Question

Welfare Reform? What About “Wealthfare” Reform?

In 1992, a key part of the Clinton election platform was a promise to revamp welfare. By 1996, this was accomplished with the passage of the “Welfare Reform Act” that established a five-year maximum for welfare eligibility, replaced Aid For Dependent Children (AFDC) with Temporary Assistance to Needy Families (TANF), and ended welfare’s entitlement status and instead made it a grant-funded program administered by the individual states.

But little effort has been made to address corporate welfare, which critics call “wealthfare.” This concept refers to tax rebates or other types of tax forgiveness by which state and local government lure large companies to establish local factories. The problem, as they see it, is that tax rebates to a corporations lead to higher taxes for others or lower government revenues causing cutbacks in essential services. To date, cooperative efforts among states to stop the war of economic incentives to attract corporations have not been effective.

Critics of “wealthfare” have tried to reform this program in various ways. One possibility is to convince state and local governments to stop offering tax relief. But the promise of new jobs and eventual tax revenue, as local politicians see it, is too good to pass up. Another possibility would be having the federal government tax whatever benefit a state or local government provided. So far nothing like this has been done.

Discussion Questions:

1. Corporations argue that corporate welfare is motivated by sound economics. Critics of large corporations see the policy as unfair public support of those who need it least. What do you think?

2. Why do you think corporate welfare has continued at the same time that individual welfare programs experienced a dramatic revision?

Answer 1

(1): I believe that corporate welfare is indeed motivated by sound economics and that by providing tax rebates and other forms of concessions to corporates a significant quantum of benefits will be created in the long run that will be positive for all involved stakeholders be it the companies, the government, the employees or the consumers. When corporate welfare is provided, let’s say in the form of tax rebates, then companies will certainly have an incentive to set up local factories. This will increase the level of economic activity in the region and later on this will have a positive rub on effect on the overall economic activity level in the country. Employment will be generated and earnings level as well as consumption level will increase. Overall standard of living will increase and capital formation will increase. In the long run the tax revenue that the government lost by giving the tax rebates will be more than compensated by the incremental tax earnings from the increased level of economic activities.

(2): Corporate welfare has continued at the same time that individual welfare programs experienced a dramatic revision because of the fact that the dramatic revision with regards to the individual welfare programs has put the focus and the spotlight on corporate welfare as well. The underlying logic and rational for corporate welfare is no different from the logic and rational behind individual welfare programs. Thus the dramatic revision of individual welfare programs has put the focus back on corporate welfare as both have the same premise and the same underlying principle and notion.