Balanced Budget May Hinge on Subsidy Cuts

As the White House and GOP congressional leaders get down to hard bargaining on how to cut taxes and balance the federal budget, calls are growing for attacking government subsidies and tax loopholes for big business.

Advocates in both major parties, backed by liberal and conservative public-policy groups, say the cuts in public welfare enacted last year should be balanced with reductions in so-called "corporate welfare."

While lawmakers on both sides of the aisle have debated the issue for nearly a decade, this year it could be tough for big business to avoid cuts in everything from loan guarantees to farm subsidies. Balancing the budget may depend on these cuts.

"What is driving this is that there needs to be some equity," says Sen. Russell Feingold (D) of Wisconsin, a strong advocate of cracking down on corporate subsidies and tax advantages. House Budget Committee chairman John Kasich (R) of Ohio agrees: "I believe the genie is out of the bottle. I don't believe it is possible for this issue to go away."

In a sign that message is beginning to spread, President Clinton is proposing in the fiscal 1998 budget he unveiled last week to close corporate tax loopholes worth $33.8 billion over five years.

But while support for such ideas is growing, they still face entrenched opposition in a Congress flush with campaign donations from big corporations and their lobbyists. Moreover, many Republicans and some Democrats contend that many subsidies help create jobs or save money, while closing tax loopholes is tantamount to increasing taxes.

Advocates say the White House and GOP leaders will have no choice but to go after corporate tax escapes and subsidies. Mr. Clinton is seeking higher spending than the Republicans want; Republicans are advocating greater tax cuts than Clinton is proposing. The sides may have to look to corporate welfare for the savings they need to reach a compromise on their goal of balancing the budget by 2002.

"This is the last large pot of resources left to achieve a budget balance," says Robert Shapiro of the Progressive Policy Institute (PPI), a Washington think tank with ties to the Democratic Party and a leading advocate of ending business subsidies and tax loopholes. "I think the two sides are about $100 billion apart right now. That's $100 billion over five years. I think it may be safe to say that maybe half could come out of corporate welfare."

Studies by the PPI and the Cato Institute, a libertarian think tank, estimate that the federal government spends about $60 billion a year on corporate subsidies, ranging from helping American firms advertise abroad to providing loans to rural utilities and charging below-market rates for goods and services. The studies put big business tax loopholes at $30 billion annually.

Others say the figures are higher. The Progressive Caucus, a group of 49 liberal House members, pegs "corporate welfare" programs at $125 billion a year. It advocates a plan that would reduce those programs by $570.8 billion over five years.

But such attacks have made little headway. Former Secretary of Labor Robert Reich began advocating the idea after the GOP captured Congress in 1994, but he received little support from his Cabinet colleagues or Capitol Hill. A bill targeting a "dirty dozen" corporate subsidies offered by Mr. Kasich was easily defeated last year.

A renewed effort was launched with Kasich's blessings on Jan. 28 by Stop Corporate Welfare, a bipartisan coalition of lawmakers and public advocacy groups. It released a new "hit list" of 12 corporate subsidy programs whose elimination would save $11.5 billion over five years.

The list includes funding for energy development, foreign advertising by food processors, water supplies for Colorado farmers, and loan guarantees to firms investing overseas. But the list was noticeable for what it did not contain. Absent were any major agricultural subsidies, corporate tax loopholes, or defense programs, including one that helps contractors cover the costs of mergers.

Part of the problem is deciding precisely what programs constitute corporate welfare. Furthermore, some experts agree that certain subsidies and corporate tax breaks generate considerable benefits for the public, such as jobs, lower costs for consumer goods, and savings for the government. The problem, they say, is determining those that unfairly favor a single company or corporate sector without producing any public benefits. Then there is the problem of overcoming corporate influence that protects those programs.

In an attempt to tackle both problems, a bipartisan group of lawmakers led by Mr. Feingold and Sen. John McCain (R) of Arizona is pushing a bill to create an independent commission to identify corporate subsidies and tax loopholes requiring reform or elimination. As it did with military base closures, Congress would have to approve or reject the list as a whole.

Interest in the bill appears to be building. Sen. Fred Thompson (R) of Tennessee announced late last week that he would hold a hearing this Thursday on the proposal.