Take the Rich Off Welfare

by Mark Zepezauer and Arthur Naiman


Wealthfare-the money we hand out to corporations and wealthy individuals- costs us at least $448 billion a year. Wealthfare for the rich costs us about 3.5 times as much as the $130 billion we spend each year in welfare for the poor-an amount the 1996 welfare "reform" bill will reduce significantly.

If anything, the $448 billion figure is an underestimate. Even within categories we cite figures for, there are often additional wealthfare expenses we haven't been able to nail down. Still, with the federal deficit now running about $107 billion a year (1996 figures), it would be possible to wipe out the entire US deficit simply by cutting wealthfare by less than 24 percent.

We're not saying there's anything wrong with being rich, in and of itself. 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. Stealing from the poor-actually from anyone who isn't rich-has become standard operating procedure in this country. The US government today functions mostly as a huge Robin Hood-in-reverse.


Military Waste and Fraud

When it comes to wasting money, the Pentagon has no peer. For fiscal 1996, the Pentagon budget was $265 billion ($7 billion more than it requested). That's 5 percent of the country's gross national product-a larger percentage than virtually any other industrialized nation.

Our military budget is bigger than the next nine largest military budgets combined and 16 times larger than the combined military budgets of all our "regional adversaries"-Cuba, Syria, Iran, Iraq, North Korea and Libya. While the US accounts for 22 percent of the total world economy, our "defense" spending accounts for 37 percent of all military spending on the planet.

As enormous as the Pentagon's budget is, there's more military spending buried elsewhere-in the Department of Energy's production of fuel for nuclear weapons, in the military portion of the NASA budget, in the VA (formerly the Veterans Administration), etc. The DC-based Center for Defense Information (CDI) concluded that we spend $329 billion a year on the military. The War Resisters League has independently arrived at a total of $329 billion.

But that doesn't include what we have to pay for past Pentagon budgets. Going back to l941, the CDI figured that interest on past military spending cost $167 million in fiscal 1996. Adding this interest, total military spending-past and present-comes to $494 billion a year ($9.5 billion per week; $1.3 billion each day).

But just the scale of the Pentagon's budget alone can't explain its prodigious ability to waste money. Another quality is required -world-class incompetence.

According to one US Senate investigation, $13 billion the Pentagon handed out to weapons contractors between 1985 and 1995 was simply "lost" while another $15 billion remains unaccounted for. That's $28 billion -right off the top-that has simply disappeared. (This is one of those places where we can hardly believe what we're writing. But it's true.)

The New York Times described the amount of Pentagon waste as "literally incalculable" after the director of the Department of Defense's accounting service was unable to produce auditable books for Senate investigators.

According to the Government Accounting Office (GAO), 80 percent of the Navy's purchase orders are inaccurate. In 1992 alone, the Army Corps of Engineers "lost" $1.3 billion worth of equipment. But where the Pentagon really wastes money is by overpaying contractors. Our reference on that subject is The Pentagon Catalog by Christopher Cerf and Henry Beard. This book was the greatest bargain in history. To quote from its cover copy: "Buy this catalog for only $4.95 and get this $2,043 nut for free." Attached to each book was a small metal nut, the kind that costs a few cents at the hardware store-and that McDonnell Douglas sold to the Navy for $2,043 each.

For every $640 toilet seat the Pentagon buys, there's some unctuous predator selling it for $640. Actually, "unctuous predator" is far too kind. Most military suppliers are-plain and simple-criminals. Between 1980 and 1992, everyone of the top ten US weapons contractors was convicted of or admitted to defrauding the government.

Grumman paid a $20 million fine for coercing subcontractors into making political contributions. Lockheed was convicted of paying millions in bribes to obtain classified planning documents. Northrop was fined $17 million for falsifying test data on cruise missiles and fighter jets. Rockwell was fined $5.5 million for committing criminal fraud against the Air Force. Boeing, Grumman, Hughes, Raytheon and RCA paid $15 million after pleading guilty to trafficking in classified documents.

But General Electric was the champ. The Project on Government Oversight lists 14 instances of fraud, waste and abuse committed by GE in the 4.5-year period between October 1989 and February 1994.


Tax Avoidance by Transnationals

A transnational-or multinational-corporation is simply one that has operations in more than one country. Richer than many nations, more powerful than most, transnationals lumber about, settling where taxes are lowest and labor is cheapest and most intimidated. But many are still head quartered in the US and virtually all of them have significant operations here.

Both US- and foreign-based transnationals have lots of tricks for avoiding US taxes. For the most part, the IRS simply takes a transnational's word for how much taxable income it earns in this country. Corporations feel free to shift profits out of, and expenses into, the US-thus minimizing on paper, the profitability of their US-based operations. This is called "transfer pricing."

There's an easy way to cut through the trickery of transfer pricing. Called the "unitary method," it calculates taxes based simply on how much of the company's sales, assets and payroll are in the US (or any other country). The unitary method is more accurate and easier to enforce, and makes it far more difficult for companies to hide their profits in off-shore tax shelters. That's why it's so fiercely opposed by transnational corporations and their congressional hirelings.

Of the US-based transnationals with assets over $100 million, 37 percent paid no US federal taxes at all in 1991, and the average tax rate for those that did pay was just 1 percent of gross receipts! (We'd tell you what it was as a percentage of profits, but nobody knows. They avoid paying tax by concealing precisely how much profit they make.) Foreign-based transnationals did even better. Some 71 percent of them paid no US income tax on their US operations. The average rate for those that did pay was a mere six-tenths of 1 percent of gross receipts.


Nuclear Subsidies

As Noam Chomsky points out, most successful US industries wouldn't be competitive globally if the government hadn't developed their basic technology with your tax dollars, then given it away to private companies. Computers, biotech and commercial aviation are examples, and so- preeminently-is nuclear power.

The federal government provides the industry with most of its fuel and waste disposal and much of its research. Between 1948-1995, the government spent more than $61 billion (in l995 dollars) on nuclear power research-almost two-thirds of all federal support for energy research and development. The 1996 figure was $468 million.

Until 1993, the Department of Energy (DOE) was responsible for all domestic production of enriched uranium fuel of nuclear power plants. Since then, it's been the job of a government corporation called the US Enrichment Corporation (USEC).The USEC has been a financial disaster: It's now more than $10 billion in the hole.

Having made a fine mess of things, the government now plans to privatize the USEC. The DOE will accept responsibility for disposing of the radioactive wastes from the privatized USEC. The total cost to tax payers to privatize the USEC could fall between $1.7 and $2.9 billion.

Nobody wants nuclear waste stored in their state, so Congress picked a place in Nevada (a state with little congressional clout) called Yucca Mountain. With 33 known earthquake faults, Yucca Mountain is the least stable of the sites considered. It is costing taxpayers $320 million a year just to study the situation. If the facility were activated it could cost between $33-50 billion to transport radioactive waste from all over the country and to seal it into thousands of containers for burial deep inside Yucca Mountain.

With Yucca Mountain's opening pushed back from 1998 to 2015, the nuclear industry is lobbying hard for an inadequate short term storage facility above ground there. The Public Interest Research Group warns that this boondoggle has the potential to turn into "the S&L bailout of the Nineties."


Timber Subsidies

What federal agency is responsible for the most miles of road in the US? The Department of Transportation? Nope, it's the US Forest Service (USFS) with 360,000 miles of logging roads-eight times more than the entire Interstate Highway System. The USFS pays to build thousands of miles of new logging roads each year at a cost of $95 million.

The USFS pays for logging companies to construct the roads by letting them cut down a certain number of trees. Until recently, the prices of trees were decided at secret meetings between USFS officials and timber industry executives. Although the Clinton administration did away with the secret meetings, the USFS is still stocked with big timber's cronies and it continues to shamelessly undervalue our trees. Recently, it came up with a value of $2.85-the price of a cheeseburger-for 1,000 board feet of lumber (about 1 percent of the normal commercial rate).

The USFS claims that logging roads "add to the capital value of the forest." Actually, logging contributes to soil erosion and water pollution, and to the loss of wildlife habitat and recreational value.

In 1993, the USFS lost $309 million. Between 1985-94, the USFS has lost more than $5.6 billion. In terms of assets, the USFS would rank in the top five of the Fortune 500 list of corporations. In terms of operating revenues, however, it would rank 290. In terms of net income, it would be bankrupt.

The Tongass National Forest in Alaska is the nation's largest forest and the largest remaining temperate rain forest on Earth. A subsidiary of Louisiana-Pacific has a 50 year monopoly on logging the Tongass at noncompetitive prices.

Recently, the value of the trees cut down has fallen below the cost of the logging roads that have been built. So we've been paying the loggers millions of dollars a year -actually giving them checks-to cut down our trees!

Alaska's Republican Senators Ted Stevens and Frank Murkowski cosponsored a bill to increase logging in the Tongass by 48 per cent. That bill failed but a new bill would extend LP's lease to 2019 and guarantee that the company will make a profit for the entire period!


What You Can Do About All This

There is hope. Wealthfare can't stand the light of day; once it's seen for what it is, there's enormous pressure to eliminate it.

That's why the infamous oil-depletion allowance, which used to be unlimited, is now capped at 65 percent. The deduction for business meals and entertainment has been cut in half. The capital gains tax for corporations is still lower than the rate for ordinary income, but the gap is smaller than it has been for most of the last 75 years. (Still, 97 percent of the benefit from the 1993 capital gains tax cut went to the richest 1 percent of the population.) The deductible on the nuclear industry's catastrophe insurance has been raised from $560 million to $7 billion. (For comparison, the cost of the Chernobyl reactor accident is estimated at around $358 billion-not counting the 125,000 deaths the Ukrainian government has reported.)

There are four approaches to the problem:

1) Take politicians off the auction block.
2) Make taxes fairer.
3) Give the media back to the people.
4)Stop letting the military scare us.


excerpted in Earth Island Journal, Spring 1997

from the book

Take the Rich Off Welfare
by Mark Zepezauer and Arthur Naiman
Odonian Press, Box 32375, Tucson AZ 85751
800-REAL STORY or 520-296-4056, fax: 520-296-0936.

Pentagon watch