Corporate Welfare not "Free" Money, it's Taxpayer's Bucks for Casinos and other Businesses

Pat McGeehan

The author is chairman of the Hancock County, WV Republican Party

This past weekend I received a call from a good friend at the Capitol in Charleston—he had some rather disturbing news for me. Millions of tax dollars going to the Casino. That’s correct. A faction of legislators—mainly those who have accepted thousands and thousands in campaign contributions from the “Gambling Lobby”—helped sponsor and push through a bill to give $100 million of tax-payer money to the four Casinos in our state. Out of this 100 million over the next ten years, Mountaineer Casino and Wheeling Island Casino, will be showered with millions upon millions. SB 550 is the name of this crony legislation, and though it is couched in complex terminology, the bottom line is this: West Virginia residents will soon be directly subsidizing private casino executives.

 Besides the moral aspect of forcefully taking money from people in West Virginia and awarding it to politically-connected companies, there are other reasons why this may in fact be a “bad idea”. To understand why, we must only understand simple economics.

Corporate Welfare harms the long-term productive quality of a business and makes them less competitive overall. By artificially propping up a corporation, our government makes them less sensitive to cost and expenses. Instead of paying attention to their customers—the company receiving the corporate welfare is encouraged to pay more attention to government. Over the course of time, this can be devastating to the financial health of both entities—government and the company in question.

When our government delivers tax-payer cash of this magnitude, it causes company officials to make detrimental decisions in the future that they otherwise would not make. The company’s chief executives become indifferent to cost, because now, the end customer is not the only one covering their bills. Because of these special privileges from our government, the “privileged” company begins to make careless choices.

Pretend you own a lemonade stand, and you produce one cup of lemonade to the customer for 1 dollar per cup. Sooner or later, someone else down the road opens up a new lemonade stand, and forces you to compete more for your customers. Instead of investing in better quality lemonade at a lower price, you somehow manage to be offered money from the government to help your lemonade stand “become competitive”. What a deal! With this new government cash, maybe you decide to hire some of your friends as employees, so you don’t have to do as much work yourself. This of course, raises your cost to do business—in turn, raising your final price of lemonade from say $1 per cup, to maybe $2 per cup. At this higher price, you receive fewer customers, but you don’t need as many customers now—because your lemonade stand has been artificially supported with government revenue.

At this stage, you become “hooked” on government money. Your lemonade stand, with its current added costs of new employees, your friends that you hired so you didn’t have to work as hard (or any other new expenses you added with the government money), cannot survive without continued subsidies. The cycle continues, and over time, more and more government money is demanded. Your lemonade stand becomes more and more expensive and less and less competitive. You now have completely forgotten how to truly compete by yourself, without the government privileges or tax-dollars.

But what about the good-paying jobs the government-subsidized Casino is supposed to offer? Well, in the long term, the wages of their very workers are often hurt as well. Many times, the corporate subsidies interfere with the natural market forces that come about from increased competition elsewhere, the very competition we are told to fear. Over time, the new Casinos in Pennsylvania, and soon Ohio, will likely need more and more skilled employees in this industry to work for them. This new demand for labor will place upward pressure on local wages here in West Virginia. All other factors aside, the Mountaineer Casino, as well as the Wheeling Island Casino, will likely have to offer more of their employees increased salaries, wages, or benefits to ensure that these employees do not leave for a better job with one of their competitors. But because of this government subsidy money, this natural market process is distorted or prolonged from taking place, keeping wages lower than they otherwise would be in the absence of this Corporate Welfare.

Government subsidies often make a company so bloated with new costs that many times, these new expenses offer no real net return on investment. For instance, some of this tax money that will be going to the Mountaineer and Wheeling Island (and the 2 other Casinos in WV) was “justified” by permitting these Casinos to purchase new slot machines that accept fifty-dollar bills. These machines will supposedly make the Casino more “competitive”, as their current machines only accept twenty dollar bills. Indeed, maybe these new fifty dollar-bill machines will in fact draw new customers. But if they were so worth the investment, in their own right, then the Mountaineer or Wheeling Island Casino would go forward and purchase these new machines, regardless of whether the government money was granted.

And what does this immorality teach other businesses? That they are less important, or less valuable? Think of  Homer Laughlin China, Arcelor-Mittal Steel, Metsch Refractories, Marsh-Bellofram, and the many other small businesses that employ thousands of hard-working residents in our area. Are they not just as significant to our community as these Casinos? This corporate welfare teaches our community that it pays to hire better lobbyists who know how to “work over” the career politicians. Hiring more lobbyists confers no benefit to society and only leads to more political corruption. At the same time, this increased venue of cronyism discourages more companies from investing in the local market in order to become more competitive. Real jobs come from this increased investment, which boosts productivity and confers better service and prices for the customer.

Of course, the government money is ultimately derived from somewhere—it is not “free”. This money comes from you, the tax-payer. $100 million to the Casinos in our state is the equivalent of every man, woman, and child in West Virginia being forced to drop-off 57 bucks cash at the Mountaineer or Wheeling Island, or one of their 2 sister gambling joints. Over time, this concept of corporate welfare represents either less money in your pocket to purchase things you need to support your family, like food or rent. Or it represents less money for our state government to provide our public with necessary services like the maintenance of roads and infrastructure, education, or law enforcement.

I can ensure you, our state government has very limited resources, and currently these resources are being stretched thin. Next year, our state government has a projected budget deficit of $200 million, and each subsequent year will likely get worse before it gets better. West Virginia has an estimated $8 billion unfunded liability in the form of retirement funds and teacher pensions, all of which will add to the coming deficit gaps. For a relatively small state like ours, this could spell disaster. Our state government cannot “print money” like Washington D.C.—and further, we can no longer rely on Washington for hand-outs in the future. Washington is broke as well. Throwing tax-money around to the Casinos willy-nilly is not the answer to these very real problems.

West Virginia is facing growing revenue problems in the coming years. Businesses have to learn how to invest and compete in the market—and stand on their own two feet. By taking money from tax-payers and redistributing them to the Casino, we are only creating a moral hazard that teaches the Casino and other businesses as well, that when times get tough, they can go to the government for more help. To be sure, we do need to cut taxes and reduce the burden on business here in our state—but we must equally cut taxes across the board, treating all business the same, providing no privilege to any one company or industry. This is the path towards Free Enterprise, and not Crony-Capitalism—and it is the only path known to man-kind which can bring real prosperity to the people of our state.

Furthermore, we must prioritize—and we must protect the public treasury from those that would plunder and loot it. It matters not whether you are Republican or Democrat, for this is hardly a party issue, this is a right and wrong issue. This is not merely a dangerous precedent to set—for this policy of moral decay stands diametrically opposed to the American vision set forth by our Founding Fathers. As Thomas Jefferson once wrote, “Experience has shown, that even under the best forms of government, those entrusted with power have, in time, and by slow operations, perverted and looted the public.”

 



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