on sound financial footing. It is not rocket science; more like basic plumbing.

“We don’t have a revenue problem!” Republicans like to say. “We have a spending problem!” They are only partly right.

We do have a spending problem. We have committed what could become $3 trillion fighting wars in Iraq and Afghanistan, and now we’re messing around in Libya and who knows where else on the sly. The military industrial complex spends untold billions on high-tech weapon systems we don’t need. Waste and fraud abound.

The same skyrocketing health care costs that are breaking families and businesses are making the Medicaid and Medicare programs unsustainable. Social Security must cut benefits, raise the dedicated tax or both.

But we also have a revenue problem. Sorry, Tea Partiers: you may think you are “Taxed Enough Already,” but you are taxed less than you have been in decades.

Thanks to huge 2001 tax cuts, plus tax breaks and loopholes for special interests, tax revenue as a share of gross domestic product is at its lowest point since 1950. After reaching a peak of 20.6 percent in 2000, it is now 14.8 percent, according to an analysis by the Center for American Progress.

The United States has lower taxes than most developed countries, especially for wealthy people and corporations. Top marginal tax rates, tax rates on investments and corporate tax revenues as a share of GDP are the lowest they have been since World War II.

Trickle-down economic theory — what President George H.W. Bush famously called “voodoo economics” — won’t revive the economy. It will just continue a 30-year trend of stagnant middle-class wages and huge income growth for the rich.

A big reason America’s economy is stalled is that too many average people don’t have jobs. Many who do have jobs still don’t have much disposable income. Until a lot more people have more money to spend, the economy won’t recover.

Republicans’ obsession with paying down debt — and Democrats’ willingness to cave in to them — will only make the economy worse, at least for the next year or two. Republicans hope to use that for political advantage. Democrats seem scared of their own shadows.

Since banks and corporations have recovered, neither political party seems to care much about the rest of us. I guess we know who they really represent.

This obsession with reducing debt in a weak economy risks a replay of the malaise Japan suffered in the 1990s when it followed that strategy. The same thing happened here in 1937, when debt-obsessed politicians stopped much of the New Deal spending that was getting America back to work from the Great Depression. The result: a double-dip depression that didn’t end until World War II.

Political leaders need to stop admiring their taped-up pipe and notice that America’s house is burning down.


‘Watson’ lawmakers might pull us out of jeopardy

February 19, 2011

Since the U.S. Supreme Court has decided that corporations are people, why can’t computers be politicians?

Watson for president! Better yet, let’s make clones of Watson – the computer IBM engineers built to clobber two human Jeopardy! champions last week – and put them to work in Congress and state legislatures.

Machines programmed to make decisions based on facts and logic would be an improvement over many of the human robots controlled by special interests who now run our government.

Big-money influence has always been a problem in politics. But the floodgates were opened last year when an activist Supreme Court majority expanded the legal idea that corporations are people. They overturned decades of campaign finance law and allowed corporations and unions to spend huge amounts of often-anonymous money to influence elections.

Computer politicians could help solve this problem, because they lack human greed. All computers really need is a cool room for their servers and a little maintenance. As long as they have a steady supply of electricity, they aren’t hungry for power.

Engineers could design computer politicians much the way they did Watson. They could fill their electronic brains with rich databases of facts and experience. Then they could write decision-making algorithms based on human logic and American ideals. You know, ideals that human politicians laud in speeches but often ignore in practice – fairness, justice, public good.

Consider how a computer politician could help with deficit-reduction. IBM named its Jeopardy! computer after the company’s founder, Thomas Watson. Let’s call our computer politician Webster, after that great 19th century statesman, Daniel Webster.

Webster could begin by analyzing how we got into this mess. His database would tell him that federal surpluses turned to huge deficits between 2000 and 2008 primarily because of massive tax cuts and more than $1 trillion borrowed to fight wars in Iraq and Afghanistan.

Public debt was compounded by a deep recession caused largely by a housing bubble and irresponsible Wall Street speculation. With Wall Street now back to record profits, Watson might suggest a transactions tax on financial speculation to bring in billions to help balance the budget.

Many members of Congress act as if budgets can be balanced and debt eliminated by simply cutting discretionary, non-military spending. Free from human ideology, Webster would use facts and logic to conclude that any serious attempt to solve our financial problems will require ending the wars, curbing health care costs and raising taxes.

Webster’s database would show him that today’s income tax rates are the lowest in decades – lower than during the boom years of the 1990s, and far lower than during the economic boom that followed World War II. His electronic brain would dismiss the “taxed enough already” crowd, because facts show they are taxed less than in the past.

That is especially true of the wealthiest Americans. Because data show that assets held by the richest 5 percent of Americans have grown from $8 trillion to $40 trillion since 1985, Webster would logically conclude that they can afford to pay more in taxes. And that it would be in the best interest of the nation that created the environment that allowed them to prosper.

Webster’s database would show plenty of wasteful government spending to trim – much of it in the huge military budgets that some human members of Congress don’t want to touch.

I suspect Webster’s electronic brain would recognize the folly of slashing low-cost, high-value government programs such as public broadcasting, Teach for America and AmeriCorps.  He would conclude that cutting education is no way to build a more competitive economy. The logic of maintaining oil and coal subsidies while cutting investment in developing the energy technologies that must eventually replace fossil fuels just wouldn’t compute.

Decision-making algorithms based on American ideals would never allow essential aid to the poor, sick and elderly to be slashed, while preserving billions in wasteful military spending and subsidies for industries that don’t need them.

I’m sure some people will argue that machines can never replace human politicians, because even the best computers lack essential human traits, such as empathy. They have no heart.

I don’t see that as a big problem. Many of our current politicians don’t seem to have hearts, either.


Farmer’s tax plan changes: sales tax up, not down

January 10, 2011

When researching my column today, I missed an important change in the state tax reform proposal that  Rep. Bill Farmer, a Lexington Republican, has made for each of the past several years.

Previously, Farmer said that by eliminating the state’s personal and corporate income taxes and extending the sales tax to most services, enough revenue could be generated to lower Kentucky’s 6 percent sales tax rate, perhaps to 5 percent or 5.5 percent.

Rep. Bill Farmer

But the version of the bill Farmer filed for this legislative session calls instead for raising the sales tax rate to 7 percent. Why the change?

“The economists missed badly last year” when estimating the tax revenues that would be produced by the changes he was proposing, Farmer said. How badly? About $1 billion.

Farmer said he still isn’t sure the changes would require an increase in the overall sales tax rate at a time when lawmakers would be taxing more services and removing exemptions in order to eliminate income taxes, but he is trying to be conservative. “It’s easier to start a little high and go low than to start low and have to raise it at some point,” he said.

Not that it is likely to matter. Farmer said he has little hope that any meaningful tax reform will happen this year — his plan or anyone else’s. And he is skeptical that Kentucky politicians will ever be willing to eliminate income taxes.

As I wrote in my column today, many business leaders and politicians like Tennessee’s tax system because they say that taxing consumption rather than income is more attractive to businesses and high-income workers.

But the tradeoff for Tennessee has been some of the nation’s highest sales taxes. That leaves poor and middle-class people paying a bigger share of their income in taxes than higher-income folks. The last commission Tennessee lawmakers appointed in 2002 to study that state’s tax system proposed fixing that problem by — you guessed it — creating a state income tax.