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Uncle Sam Is the Real Santa Claus to the Well Connected

As the nation ends the gift-giving season, Congress, in its $1.4 trillion 2020 fiscal year appropriation gave billions to distilleries, race-horses, Nascar owners, short-line railroad, biodiesel blenders and other favored industries.

Should Congress consistently give billions of our hard-earned dollars to private entities?

While common sense says NO, it is unfortunate that Congress fails the common-sense test.

The issue of Congress giving away our money to private entities has been debated since the founding of the Republic. Opponents of this giving argue taxpayer money can only be spent on matters enumerated in the Constitution. Government asserts it can spend it on anything that is for the general welfare.

Continuing this debate may seem irrelevant since the courts have made it clear legislatures determine what is general welfare. Such a broad interpretation of governments’ ability to tax and spend has resulted in a massive increase in the national debt and a huge expansion of government. The federal government gives grants, loans, tax credits, tax deferments and guarantees risk to incentivize certain activities. State and local governments provide property tax relief, tax abatements, low interest bonds and outright grants, usually to attract business to an area.

Examples abound at the federal level:

–  $16 billion in farm aid to offset losses from tariffs on China. The top 10% of farmers received 70% of the subsidies; Up to a $7,500 tax break for purchasers of the first 200,000 electric vehicles produced by an auto manufacturer;

–  Oil and gas industries receive $20 billion in annual subsidies;

–  Tax deferment on capital gains from Opportunity Zone investment which was to go to poor areas but is a boon to rich areas, e.g. high-end apartments with yoga lawns and pools surrounded by cabanas and daybeds;

–  The prescription drug industry benefited from $64 billion in federal research funding; and

–  Flood insurance subsidies promote building high-end housing in flood prone areas. This insurance program is potentially liable for $1.24 trillion in claims while only collecting $3.5 billion in annual premiums. The program is already over $25 billion in losses that taxpayers will have to pay.

Presently the U.S. carries over $23 trillion in national debt and could be on the hook for over $200 trillion in unfunded liabilities. Yet government continues to give away billions to private entities.

 While there is almost no limit to governments’ power to give away taxpayers’ money, there are historical precedents for limiting such gifts. In the mid-1800s, many municipalities and states used public funds to purchase stock in railroads being built across the continent. Many government entities were swindled out of large amounts of money. To prevent future losses, forty-six states enacted constitutional limitations preventing gifts to private entities. These restrictions were called “gift clauses” or “anti-donation” clauses or simply “government gift-prohibitions.”

The government gift-prohibition policies barred state and local governments from giving or loaning public funds to private corporations or associations for private undertakings. Initially, these provisions stopped government speculation with taxpayer money. Over time, however, the courts defined public welfare to be anything that has a “public purpose.” Fitting within this definition is almost every type of government project conceived by a legislature, e.g. parking lots, sports facilities, corporate rent subsidies, politically favored forms of energy. Taxpayer money just flows, and the courts find it legal, based on legislated appropriations.

More troubling is that government gives taxpayer money to the largest and most profitable corporations in the world. The Good Jobs First report traccks the one hundred largest companies receiving government gifts (federal, state, local). First on the list is Boeing at $14.9 billion; number two is General Motors at $6.9 billion and number three is Intel at $6 billion. Most companies on the list are in energy, transportation or technology.

These large corporations persuaded our government that a tax cut would spur investment in new business and equipment. These corporations however, spent three times as much on additional dividends and stock buybacks than they invested in their businesses.

Action

We the people need to clearly re-enact the wise policies of the mid-1800s and demand all candidates running for office take a government gift-prohibitions pledge:

I pledge that, if elected, I will serve as a fiduciary of public money and will not vote to give, grant, or loan public funds or extend the credit of the public to any private corporation, association, or private undertaking.

By asking every candidate for public office to take this pledge, citizens can identify candidates willing to protect taxpayers. If the pledge is broken, the public will quickly know who is not trustworthy. The entire effort becomes self-policing by citizens.

It’s a modest proposal, but it is a start!

 

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