To understand just how politically shallow and dysfunctional Washington has become, consider the showdown over whether to abolish the Export-Import Bank, an obscure 80-year-old agency that provides loans and loan guarantees to American exporters and their customers.
Normally, reauthorization of the bank is a routine, bipartisan affair. But this time a group of conservative and normally pro-business Republicans are determined to let the agency die when its current authorization runs out at the end of the month. They include the new House Majority Leader, Kevin McCarthy (Calif.), and the chairman of the House Financial Services Committee, Jeb Hensarling (Tex.), whose committee has jurisdiction over the agency. They see the bank as a symbol of the kind of “crony capitalism” that breeds corruption and undermines free-market principles by allowing government bureaucrats to pick economic winners and losers.
Naturally, anything House Republicans are against these days, Democrats are for. So we have a Democratic Party — including such crusaders against corporate welfare as Sens. Sherrod Brown (Ohio) and Elizabeth Warren (Mass.) — coming together to defend a program that, by their reckoning, saves and protects American jobs.
In truth, the Union will survive, and the economy will be largely unaffected, whether or not the Ex-Im Bank is reauthorized.
There may have been a time when private markets were unable or unwilling to provide export financing, but I doubt that is still true. The reason private export finance and insurance are not available today is that government long ago stepped in to provide it more cheaply than the private sector ever could. So the only real justification for the program is simply that all the other countries are doing it, and if we were to stop unilaterally, it would put our exporters at a disadvantage. Surely, however, if we can negotiate an end to the arms race in nuclear warheads, we ought to be able to negotiate one for export financing as well.
The reason we don’t try to is pretty obvious: As the chief executive of Delta Air Lines recently testified, having government-insured financing shaves $20 million — or about 10 percent — off the total cost of a wide-body Boeing jet bought by a foreign airline with borrowed money. And you can figure there’s a similarly proportionate effect on the cost of a giant earthmover that Caterpillar sells to a customer in Australia or a gas turbine that General Electric sells in India. Indeed, it is this handful of exporters of big, expensive machinery that account for the lion’s share of the Ex-Im financing. With their unions, they also account for the lion’s share of the bank’s political support.
It’s disappointing that both parties are content to have this debate by focusing on a small agency that actually makes a small profit for the Treasury, when dozens of other programs are much more economically distortive, politically corrupting and costly to taxpayers.
We could start by asking how its critic would distinguish the loans and loan guarantees that Ex-Im provides with the loans and loan guarantees from the Small Business Administration. In truth, there is little difference, except that with small-business loans much of the subsidy is captured by banks, which have learned that they can earn a handsome, risk-free spread by declaring that they would not make such loans without a government guarantee.
If the government has no place insuring export loans, then surely it also has no place providing subsidized crop insurance to farmers — to say nothing of the drought relief, crop subsidies and income guarantees that constitute a $10 billion to $20 billion a year welfare program for the agricultural sector. Add to that the ethanol requirement for gasoline and the import quotas for sugar, and there’s an additional $3 billion a year that American consumers are forced to eat in higher corn and sugar prices.
And let’s not forget the federal flood insurance program, which props up real estate values and tourist industries in coastal towns that refuse to accept the judgment of Mother Nature. Called a “fiscal time bomb” by the Heritage Foundation, it is more than $24 billion in debt.
One favorite bit of corporate welfare is the $800 million spent each year to keep cargo moving along the Mississippi River, giving a huge boost to barge operators as they compete with rail and trucking firms that pay for their own infrastructure.
And then there are those proudly self-reliant, anti-government ranchers and miners out West who are allowed to pay below-market rates to graze their cattle or extract minerals from federal lands. The fees are so low that they don’t even cover the government’s expenses for managing the programs.
The mother lode of crony capitalism, of course, is to be found in the corporate tax code, which is stuffed to the gills with special-interest provisions that have been bought and paid for with political contributions to members of the tax-writing committees. Surely no industry has worked the code more successfully than the energy trade — oil, gas, coal, but also alternative energy such as solar, wind and biomass. The American Action Forum, a think tank, estimates that energy industries benefit to the tune of $9.5 billion each year in tax expenditures. Unlike the Ex-Im Bank, tax breaks don’t have to be reauthorized, so they live on forever.
There are Republicans who are serious about rooting out corporate welfare. Hensarling led an unsuccessful fight to phase out the flood insurance program. Rep. Paul Ryan (R-Wis.) has used his perch as House Budget Committee chairman to try to trim farm subsidies. Rep. Thomas Massie (R-Ky.) mounted a rear-guard action on the House floor to close down a slush fund used to promote U.S. tourism for the benefit of hotels and resorts. I’m sure there are others.
But for many of the Republican critics, the campaign against the Ex-Im Bank is meant to give the appearance of opposing corporate welfare and crony capitalism without offending the crony capitalists and corporate welfare queens who keep them in office. That’s why they have voted overwhelming to reauthorize farm subsidies and flood insurance, why they slavishly support small-business loans and contract set-asides and why they refuse even to acknowledge the sensible tax reform proposal put on the table by the Republican chairman of the House Ways and Means Committee.
What’s really surprising, however, is that Democrats did not take this opportunity to up the ante on the Republicans by proposing to phase out corporate welfare in all of its forms, including Ex-Im. In the unlikely event that Republicans had accepted the challenge, it could have freed up tens of billions of dollars every year that could be used to reduce the deficit, cut taxes, invest in infrastructure or restore cuts to vital domestic programs. And if Republicans had declined the offer, that would have exposed their effort to kill the bank as the cynical and hypocritical ploy it appears to be.