Wealthfare--the money we hand out to corporations and wealthy individuals--costs us at least $448 billion a year. Let's put that number into perspective:
- The federal deficit--the amount the government's expenditures exceed its revenues--is now running about $117 billion a year (all figures on this page are for fiscal 1996). So we could wipe out the entire deficit simply by cutting wealthfare by about 26%.
- Welfare for the rich costs us about 3!/$ times as much as the $130 billion we spend each year on welfare for the poor--an amount the 1996 welfare "reform" bill will reduce significantly. (For details on the programs that make up welfare for the poor, see the appendix that starts on page 157.)
- The federal budget's discretionary spending--in other words, not counting entitlement trust funds like Social Security and Medicare--is $1.23 trillion. So three years of wealthfare costs us more than it does to run the government for a year.
- The federal debt, which has been accumulating since 1789, is now about $5.1 trillion. So just 11!/< years of welfare for the rich equals more than 200 years of deficit spending by the whole federal government.
For a summary of what goes into that $448-billion wealthfare figure, turn back one page to the table of contents, where we list the estimated annual cost of the various subsidies, handouts, tax breaks, loopholes, rip-offs and scams this book describes.
We've calculated these amounts as precisely as possible, but since they change every year--and since data is often hard to obtain--they're inevitably estimates. But you could cut them all by 75% and welfare for the rich would still cost almost as much each year as the federal deficit.
We're not saying that $448-billion figure is an overestimate--if anything, it's an underestimate. Time and space limitations forced us to leave out many major categories of wealthfare.
Most of these could be books in themselves: state and local wealthfare (as opposed to federal), the easy treatment given white-collar criminals, Medicare waste and fraud, automobile subsidies, the effects of Federal Reserve policies, the NAFTA and GATT treaties, foreign aid, deregulation of various industries, fraudulent charitable deductions, and on and on.
We discuss some of them in the chapter called What we've left out, which begins on page 115. (Only the Pentagon chapter is longer, which gives you an idea of how much wealthfare isn't included in our estimate.)
Even within categories we do cite figures for, there are often additional wealthfare expenses we haven't been able to nail down. So, in our view, $448 billion greatly understates the amount of money American taxpayers spend each year on welfare for the rich.
Stealing from the poor
Before we go on, we'd like to make something clear. We're not saying there's anything wrong with being rich, in and of itself. Many wealthy people earned their money by producing a product or service the public liked and wanted to buy, or by helping a company do that. The Grateful Dead are a good example--their concerts became so popular that they had to run lotteries to decide who got to buy tickets.Now, speaking personally, we don't think people should inherit fortunes while others spend their whole lives scrambling to get by. We also think that, as long as anybody in the world is starving, there should be an upper limit on how much money any one person can have. But this book isn't about those issues.
All this book says is that it's not fair for people to get rich--and stay rich--by defrauding people who are poorer than they are. As you'll soon see, stealing from the poor--actually, from anybody who isn't rich--has become standard operating procedure in this country. In fact, the US government today functions mostly as a huge Robin-Hood-in-reverse. But doesn't it help the economy? It's sometimes argued that corporate welfare benefits society as a whole, by recirculating money back into the economy. Of course, that's also true of welfare for the poor, which benefits landlords, supermarkets, variety stores, etc.
What's more, a lot of welfare programs pay for themselves many times over in future savings on health care, prisons and welfare payments. (Head Start is a perfect example-- according to conservative estimates, $1 invested in Head Start saves $3 in future costs to society.)
Corporate welfare, on the other hand, tends to finance industries that pollute our air, water and soil, so we end up paying for them twice--with our money and with our health. Subsidizing certain businesses or industries is not only unfair to competitors who aren't subsidized, but it also stifles the incentive of the subsidized businesses to innovate and to develop new products, which ultimately makes them less competitive.
Welfare for the rich fosters corruption, both in business and in government. And it's not uncommon for two wealthfare programs to conflict--as when the Interior Department subsidizes irrigation water for agribusinesses and the Agriculture Department pays those same companies not to grow crops with that water. (What do the companies do? Why, sell the water back to local governments at a profit, of course. What else?)
It's not as if the money currently used for wealthfare would suddenly evaporate if we weren't handing it over to the rich. It could go into the economy some other way, and would almost certainly have a more beneficial effect. (For more on this, see the section called What about the jobs we'd lose? It starts on p. 25, in the chapter on military waste and fraud.)
There's one final cost to all this wealthfare chicanery. The creative talents of a lot of very bright lawyers, accountants and financial advisors are spent figuring out how to squeeze the maximum benefit out of our labyrinthine tax code. If they weren't wasting their time on that, they could be doing something genuinely useful, which would make the economy more productive for all of us.
Who gets taxed?
Back in the 1950s, US corporations paid 31% of the federal government's general revenues. Today, they pay just 15%. If businesses paid taxes at the same rate they did 40 years ago, the federal deficit would disappear overnight--and that's without eliminating a single direct subsidy or handout.It's easy for "fiscally responsible" candidates to achieve their dearest goal, balancing the budget. All they have to do is get corporations to pay as much in taxes as they did when what was good for General Motors was good for the country.
Taxes that corporations don't pay have to be raised by taxing individuals. Not by taxing all individuals indiscriminately, of course--that would be un-American. A series of tax "reforms" that began in 1977 have cut the rate paid by the richest Americans nearly in half, while Social Security taxes--which are paid overwhelmingly by ordinary wage earners (and not paid at all on income over $62,700)--have steadily risen.
The rich get richer
Not surprisingly, these tax changes have contributed to a widening gap between rich and poor. Between 1983 and 1989, 99% of the increase in Americans' wealth went to the top 20% of the population, and 62% of it went to the top 1% of the population (currently made up of families whose net worth is $2.35 million or more). Income disparity in the United States is now the widest it's been since the crash of 1929, and it continues to grow.The total net worth of that top 1% is now equal to the total net worth of the bottom 90% of the population! In other words, the 2.7 million Americans who are worth $2.35 million or more have as much money as the 240 million Americans who are worth $346,000 or less.
Wherever you look on the economic ladder, the rich are getting richer. The wealth of the top 20% has increased while the wealth of the bottom 80% has decreased. Within that top 20%, the top 5% have gotten richer than the bottom 15%. Within that top 5%, the top 1% have gotten richer than the bottom 4%. Within that top 1%, the top !/>% have gotten richer than the bottom #/>%.
And so it goes, right up to the 400 wealthiest Americans. In the eight years from 1980 to 1987, their average net worth tripled.
Now, we hate paying taxes as much as anybody else, and we're certainly not fans of the IRS. But since corporations and wealthy individuals derive most of the benefit from what the government does, we think they should at least pay their fair share of taxes. They're always blathering on about free enterprise--a mythical system they wouldn't survive in for five minutes if it did exist--so let's assume they mean what they say, and take them off the dole.
Handouts vs. loopholes
Welfare for the rich takes two basic forms--direct subsidies and tax breaks. The latter are more insidious, for two reasons. Unlike subsidies, which typically have to be appropriated by Congress and signed into law by the president each year, tax breaks usually get little scrutiny, and they last until they're repealed by some future tax law.Subsidies are usually for fixed amounts of money, while the amount the government loses on a loophole depends on how many taxpayers take advantage of it each year, and to what extent. This means tax breaks are basically open-ended--there's no way the government can control, or even accurately predict, what they're going to cost. (Despite these differences, we've lumped subsidies and tax breaks together in each chapter.)
How this book is organized
We've started with the biggest wealthfare and worked our way down to the smallest (which isn't all that small). That way, if you don't make it all the way through the book, you'll still have covered the most important rip-offs and scams. (But then you'll miss some of the most extraordinary ones; for an example, see the section on horse write-offs, which begins on page 118.)Even in election years, few politicians pay more than lip service to ending corporate welfare (this isn't surprising, considering who finances their campaigns). Current plans to balance the federal budget by 2002 propose cuts to social welfare programs ten times larger than the cuts proposed for corporate welfare.
Though some politicians seem to be working sincerely to limit welfare for the rich, it would be foolish to depend on them. Fortunately, there are plenty of ways ordinary citizens can force changes. For some ideas on how to start, see the chapter entitled What you can do about all this (p. 129).
If you run across terms you're not sure of--median, say, or constant dollars, or general fund revenues--consult the glossary that begins on p. 146. (It can also help you appreciate the full significance of terms you do know the meaning of, like billion and trillion.)
If you think something we're saying just can't be true--a reaction we've had several times ourselves--you'll find backup for it in Where we got our facts (p. 162).
If you still have the stomach for more tales of greed and corruption, check out Recommended reading (p. 140) and Other books in the Real Story series (p. 192).
And now--into the mire.