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Saturday, April 11, 2015

Good Jobs First reveals top federal subsidy recipients: Subsidy Tracker 3.0

Slow to be getting to this, but I have to come back to such a major development. Good Jobs First, a national non-profit best known for its work on state and local subsidies to business, unveiled in March its Subsidy Tracker 3.0. This work differs from previous publications on federal subsidies by being project-based/firm-based, rather than program-based. This lets us know which companies have received the most federal subsidies over the years.

"Uncle Sam's Favorite Corporations" finds that the federal government has awarded $68 billion in "grants and special tax credits" in the last 15 years. 2/3 of this has gone to large corporations. This is on top of hundreds of billions of dollars given to the banking sector during the financial crisis. One advantage of using Subsidy Tracker 3.0 is that it incorporates previous work by Good Jobs First tracking parent/subsidiary relationships.

One substantial finding is that:
Six parent companies have received more than $1 billion in grants and allocated tax credits (those awarded to specific companies), 21 have received $500 million or more, and 98 have received $100 million or more. Just 582 large companies account for 67% of the $68 billion total.
All six of the billion-recipients are in the energy sector: Spanish company Iberdrola tops the list with $2.2 billion, followed by NextEra Energy, NRG Energy, Southern Company, Summit Power, and SCS Energy. And five companies were on all three of the top 50 federal subsidy recipients list, the top 50 bailout list, and the top 50 state & local subsidy list: Boeing, Ford, General Electric, General Motors, and JPMorgan Chase.

It's important to recognize that project-based and program-based subsidy databases serve two functions that that do not reduce to each other. If you want to know the total amount of money governments give in incentives, you need program-based reporting. This is because many subsidy programs provide benefits automatically to all investors meeting certain criteria and they rarely list all the automatic recipients. In that case, you need to know what the program as a whole is spending. This is the approach I have taken in my subsidy estimates in Competing for Capital and Investment Incentives and the Global Competition for Capital, and Louise Story took in the New York Times program database ("State Money Flow") in its December 2012 series "The United States of Subsidies." To understand the overall scope of the problem, you need program-based reporting.

Of course, program-based reporting can have its flaws. A number of think-tanks with widely varying ideologies have produced these reports over the years, and they appear to give dramatically different answers. In fact, as I showed in Competing for Capital (pp. 152-158), the answers are all highly consistent, as they are based on a handful of federal studies (the Joint Committee on Taxation's Tax Expenditures reports, the Congressional Budget Office's Reducing the Deficit: Spending and Revenue Options, and the CBO's occasional publication, Federal Financial Support of Business). The differences, even when they are seemingly vast, stem from clear ideological choices by think-tank researchers.

To take the most obvious example, when the Cato Institute estimates "corporate welfare," it does not include the value of subsidies which take the form of tax expenditures. This give a much smaller number than estimates that follow the JCT/CBO methodologies closely, since tax expenditures easily total 2/3 of federal subsidies (and often 90% of state and local subsidies). In Cato's 2012 estimate of federal corporate welfare, author Tad DeHaven admits (p. 12) that tax expenditure are a "form" of corporate welfare, but he does not include them in his claimed total of $98 billion in federal "corporate welfare" annually. On the flip side, for any federal agency Cato wants to see privatized, it counts the entire budget as "corporate welfare." This inflates the Cato estimates relative to those which stick closer to the JCT/CBO methodologies, such as Citizens for Tax Justice.
Project-based reporting, like Good Jobs First does with Subsidy Tracker and Megadeals, can find large individual recipients and projects, but it does not get you anywhere near the total amount of subsidies given by an individual government. As mentioned above, many programs with automatic tax breaks for investors do not give individualized listings of their recipients. (Hopefully this will change when the Government Accounting Standards Board releases its final tax incentive rules.) But because you can document every single individual award, you can derive an absolute baseline which is irrefutable.

The inauguration of Subsidy Tracker 3.0 is a great addition to the transparency tools brought to us by Good Jobs First.

Cross-posted at Angry Bear.