Welfare Reform?

Suppose, for a moment, you are a small business. You employ six workers. You write a letter to your state’s economic development agency. You insist that that state refrain from taxing you andoffer you job training credits and an assortment of other bonuses. In return, you offer to hire two more people in addition to those currently in your employ. And you promise not to move your business to a neighboring state.

In all likelihood, the state agency would tell you to get lost.

Now change the scene and the scale. The Marriott corporation which generated nearly $26 billion in revenue last year recently announced that its corporate headquarters in Maryland would relocate to the state that offered it in the words of CEO Bill Marriott some “compelling financial reasons” to do so. Subsequently Virginia made an attractive subsidy offer and fostered what would soon become a bidding war between itself and Maryland.

Bill Marriott is a conservative, fervent free-enterprise advocate. He glorifies free enterprise in speeches made around the country. But he demands welfare for his hotel chain. And like the proverbial 800-pound gorilla, Bill gets what he wants.

State legislatures pressured by threats like Marriott’s often give away subsidies at the expense of middle-class taxpayers, without demanding a reciprocal investment from the corporation benefiting from their actions.

As William Skinner, president of the Maryland Taxpayers Association, wryly said: “We didn’t elect 188 legislators and all these county people to be venture capitalists.” He urged companies that receive public money to issue stock to state residents. “They have my address. Where are my shares?” he asked.

When big businesses receive subsidies like these, they gain a substantial competitive advantage over smaller businesses. Worse still, property tax exemptions, or equivalent credits, diminish the tax base that funds schools, police, fire fighting, and a host of other public services. In the case of Marriot, the corporation benefits from the very services that it does not help pay for.

Corporations like Marriot justify their refusal to meet their community obligations by insisting that the economic impact of their investments in the community invigorates it. But isn’t that true of other smaller businesses as well? What these big businesses are really saying is that sheer size and power demands privilege.

What are the possible remedies for this megabillion-dollar corporate welfare epidemic?

State governments should agree among themselves not to engage in such races to the bottom. And the national government should work to abolish such subsidies entirely.

Until that time, the public should initiate a constitutional challenge to tax inducements designed to lure companies across state lines. In an article by Prof. Tom Enrich of Northeastern University Law School that appeared in the December 1996 Harvard Law Review, Enrich argues that such actions violate the interstate commerce clause. It’s a sound argument, and one that activists need to pursue.

In the meantime, House Budget Committee chair John Kasich (R-Ohio) will hold hearings in Congress on corporate welfare in May the first of their kind. Send him your expressions of support. He’s going to need them.

Honorable John R. Kasich,
1111 Longworth House Office Building
Washington, D.C. 20515.