Corporate Welfare at its Finest

by Audrey Pietrucha

Congressman Peter Welch garnered headlines last week when he offered an amendment to HR 1230, a bill that would reopen off-shore oil leases canceled in the aftermath of the BP Gulf oil disaster. Welch’s amendment would “repeal taxpayer subsidies to the oil industry” according to a press release from his office.

"While oil companies are doing quite well, Vermonters are not. They simply can't afford to fill their gas tanks," Welch said. "Congress should be taking steps to cut gas prices, not look the other way while oil companies line their pockets with taxpayer support."

If Welch was really concerned about cutting gas prices for consumers he might have offered a different amendment, one that eliminated state and federal gasoline taxes. This would, according to the Tax Foundation, shave 43.5 cents off of every gallon of gasoline sold in Vermont. Oil companies such as Exxon-Mobil, on the other hand, only take two or three cents in profit per gallon. A first-grader could tell you which number is higher.

But there is a bigger issue at stake here and it concerns the fairness and effectiveness of government subsidies to the energy industry and to industry in general. There are legitimate roles for government but it is highly questionable if one of them is choosing which businesses should benefit from taxpayer financial support.

First let’s look at energy subsidies, the most notable of which may have been the ethanol subsidies which have been set at forty-five cents per gallon since 2005. In addition to the unintended consequences attached to increased ethanol production (corn prices shot up and, by extension, the price of foods connected with corn such as beef), these subsidies have resulted in more fertilizer use, more land use, more energy use in the production and harvesting of corn and no less pollution since it has been found that ethanol and gasoline emit just about the same amount of greenhouse gases.

Similar stories emerge from other energy sectors. Clean coal and nuclear power plants have consumed federal dollars for decades with little positive fiscal results to show for it. For instance, the Government Accounting Office (GOA) found that many clean coal projects have “experienced delays, cost overruns, bankruptcies, and performance problems.” The GAO examined 13 projects and found that “8 had serious delays or financial problems, 6 were behind their original schedules by 2 to 7 years, and 2 projects were bankrupt” Nuclear power plant construction is notoriously dependent on federal loan guarantees in order to be built in the first place and then furnish competitively priced power.

Hints of similar future boondoggles permeate the “green” energy industry. Neither wind nor solar power has proven feasible on a large scale without massive injections of government money and the environmental impact of these technologies has yet to be fully considered. For instance, Jesse Ausubel, director of the Program for the Human Environment and senior research associate at Rockefeller University, calculates an area of land equal in size to the state of Connecticut would need to be devoted to wind turbines to power the city of New York.

There are many other federally-subsidized industries and programs that can be traced back to energy use. Alternative-energy vehicles and public transportation are two that immediately come to mind. Leaving the energy realm we find a plethora of industries that either boost their profits through government intervention or remain profitable only with government help. Agriculture is fraught with examples, with more than ninety percent of the ten to thirty billion dollars per year in agriculture subsidies going to farmers of five crops—wheat, corn, soybeans, rice, and cotton. Dairy products and sugar also benefit and all told more than 800,000 farmers and landowners receive subsidies. These payments are heavily tilted toward the largest producers, not family farmers.

Welch picked on the oil companies because they are the popular political punching bag of the moment. “Why are we asking the American taxpayers to subsidize a profitable industry?" he asked. A reasonable question but a better question would be why are we asking American taxpayers to subsidize any industry. If investors or consumers are unenthusiastic about a product or service, it’s probably for good reason. Do politicians really have a better understanding of these businesses than the individuals who have money at stake?

Subsidies harm their intended beneficiaries by protecting them from market forces. This isolation from real-life consequences reduces incentives for economic and technological innovation and ultimately reduces competitiveness ever further. Subsidies also distort useful and necessary price signals.

Those who fear free markets should consider the alternative – political decisions. The broadly dispersed influence of individual consumers and investors making rational decisions in the marketplace seems a far safer way to distribute wealth than through the powerful and politically-connected. Pork-barrel projects and special interest spending have been the means through which politicians from both parties have distributed billions of dollars of taxpayer money. It’s time to close the wallet.

Audrey Pietrucha helps coordinate the Vermont Liberty Alliance. She can be reached at vermontliberty@gmail.com.