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Tuesday, February 25, 2014

Surprise! Most Subsidies Go to Big Business

A new Good Jobs First study confirms what many of us have long suspected: Most subsidies go to big companies. For the first time, though, we have an estimate of just how much of this government largesse goes to the biggest firms: 75%. $110 billion, to put it in dollar terms. The Fortune 500 alone have received $63 billion of that.

This report is based on recently completed work on the Subsidy Tracker database, connecting data for parent and subsidiary companies. This revealed that 965 parent firms received that $110 billion, some 3/4 of the total amounts disclosed in the database. It also turns out that some firms you might not associate with a lot of subsidies actually receive them through subsidiaries with completely different names.

One example of this is Berkshire Hathaway, which in 310 separate subsidy deals has received over $1.06 billion. The subsidiaries receiving incentive packages, include the following: "Geico, NetJets, Nebraska Furniture Mart, General Re Corporation, Lubrizol Advanced Materials, and Webb Wheel Products."

16 other firms, led of course by Boeing, have also received more than $1 billion in total. Boeing's $13 billion total is followed by Alcoa at $5.6 billion, Intel with $3.9 billion, General Motors receiving $3.5 billion, and Ford totaling $2.5 billion(all figures in nominal dollars). An amazing 182 companies have received cumulative subsidies of over $100 million.

The 965 parent companies have, on average, 26 deals and a cumulative subsidy average of $102 million.

David Cay Johnston points out that Alcoa's subsidies account for 189 years' worth of profits based on the company's results for the last four years.This reinforces something I argued in Investment Incentives and the Global Competition for Capital, that while subsidies may only represent a small portion of a company's costs, they can make up a large portion of its profits (my example was Advanced Micro Devices, now Global Foundries).

Johnston concludes appropriately:
Taxpayers who want to understand the full dimension of their burdens should demand that Congress require and pay for detailed annual statistical reports showing every federal, state and local subsidy received by corporations, including the value of indirect subsidies like those perpetual rights of way to pipelines and other legal monopolies.
 Transparency remains the name of the game. As citizens become more aware of the huge costs that subsidies impose on us, the bigger a political issue it will become. This new report is another feather in the cap for Good Jobs First's promotion of transparency.


  1. You wrote "huge costs that subsidies impose on us,". Care to explain how and why these are huge cost imposed on us?

  2. Apparently big US corporations also pay "very little" in taxes.

  3. Obviously this cannot come as a surprise, since it is the large corporations that have the ability to "lobby for" (contribute to campaigns to buy) these subsidies.

    It is little different from the mercantile system, in which grants and special privileges were given to particular businesses in return for remuneration to the crown, which needed the proceeds to stay in power.

    1. You don't appear to have a very good irony detector. Obviously I don't think it is a surprise. But it's good to have a solid handle on what the proportion is.

      I certainly agree with you that large corporations are better able to lobby and I think that economic development officials probably have some bias towards large corporations because they can make for large job announcements. At the same time, there are subsidies for small firms (such as the Small Business Administration at the federal level, and various state programs as well), so it isn't a given that only big firms get subsidies. In other countries, there are much bigger programs for small companies than what we see in the United States. Austria and Finland are two I have heard of that have strong programs to develop small business, and the government of Quebec has quite a large program as well.