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Populism & and corporate welfare

By Tom Barry, The Progressive Response, Vol. 4, no. 35
8 September 2000

You cannot say that Al Gore is a slow learner. Seeing the positive public response (and poll numbers) generated by the populist messages of candidates John McCain, Bill Bradley, and Ralph Nader, the vice-president put campaign finance reform front and center of his campaign during his acceptance speech at the Democratic convention. He promised that a campaign finance bill will be the first legislation he submits to Congress, if elected. With his references to "the powerful forces" and "powerful interests" that undermine common welfare, the concerns raised by candidates McCain and Nader about big business have gained a place in the Gore assault on Bush. It's not an anti-business message he's giving voters, but one that targets the corporate titans that Americans love to hate: "Big tobacco, big oil, the big polluters, the pharmaceutical companies, the HMOs."

Political pundits applaud Gore for "staying on message." But it's time he also deepened that message about corporate greed and corporate control over the political process. Adopting McCain's campaign rhetoric about ending "corporate welfare" and Nader's long-running concerns about government serving corporate interests might be good places to start. He could demonstrate that he is serious by taking a stance against a proposed bill to expand a corporate tax break--called the Foreign Sales Corporation (FSC) exemption--that costs U.S. taxpayers at least $5 billion a year.

Tax loopholes and subsidies might not show up as burning issues among focus groups assembled by the Democratic Party, but Gore could bring the message home to Americans. He could point out that U.S. taxpayers are helping to fill the coffers of the companies that push cigarettes and weapons around the world. As an excellent report by Paul Magnusson in Business Week (Sept. 4) points out, in 1971 the Nixon administration concocted the FSC tax break for exporting corporations as a scheme to increase U.S. exports and thereby turn around America's new trade deficit. However, in a June 2000 report the Congressional Research Service concluded that "the long-run impact on the trade balance is probably nil." Although it doesn't reduce the deficit, the tax break means big money to exporters; Boeing, for example, saved $130 million in its 1998 taxes thanks to FSC exemption.

Fortunately, someone is hollering about this corporate giveaway, even if it's the newly proclaimed Republican and Democratic populists, or the American taxpayers. The European Union has taken aim at a U.S. foreign policy that privileges big business. Earlier this year it won a case against the FSC tax subsidy in the World Trade Organization (WTO), which declared it an illegal export subsidy. The tables were turned on Washington. For decades, it was the country that determined the rules of "free trade." Working through the WTO's new dispute settlement mechanism, the Europeans fought back in their own effort to help shape the new rules of the global economy.

Responding to the WTO verdict, the House Ways and Means Committee recommended that the FSC be abolished. At the same time, however, in a 34-1 vote the committee members proposed the creation of a new corporate welfare scheme that increases the tax benefits U.S. exporters now receive. The committee rejected a motion that tobacco companies be restricted from the tax break while the arms exporters will receive double the tax savings they currently enjoy.

Predictably, the EU has rejected this end-run around the WTO ruling and has threatened to impose a 100% tariff on $4 billion in American exports. This may happen as soon as October 1, 2000--the deadline set by the WTO for the U.S. to end the subsidy or face trade sanctions by aggrieved nations. Stuart Eizenstat, deputy secretary of Treasury, has warned that "a major trade war" will result if the EU were to impose these WTO-sanctions.

As the global economy becomes more integrated, and as the trading nations attempt to hammer out its rules, the inefficiencies and advantages that result from taxpayer-sponsored corporate welfare are certain to gain more attention in international trade talks. It's time that the U.S. government's practice of corporate welfare also become an issue for U.S. fair trade, labor, and consumer groups--and for "populist" Al Gore.