Paul Jacob

Politics, we are told, makes for strange bedfellows. But the orgy of bad policy that erupts out of legislative assemblies around the country stretches the metaphor. None more so than the policy of business subsidy: in short, welfare for the rich.

This is the economic policy that is most obviously perverse, the kind that should be easiest to combat. And yet it is rampant. It is a vice not merely tolerated and accepted, but actively and enthusiastically practiced by politicians--both Republicans and Democrats--in every state in the union.

Subsidy as Way of Life

The idea is simple: give tax money to a business so that it will stay within the boundaries of the political organization doing the granting. The execution can be more complex, from straightforward donations to elaborate tax breaks.

Though many business subsidies go on at the federal level--for instance through the Export-Import Bank--the bulk of it increasingly takes place at state and municipal levels. There's no official data as to its extent. Alan Peters, a University of Iowa professor of urban planning, is one of the few academics to hazard an informed estimate of the total loss of city and state tax revenue nationwide. His guess? At least $40 billion.

Of course, there are gains. The recipient company obviously benefits, and usually stays in the area.

But not always: sometimes the subsidized do not stay put. In the early '90s,

Indianapolis raised hundreds of millions to build a state-of-the-art maintenance center for United Airlines. But after a few years the airline figured that even with the subsidy it was too expensive to do the work there, and so it outsourced to the south. Indiana's multi-million dollar facility now sits vacant.

Boeing, Boeing: The Bouncing Logic of Business Subsidy

Boeing, the aerospace company, has been a seasoned recipient of government subsidies. It was for ample reasons that the U.S. Senator from Washington was commonly called "the Senator from Boeing." Regular readers of my Common Sense e-letter are well informed on the many special favors the Congress has awarded Boeing.

Last year, the Washington legislature threw over $3 billion at Boeing to entice the company to build its new 7E7 assembly plant in the state. To sweeten the deal, the state agreed to set up a plush employment center just for Boeing, and is kindly arranging for a local government to build the company a deep-water port.


Paul Jacob

Paul Jacob is President of Citizens in Charge Foundation and Citizens in Charge. His daily Common Sense commentary appears on the Web and via e-mail.