Here’s Another Way to Offset the Need for Budget Cuts: Cut Off the Welfare Corporate Queens

A New York Times investigation found that the number is even larger:

A Times investigation has examined and tallied thousands of local incentives granted nationwide and has found that states, counties and cities are giving up more than $80 billion each year to companies. The beneficiaries come from virtually every corner of the corporate world, encompassing oil and coal conglomerates, technology and entertainment companies, banks and big-box retail chains.

The cost of the awards is certainly far higher. A full accounting, The Times discovered, is not possible because the incentives are granted by thousands of government agencies and officials, and many do not know the value of all their awards.

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A portrait arises of mayors and governors who are desperate to create jobs, outmatched by multinational corporations and short on tools to fact-check what companies tell them. Many of the officials said they feared that companies would move jobs overseas if they did not get subsidies in the United States.

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For many communities, the payouts add up to a substantial chunk of their overall spending, the analysis found. Oklahoma and West Virginia give up amounts equal to about one-third of their budgets, and Maine allocates nearly a fifth.

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Nationwide, billions of dollars in incentives are being awarded as state governments face steep deficits. Last year alone, states cut public services and raised taxes by a collective $156 billion ….

But this isn’t just a state issue. As the Times notes, “20 percent of state and local budgets come from federal spending.”

The New Yorker continues:

More subtly, government boosts business profits via regulation. The most obvious example, perhaps, is the banking industry. The F.D.I.C. encourages people to deposit money in banks, and the biggest banks also benefit from the perception that the government will not allow them to fail, which enables them to borrow money at a low cost. Another leading beneficiary of regulation is the ethanol industry, a sacred cow of American politics. The government requires refiners to blend billions of gallons of ethanol into gasoline annually, and hands out an ethanol tax credit. As a result, forty per cent of corn acreage in the U.S. now goes to make ethanol. This jacks up food prices, since less corn is grown for feed and table, and the environmental benefit is dubious. But farmers and refiners benefit enormously, so the mandate stays in place.  [Treehugger notes that – as of 2007 – 76% of all federal renewable energy support went to ethanol.] Vested interests of this kind also explain why so many states have onerous licensing regulations; Florida says that you need six years of training and apprenticeship to become an interior designer. Such regulations, which have grown precipitously in recent decades, are catnip to incumbent businesses worried about competition.

Perhaps the biggest boon that the government offers business is the benefit of copyright and patent protection. As the [liberal] economist Dean Baker shows in his book “The End of Loser Liberalism,” patent protection is worth hundreds of billions of dollars a year to the drug industry alone. And while most of us would find it hard to imagine doing without copyrights and patents, that doesn’t justify the huge expansion of intellectual-property rights we’ve seen of late: the length of copyright has been expanded eleven times since 1962, and the range of things that can be patented has increased hugely, even in areas where, as [conservative, free market advocate] Judge Richard Posner recently argued, there’s little or no economic benefit to society.

Forbes’ Doug Bandow – a conservative from the Cato institute – notes:

Trillions In Subsidies to the Giant Banks Are Continuing to This Day

 

 

Preface: Bloomberg’s recent estimate that the big banks are subsidized to the tune of $83 billion dollars per year created tremendous controversy.  But – as shown below – the real number is many times larger.

Chris Whalen is one of America’s top banking analysts.

Well-known economist Nouriel Roubini notes:

Chris Whalen is one of the leading independent analysts of the US banking and financial system.

Whalen notes today that the big American banks get a subsidy in excess of $780 billion dollars per year.

Specifically, Whalen estimates the following types of subsidies to the giant banks:

• $360 billion in Federal Reserve subsidies, by creating an artificial “spread” in interest rates (Bloomberg, Business Insider, Huffington Post, and many other publications have documented that the government is subsidizing big banks with artificial and guaranteed “spreads”, where the banks borrow cheaper than any consumer can, and then lend the money back to the government at much higher interest rates.)

• $120 billion in federal deposit insurance (through the FDIC, backed by the Treasury)

• At least $100 billion in government-guaranteed loans, especially mortgages

• At least $100 billion in monopolistic advantages in the secondary market for home mortgages. Specifically, the government subsidies the big banks to steal away fees earned from smaller banks, gain on sale into the TBA market and servicing. Whalen quotes a veteran banker explaining:

The smaller players lived on the bleeding edge of the mortgage market, but they were also far more efficient lenders than the large banks. Now, care of the Fed, we have a highly inefficient oligopoly in the US mortgage market that is built around the largest banks.

• More than $100 billion in fees in the over-the-counter (OTC) derivative market. Whalen explains

The lack of capital required in these transactions and other special dispensations from the Fed provide the zombie banks with unlimited leverage and almost no public scrutiny. The fact that OTC contracts are exempt from the automatic stay in bankruptcy is a huge subsidy. The bilateral market structure is another.

That totals $780 billion per year.

But Whalen notes that there are many other subsidies as well:

The above points are only a partial list of the subsidies and other flows that allow the members of the banking industry to pretend to be profitable, risk-taking organizations in a free market economy.

The bailouts of the big banks amount to trillions of dollars, are never-ending … and continue to this day. (Indeed, the government is arguably paying trillions of dollars more in unnecessary interest paymentsjust to have the banks “create” money, instead of creating it itself … as the Founding Fathers may have envisioned.)

Whalen notes that the big banks are not really profitable:

[These are] structural subsidies blessed by Congress and the Fed that make large banks look more profitable than they truly are. In fact, the TBTF banks are not really profitable at all.

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The reality, sad to say, is that banks in 21st Century America are government sponsored enterprises ….

Indeed, they are government sponsored enterprises where all of the profits are privatized, and all of the losses socialized.

And the big banks are not helping – but are rather destroying – the economy. Indeed, failing to break up the big banks – and the malignant, symbiotic relationship between D.C. politicians and the banking giants – is destroying our country.

 

 

We’ve previously documented that even top nuclear executives admit that nuclear energy is expensive, and only survives due to massive government subsidies.

Time noted in 2008:

Lovins [a veteran energy expert and chairman of the Rocky Mountain Institute] notes that the U.S. nuclear industry has received $100 billion in government subsidiesover the past half-century, and that federal subsidies now worth up to $13 billion a plant — roughly how much it now costs to build one — still haven’t encouraged private industry to back the atomic revival. At the same time, the price of building a plant — all that concrete and steel — has risen dramatically in recent years, while the nuclear workforce has aged and shrunk. Nuclear supporters like Moore who argue that atomic plants are much cheaper than renewables tend to forget the sky-high capital costs, not to mention the huge liability risk of an accident ….

The conservative Cato Institute reported in 2003:

With federal government spending through the roof and projected deficits setting new records every day, it is perhaps surprising that the Bush administration and Congress want to use billions of taxpayer dollars to single-handedly resurrect the moribund nuclear industry. Old habits, however, die hard. The federal government has always maintained a unique public-private partnership with the nuclear industry, wherein the costs of nuclear power are shared by the public but the profits are enjoyed privately. [crony capitalism, anyone?]

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A recent report by Scully Capital Services, an investment banking and financial services firm, commissioned by the Department of Energy (DOE), highlighted three federal subsidies and regulations — termed “show stoppers” — without which the industry would grind to a halt. These “show stoppers” include the Price Anderson Act, which limits the liability of the nuclear industry in case of a serious nuclear accident — leaving taxpayers on the hook for potentially hundreds of billions in compensation costs; federal disposal of nuclear waste in a permanent repository, which will save the industry billions at taxpayer expense; and licensing regulations, wherein the report recommends that the Nuclear Regulatory Commission further grease the skids of its quasi-judicial licensing process to preclude successful interventions from opponents. But even these long-standing subsidies are not enough to convince investors, who for decades have treated nuclear power as the pariah of the energy industry.

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The most egregious proposal in the energy bill has the federal government providing loan guarantees covering 50 percent of the cost of building 8,400 Megawatts of new nuclear power, the equivalent of six or seven new power plants. The Congressional Research Service estimated that these loan guarantees alone would cost taxpayers $14 to $16 billion. The Congressional Budget Office believes “the risk of default on such a loan guarantee to be very high — well above 50 percent. The key factor accounting for the risk is that we expect that the plant would be uneconomic to operate because of its high construction costs, relative to other electricity generation sources.” But that’s not all. The bill also authorizes the federal government to enter into power purchase agreements wherein the federal government would buy back power from the newly built plants — potentially at above market rates.

Keeping this provision in the energy bill will result in a double taxation: once to build the plants and then to buy back the power from the newly built plants. This would be like paying for your kids’ education and then agreeing to pay them a salary once they graduate.

The Union of Concerned Scientists pointed out in 2010:

The nuclear power industry is seeking tens of billions in new subsidies and other incentives in federal climate and energy legislation that would shift massive construction, financing, operating and regulatory costs and risks from the industry and its financial backers to U.S. taxpayers.  Congress should reject these overly generous subsidies to this mature industry whose history of skyrocketing costs and construction overruns already has resulted in two costly bailouts by taxpayers and captive ratepayers—once in the 1970s and 1980s when utilities cancelled or abandoned more than 100 plants, and again in the 1990s when plant owners offloaded their “stranded costs.” [The “stranded costs” totaled more than the entire Saving and Loan scandal.]

Too late …

Beyond Nuclear reports:

In 2005, the Energy Policy Act provided another $13 billion of subsidies, tax incentives and other support for the nuclear power industry. It also created the energy loan guarantee program.

In December 2007, Congress and George W. Bush approved $20.5 billion in nuclear loan guarantees under this program ($18.5 billion for new atomic reactors, $2 billion for new uranium enrichment facilities).

During the week of May 25, 2009, the US House approved a “Clean Energy Bank” that would include nuclear power loans, loan guarantees, and other subsidies.

Physicians for Social Responsibility – which won the Nobel Peace Price – noted that – as of 2010 – nuclear companies received tens of billions of dollars in new subsidies, including:

Research and Development

• Generation IV program to develop new reactor designs

• Research and development of radioactive waste reprocessing and transmutation technologies

• Investment in human resources and infrastructure in the nuclear sciences and engineering fields through fellowships and visiting scientist programs; student training programs; collaborative research with industry, national laboratories, and universities; upgrading and sharing of research reactors; and technical assistance

Licensing

• Nuclear Power 2010, a taxpayer-industry cost-share program to fund Nuclear Regulatory Commission licensing of new reactors, as well as the certification of Generation 3.5 reactor designs

• One-step construction and operation license application process that limits public participation

Construction subsidies ~ $3.25 billion + $18.5 billion in loan guarantees

• $18.5 billion in loan guarantees for new reactors. According to the Congressional Budget Office, the default rate is “very high – well above 50 percent.”

• Authorization of $2 billion in “risk insurance” to pay the industry for any delays in construction and operation licensing for 6 new reactors, including delays due to the Nuclear Regulatory Commission or litigation. The payments would include interest on loans and the difference between the market price and the contractual price of power.

• Authorization of more than $1.25 billion for a nuclear reactor in Idaho to generate hydrogen fuel

Operating subsidies ~ $5.7 billion + Limited Liability

• Reauthorization of the Price-Anderson Act, extending the industry’s liability cap to cover new nuclear power plants built in the next 20 years

• Incentives for “modular” reactor designs (such as the pebble bed reactor, which has never been built anywhere in the world) by allowing a combination of smaller reactors to be considered one unit, thus lowering the amount that the nuclear operator is responsible to pay under Price-Anderson

• Production tax credits of 1.8-cent for each kilowatt-hour up to 6,000 megawatts of nuclear-generated electricity from new reactors during the first 8 years of operation, costing $5.7 billion in revenue losses to the U.S. Treasury through 2025

Radioactive waste subsidies ~ $22 billion thus far + guaranteed waste removal

• DOE-utility contracts guaranteeing that the nuclear waste will be removed from the site within 10 year of shutdown or the US taxpayer pays for spend fuel storage costs

• One mil (one-tenth of one cent) per kilowatt-hour paid by ratepayers receiving electricity from nuclear reactors to pay for a geologic repository for the spent fuel; the Nuclear Waste Fund currently has $22 billion

Shut-down subsidies ~ $1.3 billion

• Changes the rules for nuclear decommissioning funds that are to be used to clean up closed nuclear plant sites by repealing the cost of service requirement for contributions to a fund and allowing the transfer of pre-1984 decommissioning costs to a qualified fund, costing taxpayers $1.3 billion

The government has paid out substantial sums in new subsidies – including loan guarantees – for expensive new reactors at Vogtle.  The reactors are already way over budget … and are plagued bySolyndra-like issues of cronyism, secretive non-disclosure, and mismanagement.

Moreover, the American government has been wholly subsidizing the nuclear industry for decades through its concerted campaign to hide the dangers of radiation …  and to cover up the number and scope of accidents.  That’s a subsidy worth … as much as all nuclear profits ever.  In other words, trillions.

And politicians – including Obama – are also subsidizing the American nuclear industry by lobbying foreign countries like India to impose American-style government insurance for their reactors.

And perhaps the biggest taxpayer subsidy of all is that nation our nation could spend trillions – or go bankrupt – in the likely event of a major nuclear accident (and see this.)

The bottom line is that if we want to reduce the debt, we should stop all nuclear subsidies.

Important Note:  Claims that nuclear is good for the environment and reduces climate change areentirely false claims pushed by the nuclear lobby.

 

 

By WashingtonsBlog