Declaration of Independence: End Corporate Welfare EXECUTIVE SUMMARY................................................................................................................. 2 CORPORATE WELFARE VS. THE AMERICAN DREAM ............................................................. 3 FOOTPRINT OF CAPITALISM............................................................................................... 4 THE SLOWDOWN .......................................................................................................................... 4 GDP PER CAPITA GROWTH ................................................................................................ 4 CUT GOVERNMENT SPENDING................................................................................................... 5 INCOME TAXES THEN AND NOW ....................................................................................... 5 GOV’T SPENDING AS A % OF GDP..................................................................................... 6 CUT CORPORATE WELFARE ...................................................................................................... 6 SEMATECH: A SUBSIDY TO THE RICH ...................................................................................... 9 UNFAIR COMPETITION: THE ATP VIDEO COMPRESSION PROGRAM ................................. 10 SPENDING FOR NO BENEFIT: GALLIUM ARSENIDE WAFERS IN SPACE ........................... 11 SPENDING THAT HURTS THE BENEFICIARY: EUROPEAN SEMICONDUCTOR SUBSIDIES ....................................................................................................................................................... 12 THE HIDDEN COSTS OF TECHNOLOGY SUBSIDIES .............................................................. 12 JAPAN AND EUROPE SUBSIDIZE, SO MUST WE.................................................................... 13 BARRIERS TO PROGRESS: THE SYSTEM AND LOBBYISTS ................................................ 16 CONCLUSION............................................................................................................................... 17 DECLARATION OF INDEPENDENCE: END CORPORATE WELFARE.................................... 17 EXECUTIVE SUMMARY • Two hundred twenty one years ago, American colonists declared independence: to be free and to pursue their interests in free markets with limited government. Real Americans hated taxes. They listed as a cause for rebellion in the Declaration of Independence: "for taxing us without our consent." Their new constitution limited government and banned personal income taxes. The Revolution produced the American Dream, during which the common man became better off more quickly than any other time in history. For our first 200 years, from 1776 to 1976, America’s per capita income grew at the rate of 458% per century, versus the 3% per century growth rate of the pre- American world. • Now, the American dream--that every generation will enjoy a higher standard of living--is threatened. Since 1976, the GDP per capita growth rate has steadily declined from 2.5% per year to 1.5% per year, and we hear people say, "America needs a raise." In 1913, the 16th Amendment legalized a federal income tax with a levy of 1% of GDP. Today, the American Dream is being eroded by the ever-increasing burden of federal, state, and local taxes, which consume a whopping 35% of our national output. Although we are at peace and without a Cold War, our government is currently spending at a higher rate than the peak 30%-of-GDP rate of World War I, and nearing the record 50%-of-GDP rate of World War II ! There is a broad consensus that government spending must be cut. • Eliminating "corporate welfare" should be a priority in government spending reduction. The risks are minimal. Savings could reach $275 billion over five years. And there is a moral imperative: We should not be asking our senior citizens to tighten their belts while our government is literally subsidizing the sale of Chardonnay to the French. • The current pork-barrel system of taxing and spending (read: wealth confiscation and centrally controlled redistribution) creates a downward economic spiral. With corporate taxes so high, companies must lobby for givebacks to remain competitive. Congress is consequently put under extreme pressure to "bring home the pork" to home-state corporations, some of which are political contributors. Payouts to those corporations then pressure the government to raise taxes, which, in turn, stimulates corporations to invent new subsidies, sometimes creatively labeled "government investments" or "government- industry partnerships." "Government-industry partnership," is Washington-speak that means Americans will be compelled to pay for some silly program like the ATP proposal to re-bioengineer cotton, making the cotton fibers more like polyester. We should choose to break out of this downward economic spiral by ending corporate welfare now. • Technology subsidies to corporations are sold using technobabble to camouflage unjustifiable investments, which typically fall into four categories: -- Subsidizing the rich: Sematech. We gave $800 million over an eight-year period to 14 electronics companies that currently make more than $800 million in profit every month--and they don’t even have to pay it back. -- Competing unfairly with private industry: the ATP video compression project. C-Cube Microsystems was venture funded in Silicon Valley and lost money for years before its video compression technology took off. C-Cube woke up one day and found a $1.2-billion-dollar rival entering its market with government funding. C-Cube’s investors paid full fare. -- Spending that provides no benefit: Gallium arsenide wafers in space. Vitesse Semiconductor in Camarillo, California, makes some of the world’s fastest chips using an exotic semiconductor called gallium arsenide. Vitesse sees no value whatsoever in the $500-million NASA plan to make gallium arsenide chips in space. -- Spending that hurts the intended beneficiary: European semiconductor subsidies. The European Union put a tariff on semiconductor chips to protect its fledgling chip industry. Now, the EU is removing this tariff, but not before higher chip prices decimated its computer industry. Meanwhile, European chip companies lost market share anyway. • Taxes to fund government boondoggles come from two sources: from the rich who can afford to pay excess taxes, and from working people whose lives are less well off when the government takes their money. It is immoral and un-American to take money away from people who are just making ends meet in order to subsidize corporations--or anything else. Taxing the rich to fund poorly managed government programs is simply a self-destructive decision: It does nothing more than move money and investment decisions away from proven moneymakers (read: job producers) to Washington amateurs. In both cases, Americans lose. • One common rationalization for corporate welfare is that Japan and Europe subsidize their corporations, compelling U.S. corporate subsidies in order to remain competitive. The rationalization is totally false. Objectively viewed, Japan’s programs have been consistent losers. Western Europe’s socialized economies are among the least healthy on the planet, second only to the 100%-socialist disasters in Eastern Europe. The choice to take money from citizens to pursue the government’s "good ideas" is pure and simple socialism, which has been consistently self-destructive to the economies of those countries pursuing it to any degree. The damage falls on a gray scale ranging from America’s first income-taxless society to the near-100% wealth control of the collapsed Soviet state. Our current taxes total 35% of GDP, in the middle of the gray scale. • The best way to shut down corporate welfare is to have a "yes" or "no" vote on a package of corporate subsidies identified for elimination by an independent commission, as we did in the most recent military downsizing. Silicon Valley CEOs would support a fair package proposal to cut corporate subsidies, as attested by a list of names in an appendix to this report. The commission mechanism allows Congress to avoid the lose-lose proposition of voting either for more corporate welfare or against a subsidy to a home-state corporation. CORPORATE WELFARE VS. THE AMERICAN DREAM Our forefathers hated taxes. They viewed them as confiscation of individual wealth. They threatened rebellion over the Stamp Act of 1765--a British invention to raise money from the colonies by requiring a tax stamp on documents. They threw the tea into the harbor in 1773, rather than paying taxes on it. And they listed as a cause for rebellion in the Declaration of Independence: "for imposing taxes on us without our consent." The Constitution turned on its head the basic premise of all prior world governments. In other countries, the king, or other sovereign, owned the land, the citizens, their property, and their wealth. People were allowed to own property and to have rights only through the grace of the king, sometimes in a formal agreement such as the Magna Carta. The American Constitution created a bottom-up country by ensuring the people’s right to be free: they owned themselves, their intellectual and physical property, and their money. The markets were to be free and the new government was to be given only limited, enumerated powers. Those powers not enumerated were specifically reserved for the people. The new government made it unconstitutional to