Welfare for the Rich

  • By Phil Harvey and Lisa Conyers
  • Post Hill Press
  • 320 pp.

The scope of corporate grift may be astonishing, say the authors of this informative work, but voters aren’t powerless to combat it.

Welfare for the Rich should attract attention — the book’s title itself as well as the exposé within. The subtitle, How Your Tax Dollars End Up in Millionaires’ Pockets — and What You Can Do About It, makes it clear what the authors set out to do. Covering farm support, tariffs, zoning, investment incentives, regulations, and lobbying, the book’s examples are designed to infuriate, and infuriate they do — even during a time when many of us have become numb to shocking news.

Some examples are so egregious they are hard to believe, which kept me reading and checking footnotes. For example, Penny Pritzker, billionaire and heiress, received over $1.6 million in subsidies for her farm properties between 1996 and 2006.

So, how did we get here?

The first chapter lays out how farm subsidies and supports introduced during the Great Depression have morphed into the current $867 billion farm bill — up from the previous $489 billion bill, which ended in 2018. According to the authors, “Ninety percent of farmland in America is covered under a farm program subsidy and most of the money goes to big farming operations.”

The top recipient, Alamo Freight Lines, “received over $5.6 million in 2014 alone, qualifying for subsidies because of farmland it leases in West Texas, even though its primary business doesn’t involve farming or farm property.” The authors point out that those in the top 1 percent in terms of farm income received an average of $1.5 million in annual farm subsidies in 2015.

Subsequent chapters highlight what one would hope are other unintended consequences of state subsidies and tax incentives. Many were designed to create more jobs. By comparing the number of jobs promised to the loss in tax revenue or subsidy provided, the authors make clear the lengths to which local governments will go to create a few jobs.

Clean Coal Power Options, for instance, promised to create 830 local jobs for $500 million in tax rebates in McCracken County, Kentucky. And Ector County, Texas, was promised 100 local jobs in return for $91 million in property tax abatements for a carbon-capture coal gasification plant.

The authors point out that the job argument is often just window dressing: The number of jobs actually created is usually lower than promised. The benefits accrue to the investors instead.

Understandably, local officials are particularly enamored with attracting high-tech or information-age industries, particularly Apple, Facebook, Google, and Amazon, even when it is clear they won’t create many jobs for area residents. Good examples in the book include:

  • The city of Waukee, Iowa, granted Apple a reduction in property taxes valued at $188 million, suggesting 50 jobs would be created (or $4 million per job).
  • Facebook received $150 million from Utah to build a data center outside of Provo, promising 50 jobs, or $3 million in tax subsidies for each job created.

There have been numerous studies that show tax giveaways to large corporations are not key to attracting investment and, as do the authors of this book, demonstrate that such largess primarily serves to increase the profits of the investor, often paid out to the executives — or the millionaires. Commenting on Amazon’s competition for incentives, which resulted in the choice of Crystal City, Virginia, for its second headquarters, the authors include this quote from a study by 200 economists and urban planners:

“Tax giveaways and business location incentives offered by local governments are often wasteful and counterproductive…Such incentives do not alter business location decisions as much as is often claimed…[and] they divert funds that could be put to better use underwriting public services such as schools, housing programs, job training, and transportation…This use of Amazon’s market power to extract incentives from local and state governments is rent-seeking and anticompetitive.”

If the implications aren’t clear enough, the authors detail some of the enormous budget losses states, cities, and counties end up absorbing through subsidies and tax breaks for little payoff. Louisiana, for example, provided tax breaks for fracking in an effort to help build its economy after Hurricane Katrina. Years later, when the tax break was no longer needed as an enticement and when the state government faced bankruptcy, the state increased its sales tax, making Louisiana residents among the mostly highly taxed consumers in the country.

The authors note that the “tax hike could have been avoided by rescinding the fracking tax rebate, an unneeded subsidy to the largest and most profitable industry in the state.” They summarize such costs succinctly:

“When states, cities, and counties use property-tax exemptions and outright public subsidies to woo high-tech businesses (or others), ordinary citizens suffer. The foregone taxes leave public service budgets short, eventually leading to the long-term hollowing-out of local economies. The results include devastated school budgets…neglected maintenance to parks and other civic infrastructure and other forms of public decline.”

The book’s uniformly negative take on subsidies may leave readers — especially analysts and skeptics — still hungry. As I read more and more examples, I often found myself asking, “What was the original reasoning for the incentive and why did it have unintended consequences?” and “Are skewed incentives more often the result of good intentions, however naïve, lobbying, or something else?”

The authors’ key judgments would have been strengthened by including some data analysis on not only the costs, but also some of the resulting benefits — as surely there must be some. Having grown up in Western Pennsylvania outside of former steel towns, I have witnessed firsthand what happens when investments are lacking. It would be good to know when the incentives targeted by the book have actually worked and under what conditions.

Welfare for the Rich does more than expose and infuriate, however. The last chapter, “Joining Forces and Fighting Back,” provides specific recommendations on what citizens can do and where to get the facts. It provides names and websites of organizations with data on local, state, and federal spending; summaries of ongoing efforts related to reforms targeting specific issues; and the names of a few influential and engaged think tanks.

In an age of renewed activism, these suggestions should be welcome. For that alone, the book is worth the read.

[Editor's note: This review originally ran in 2020.]

Linda Nemec is founder and CEO of Partner4Growth, a consulting company which works with local and regional governments to create smarter and more inclusive economic-growth strategies.

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