Story originally printed in the Winona Daily News or online at www.winonadailynews.com
Published - Monday, April 28, 2008
Corporate welfare, Winona style
Winona City Council’s consideration of a request for Tax Increment Financing to help the developer build the 42-unit cooperative housing project Applewood Pointe raises the question of when and under what conditions government should provide the means for making the ventures of private businesses profitable.
United Properties, one of Minnesota’s largest developers, will receive public money in the amount of approximately “$489,000 in construction costs, including land acquisition and improvements to the building site,” according to a March 31 news report in the Winona Daily News.
What justifies using money received from taxpayers to make a private corporation’s business venture profitable? The argument is that the Applewood Pointe complex will provide for Winona more much-needed housing suitable for seniors who want to be free of the snow shoveling, lawn mowing and other maintenance requirements of single-family home ownership. Since the land on which the facility would be built is currently owned by a church organization that does not pay property taxes, the development would add to the tax base. Another developer, who did not seek TIF money, had to abandon the project allegedly because it would not have been a good business venture in the absence of a public subsidy.
Using public funding to make this private business venture profitable would be only a tiny example in terms of dollars of a practice that has been called “corporate welfare.” The council’s deliberations come shortly after publication of journalist David Cay Johnston’s new book, “Free Lunch: How the Wealthiest Americans Enrich Themselves at Government Expense (and Stick You with the Bill).”
As the subtitle indicates, government, especially at the federal level, through direct subsidies or elimination or nonenforcement of regulations, has used millions, and sometimes even billions, of tax dollars, collected from you and me, to enable the business ventures of the wealthiest Americans and largest corporations to be unbelievably profitable.
Consider four examples that Johnston documents in detail. When corporate executives use company jet airplanes for personal trips, they do not reimburse their employers. The corporation deducts the costs of purchasing, operating and maintaining the planes as a business expense. The costs of the personal trips are treated as a taxable fringe benefit, like the personal use of a company car. The executive pays pennies on the dollars of the real cost of his personal travel, in the form of higher income tax. The balance is effectively covered by taxes collected from the rest of us, and by those of us who have invested a portion of our retirement savings in his company.
Minnesota-based United Health Group went even further in benefits it gave its former chief executive, William McGuire. Their board of directors agreed to pay his taxes on personal use of corporate jets. Additionally, they agreed to his demands for stock options equal to 2 percent of the value of the company, and a guarantee of continued employment whether he did his job well or poorly. When he was subsequently fired, they had to agree to an exorbitant severance buyout of his contract. United Health Group insures about one out of every six insured Americans, most of them older and on Medicare. Effectively, the insured, United’s stockholders and taxpayers are paying for this billionaire’s lavish retirement life.
Famous investor Warren Buffet has been named the world’s richest person. But much of his wealth was made possible by special tax favors. For example, his MidAmerican Energy Co. paid only 4 percent of its American profits in federal corporate income taxes in 2006, while most middle-income Americans were paying several times that percentage. Buffet was able to do this as a result of laws that enable corporations to defer payment of taxes. MidAmerican deferred $666 million dollars in tax payments in 2007. By 2035, it will have paid only half of that amount. Being allowed to defer tax payments is like getting an interest-free loan from the government, or in other words from other taxpayers.
Wouldn’t you like to have an interest-free mortgage that allowed you to pay only the principle, and most of that only several years from now?
And there are the state and local subsidies for building stadiums given to billionaire professional sports franchise owners who sign multi-million-dollar contracts with athletes. George W. Bush and his group of wealthy investors, who could easily have afforded to build a new stadium, persuaded Arlington voters to approve a half-cent increase in the sales tax to finance the development of the facility and an array of hotels, restaurants, shopping malls and entertainment complexes surrounding it. Then to get 200 acres they wanted, they used eminent domain, which usually results in owners being paid less than market value for their land. Bush and his group eventually bought the stadium for less than a third of what it cost the public to build it.
All of this feeding of the rich at the public trough has contributed to the growing disparity of wealth between the rich and the rest of us. From government tax data, Johnston has determined that the top tenth of 1 percent of Americans ranked by wealth — about 300,000 people — had nearly as much reported income in 2005 as the 150 million Americans who make up the economic lower half of our population. The average annual income of the “vast majority” (270 million) of us actually decreased 3 percent between 1975 and 2005, while the figure for the richest 1 percent increased 209 percent, and for the “superrich” (1/100th of the top 1 percent) it rose by 650 percent during that period.
When President Reagan was inaugurated in 1980, the top tax rate was 70 percent of taxable income. During this period of phenomenal growth in disparity between the incomes of the richest and most of the rest of us since then, the top tax rate has been cut in half, to 35 percent.
The city council’s decision to subsidize United Properties’ Applewood Pointe meant considering whether the consequential increase in the tax burden on Winonans, or resultant limiting of public services, justifies the benefits of increasing the housing stock suitable for seniors.
Stewart Shaw is a former Winona State University registrar who is getting a second education in retirement. He also volunteers for several local organizations.
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