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How Corporate Welfare Is Killing Small Businesses
Despite being the backbone of the economy, funding from the Small Business Administration is a fraction of that of corporate welfare.
When you pay taxes, you expect that money to go toward ensuring the greater good of society. Taxes pay for things like roads and hospitals¹, all of which are mutually beneficial to people from all walks of society.
One thing you probably don’t expect your tax money to fund is bailouts for corporations that turn around and incorporate in another country to avoid paying taxes. Unfortunately, that happens more frequently than you might imagine, and it’s all thanks to corporate welfare.
What is corporate welfare?
Corporate welfare is tax money that is given to corporations in order to encourage growth in a specific sector, stabilize a shaky sector, or avoid financial meltdown in a certain sector. Most notably we’ve seen this used to successfully avert a banking crisis in 2008, as well as the predicted collapse of the American auto industry between 2009 and 2013.
Shoring up these major failing industries is thought to have prevented an even worse economic downturn worldwide.
Unfortunately, for every success story, there are more stories about how corporate welfare has been taken advantage of and has even encouraged risky behavior. In 2012, Ohio-based Eaton received $31.9 million in federal assistance and subsidies and promptly reincorporated in Ireland.
McDermott incorporated in Panama in the early 1980’s but still received $12 million from the Energy and Defense Departments between 2000 and 2015. Corporate welfare often funds projects that don’t live up to their promises.
What’s more, there are companies out there that have grown outside their natural ability to sustain themselves, thanks to hefty government contracts.
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Big business wins big
Between 2000 and 2015, two-thirds of corporate welfare subsidies went to fewer than 600 large companies.
Even federal contractors receive loans, loan guarantees, and bailout assistance – Boeing, General Electric, and Bechtel have all received billions of dollars from the federal government since 2000. Large banks and banks outside of the United States are also major beneficiaries of corporate welfare.
Small businesses can’t compete
Even though small businesses are considered by many to be the backbone of our economy, accounting for 54% of all sales in the United States as well as the lion’s share of job growth since the early 1990s, funding from the Small Business Administration is a fraction of that of corporate welfare. The SBA’s budget was $1.4 billion in 2016, but the SBA only provides grants for nonprofits and educational institutions in certain growth sectors.
It does not provide direct loans to small businesses; instead, it provides guidelines for small business loans from lending institutions. You know, those big banks getting all the bailouts.
This provides a significant challenge to small businesses trying to get off the ground, as they just can’t compete with the huge corporations where decisions are made, knowing the government considers them too big to fail.
Many industries receive assistance
It’s not just banks and government contractors who receive the benefit of tax money to fund their institutions. Private colleges receive private donations that allow their donors significant tax breaks. Agricultural subsidies, originally meant to help farmers avoid going out of business during poor growing seasons, instead encourage overproduction of commodities that may not even be needed.
In fact, 50 of the Forbes 400 wealthiest people in America had received farm subsidies before the 2014 Farm Bill went into effect. Private security is sold to private individuals, but backup comes in the form of a taxpayer-funded police response.
Corporate welfare may lead to or enable corruption and recklessness
The finance sector is one of the biggest beneficiaries of corporate welfare. In 2008 alone, banks received $700 billion from the Troubled Asset Relief Fund (TARP).
What’s more troubling is a University of Michigan study found that the more political ties a particular bank had to the federal government, the more likely it was to receive TARP funds and the more TARP funds it was likely to receive.
According to the study, “research shows that TARP investment amounts were positively related to banks’ political contributions and lobbying expenditures, and that, overall, the effect of political influence was strongest for poorly performing banks.”
Small businesses should be prepared
When you are starting or operating a small business, it’s important to keep in mind that the playing field is not level, and no amount of raging against the machine will make it so. You have to operate under the assumption that you are going to have to compete harder to stay in the game. Learn more about corporate welfare from this infographic from Money Choice.
Article source: Inc.
When I was in job corp, I was interested in the minds of CEOs and founders of major corporations that you’d deem “too big to fail”. So I went out to meet them at a wealth expo. I wanted to answer MY question of WHY major corporations had more keys to the state and federal treasure chess and the government’s booty compared to struggling small businesses, and was curious on why and how they’re able to compete and attract bailouts from governments compared to small businesses. The first thing I noticed they all had in common was one thing; their state of mind. They thought big right from day one. Unlike others who feel when a good deal is too good to be true it usually is, these leaders KNEW it was good for them and their business, and thus jumped on it WITHOUT hesitation, feeling guilty nor unpatriotic about it.
Small businesses play checkers while big corporations play CHESS
What they had in common was attitude towards their business. Unlike most small business owners, these leaders visualized their “big business” from day one before the cash register took the first dollar. And instead of shunning government assistance and all the goodies “taxpayers” have to offer, business leaders embrace government bailouts due to accepting their abundance in any form whether it’s known or unknown. Believe it or not, government love doing business with business leaders with this kind of state of mind.
Taxpayers aren’t what you think they are
Speaking of taxpayers, these business leaders felt when ordinary citizens lie to themselves pretending they MUST pay taxes, it’s also up to them to research their obligations in having to pay in the first place. This includes asking questions regarding hospitals and who really owns them that justify taxes supporting these institutions, on top of highways and infrastructure paid for through the sells of gasoline and various fuel products including transportation fees. They also realize that the term “taxpayer” is a pragmatic title; from prostitutes, the homeless, the drug dealer on third street, to your undocumented citizens, the sales taxes they pay for products and services ranging from that box of condoms, the hotel room, the aftermarket car parts, the tool for that cheap job, up to that bottle of whiskey makes up over half the majority of taxes paid to the government. So in hindsight – the hooker, the drug dealer on the street corner and your landscaper you hired that saved you 40 percent to do your garden is more of a taxpayer than your “law-abiding” business owner on Main Street. The small business owners are the ones who’s looking to see how much taxes they can write-off and avoid paying while your street hustlers can careless what the sales tax and federal fees are as long as they get their product.
The other attribute I observed between small business and major corporations was the embracing of a team versus doing it alone. Small business owners (regardless of its size) are small because they THINK small. This is why the saying “mind your own business” is the game, because the business IS your mind. So when you think small, you’ll forever believe that money is lack and will always be and get small – all while believing the POTUS, political parties and the nation’s economy determines your own business’s success. This is small thinking.
Big business (in the mind of thinking big) are always successful regardless of who’s running the country or how the economy is doing. Regarding a team, big business utilize the advantages of a corporation and corporate veils to protect the assets of the owners and founders. They know that the game require them NOT to be personally attached to their corporation, and are willing to hire smart, intelligent and ambitious people ranging from legal to sales to run their business WITH them. This alleviates a lot of STRESS that you’ve probably heard a lot from small business advisors including how 9 out of 10 business fail within “X” amount of years. The best advice they can give regarding that statistic would be to hook you up with the 10th business that succeeded based on YOUR standards.
Business LEADER versus small business boss
Most bosses are mostly nothing but business bullies who love using the term ‘you’re fired’ a lot to feel superior over you. They also most likely have controlling issues who don’t trust anyone let alone their employees (whether they tell them or not) because they don’t trust themselves. Bosses are petrified with adapting to change while having a big corporation to run, even though it’s their business, because they’re small inside. This does NOT mean they’re bad, it’s just their business in the outside reflects who they are in the inside.
Business LEADER on the other hand knows their personality and their mind IS the business AND the product. Their personality and the confidence of knowing who they are make them natural leaders that stimulates personal growth within themselves and their team. They hate the word ‘fired’ and instead encourage you to grow in other sectors. They control their attitude towards life, yet are good at delegating instructions to their staff. They embrace and love adapting to change, and having a big corporation to run because they are big inside with big dreams. This does NOT mean they’re good, it’s just their business in the outside reflecting who they are in the inside.
Money is NEVER patriotic regardless of country
USD$, ¥, €, £? Doesn’t matter. Unlike small business owners, big corporations including its CEO looks at the world as a business. And they KNOW consumers feel the same way with their purchases where most of their products are made in another country based on price. The government does business with countries all over the world because commerce doesn’t have borders, just different currency names. In other words; the government has no time for small thinking “patriotic” NAFTA hating (without knowing what NAFTA is), and “please buy from me because I’m your neighbor” begging mom and pops. The government have politicians and mistresses and corporate executives to wine and dine, and your votes at the polls every election is nothing but a cheap survey. In other words; big corporations has lobbying dollars to get your politician’s attention like it would get from you. Let’s be real. At the end of the day, your family comes BEFORE any red, white and blue.
The whole point here is the difference between a business owner who THINKS small and claim to run a small business with all of its problems, versus a big thinking entrepreneur who see solutions to every problem. Big entrepreneurs incorporate because they KNOW they’re a big company attracting millions if not billions of capital from every direction including the government, and the investment to incorporate is worth it. And the government has huge bills and overhead to pay, so why not join forces with entrepreneurs that utilize this capital to build bigger enterprises?