Corporate Welfare: A Primer

Q: What is corporate welfare?

A: The Canadian Taxpayers Federation considers “corporate welfare” to mean any loan, grant or “investment” of taxpayer dollars to private businesses.

Q: Couldn’t low business taxes be considered a form of corporate welfare?

A: No. Low business taxes (or tax cuts) merely allow a business to keep more of the money it has already earned. Corporate welfare is different since it takes from taxpayers and gives to companies money they have not earned.

Q: Shouldn’t we worry about job losses?

A: Job losses are always unfortunate and people affected deserve sympathy and help. But the reality is companies go out of business (and new ones start up) every day. The vast majority of companies are not bailed out by governments; in most cases, nobody even suggests it as a realistic option. If governments pick and choose which ones to save, they are playing favourites — inevitably for political reasons.

Q: But if we can save some jobs, shouldn’t we?

A: It is misleading to say corporate welfare saves jobs — what it actually does is force taxpayers to pay for those jobs instead of the employer. Imagine that your neighbour came to you one day and said “my employer is going bankrupt — can you pay my salary out of your pocket instead so I can keep going to work?” Your neighbour’s gain is your direct cost.  This is exactly how corporate welfare works, just on a much bigger scale.

Q: Many of these jobs are high-paying jobs. Isn’t it important to keep them?

A: A high-paying job is only economically desirable if there aren’t also high costs to taxpayers for keeping them in existence. Imagine saying a “good customer” is someone you pay to buy your products: they might be buying a lot from you, but you now also have to factor in the cost of paying them too. Also, if the only important measure of a “good job” is that employees receive hefty paycheques, there is no reason to stop at industries like aerospace. Governments could simply pay people $50 an hour to sell lemonade, with very similar “spinoff” and “economic impact” effects.

Q:  But in Bombardier’s case, their competitors also receive help from their respective governments, so isn’t it only fair Bombardier does too?

A: First, many of us will remember our parents telling us “if all your friends jumped off a bridge, does that mean you should too?” This lesson also applies to bad public policy. Just because other countries adopt bad policy, doesn’t mean Canada should as well.

Second, even if we accept this argument, the countries that subsidize Bombardier’s competitors – the United States (Boeing), European Union countries (Airbus), Brazil (Embraer), not to mention new competitors from China and Japan – are all much bigger and have more resources than Canada.  Simply put, we cannot win a subsidy war with these governments. So why would we even try?

Reprinted with permission from Canadian Taxpayer magazine