Welfare Cuts: Now, It's Corporate America's Turn

First, kids in the school lunch program took a hit. Then, welfare moms. Now, CEOs who have been demanding that Congress slash government spending may fall victim to their own rhetoric. Democrats and Republicans alike are about to take aim at some of the tens of billions of dollars in aid business receives each year in tax breaks and direct subsidies. And as tough as that may be on many companies, it's about time.

The White House got into the act on Mar. 28, when it proposed eliminating some Small Business Administration subsidies. And with many polls registering public opposition to Republican attacks on programs for the poor and middle class, the GOP-dominated Congress soon will follow. In early April, the House plans to take up a bill both to cut taxes by $189 billion and to pay for the reductions by capping a large chunk of future outlays. As part of that effort, Budget Committee Chairman John R. Kasich (R-Ohio) has recommended trimming nearly $10 billion in "corporate welfare"--including spending on the Export Administration, the Travel & Tourism Administration, and energy research.

ATTITUDE ADJUSTMENT. In the Senate, Finance Committee Chairman Bob Packwood (R-Ore.) predicts his panel may slash business tax breaks to reduce the deficit or pay for other tax cuts. His comments signal a major departure from the Republicans' promise to oppose such "loophole closers." Moreover, Senate resistance is building to the House's business tax cuts.

Like it or not, GOP lawmakers just about have to clip corporate goodies if they're serious about balancing the budget. Without such cuts, Republicans will have the worst of all worlds: They'll fail to control spending, and then they'll have to explain to voters why they targeted poor children but not wealthy corporations. "It does present a public-relations problem," says Stephen Moore, director of fiscal policy studies at the libertarian Cato Institute.

But cutting corporate benefits will have more than symbolic value. Cato figures that the federal government will spend $86 billion this year on programs ranging from promoting exports for Boeing Co. to providing inexpensive grazing land for cattle ranchers. Such government interference distorts markets and promotes established businesses over more creative startups with fewer political connections. Argues Labor Secretary Robert B. Reich: "There is an efficiency loss from promoting one company or industry at the expense of another." Plus, Cypress Semiconductor Corp. CEO T.J. Rogers says: "You do nothing but hurt the economy by propping up ailing companies."

ON THE BLOCK. The biggest budget savings still must come from entitlements such as Social Security, Medicare, and Medicaid. But the rest of the budget--so-called discretionary programs such as foreign aid, environmental protection, housing, export promotion, and the like--already is on the block. After protecting the Pentagon, the House GOP hopes to spend just $252 billion for all other discretionary programs in 2000, nearly 10% less than this year. That makes corporate subsidies a huge target.

The attack on business bennies is gaining support among thinkers across the political spectrum. Cato has a hit list. So does the moderate Democratic Progressive Policy Institute, which wants to cut $231 billion over five years in both direct spending and tax subsidies. And the conservative National Taxpayers Union has joined forces with the environmental group Friends of the Earth to recommend cutting $33 billion in special benefits for miners, ranchers, and utilities. "A subsidy is a subsidy is a subsidy," says lobbyist Jill Lancelot of the NTU, which supports deep cuts in both taxes and spending.

Business lobbyists, predictably, are gearing up to fight back. Says Packwood: "The problem is every group is convinced that they are not the problem." But in a climate of deep spending cuts, it's only fair that business--no less than welfare moms--be weaned off of subsidies. Besides, opening the market to greater competition rarely is a bad idea.

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