Law grinds the poor, and rich men rule the law.
-- Oliver Goldsmith
Ronald Reagan memorably complained about "welfare queens," but he never told us that the biggest welfare queens are the already wealthy. Their lobbyists fawn over politicians, giving them little bits of money -- campaign contributions, plane trips, dinners, golf outings -- in exchange for huge chunks of taxpayers’ money. Millionaires who own your favorite sports teams get subsidies, as do millionaire farmers, corporations, and well-connected plutocrats of every variety. Even successful, wealthy TV journalists.
That’s right, I got some of your money too.
My Life as a Welfare Queen
In 1980 I built a wonderful beach house. Four bedrooms -- every room with a view of the Atlantic Ocean.
It was an absurd place to build, right on the edge of the ocean. All that stood between my house and ruin was a hundred feet of sand. My father told me: "Don’t do it; it’s too risky. No one should build so close to an ocean."
But I built anyway.
Why? As my eager-for-the-business architect said, "Why not? If the ocean destroys your house, the government will pay for a new one."
What? Why would the government do that? Why would it encourage people to build in such risky places? That would be insane.
But the architect was right. If the ocean took my house, Uncle Sam would pay to replace it under the National Flood Insurance Program. Since private insurers weren’t dumb enough to sell cheap insurance to people who built on the edges of oceans or rivers, Congress decided the government should step in and do it. So if the ocean ate what I built, I could rebuild and rebuild again and again -- there was no limit to the number of claims on the same property in the same location -- up to a maximum of $250,000 per house per flood. And you taxpayers would pay for it.
I did have to pay insurance premiums, but they were dirt cheap -- mine never exceeded a few hundred dollars a year.
Why does Uncle Sam offer me cheap insurance? "It saves federal dollars," replied James Lee Witt, head of the Federal Emergency Management Agency (FEMA), when I did a 20/20 report on this boondoggle. "If this insurance wasn’t here," he said, "then people would be building in those areas anyway. Then it would cost the American taxpayers more [in relief funds] if a disaster hit."
That’s government logic: Since we always mindlessly use taxpayer money to bail out every idiot who takes an expensive risk, let’s get some money up front by selling them insurance first.
The insurance, of course, has encouraged more people to build on the edges of rivers and oceans. The National Flood Insurance Program is currently the biggest property insurance writer in the United States, putting taxpayers on the hook for more than $640 billion in property. Subsidized insurance goes to movie stars in Malibu, to rich people in Kennebunkport (where the Bush family has its vacation compound), to rich people in Hyannis (where the Kennedy family has its), and to all sorts of people like me who ought to be paying our own way.
When my crew was working on the 20/20 story on this indefensible insurance subsidy, producer David Sloan was shooting on the elegant Outer Banks of North Carolina. A man who saw our camera invited Sloan to videotape inside a luxurious beach mansion he was renting. Sloan accepted and was surprised to see, taped to the refrigerator, a picture of presidential hopeful (then House majority whip) Richard Gephardt.
"Why is his picture here?" Sloan asked.
"He’s an owner of the house," answered the renter.
Aha, a surprise twist to our story: A Missouri congressman owns expensive beachfront property insured by taxpayers. We called Rep. Gephardt’s office and asked to interview him about flood insurance. I was excited. He and I had something in common: We were both welfare queens. I thought he might say something like: "Yes, it’s disgraceful -- we shouldn’t get special protection because we are rich enough to build on beaches. I’m trying to end this boondoggle." But when I interviewed him, he just smiled blandly and kept saying Congress would "look into the program."
Why subsidize affluent people like Gephardt and me? Why not let us sink or swim on our own? If my house erodes away, it should be my tough luck. FEMA chief Witt at least attempted an answer: "The American people are pretty compassionate toward their neighbors."
Government flood insurance is so "compassionate" that the program didn’t even raise my premiums when, just four years after I built my house, a two-day northeaster swept away my first floor. I could still use the place, since the kitchen and bedrooms were on upper floors, though some guests were unnerved when a wave sloshed through the bottom of the house. After the water receded, the government bought me a new first floor.
Federal flood insurance payments are like buying drunken drivers new cars after they wreck theirs. I never invited you taxpayers to my home. You shouldn’t have to pay for my ocean view.
Actually, I don’t have such a great view anymore. On New Year’s Day, 1995, I got a call from a friend. "Happy New Year," he said. "Your house is gone." He’d seen it on the local news. (Or rather, he saw the houses that had been next to mine, and nothing but sand next to them.) The ocean had knocked down my government-approved flood-resistant pilings and eaten my house.
It was an upsetting loss for me, but financially I made out just fine. You paid for the house -- and its contents. I’m not proud that I took your money, but if the government is foolish enough to offer me a special deal, I’d be foolish not to take it.
I could have rebuilt the beach house and possibly ripped you taxpayers off again, but I’d had enough. I sold the land. Now someone’s built an even bigger house on my old property. Bet we’ll soon have to pay for that one, too.
I interviewed beachfront homeowners in New Jersey, asking why they should be entitled to this brand of welfare. They got angry:
First Homeowner: We create a lot of employment here -- look at the dishwashers and the chefs and the waitresses and the waiters.
Stossel: This is welfare for you rich people.
First Homeowner: I am not rich.
Stossel: People who are making $25,000 have to pay taxes...to protect you.
Second Homeowner: They’ve bailed out the S&Ls, and they help the farming people.
Stossel: So since there’s welfare for all these other rich people, you should get some too?
Third Homeowner: Sound management is what it is. It’s got nothing to do with welfare.
Sound management? It’s never welfare if it goes to you.
Feeding at the Federal Trough
Today’s biggest welfare queens are probably farmers -- once, in their glory days, the most self-sufficient of Americans.
When I make speeches about free markets at Farm Bureau conferences, farmers applaud enthusiastically. But despite their surface support for free markets, most of them operate in a market that’s very expensive for all of us, receiving $200 billion in direct handouts this decade, plus another $200 billion in artificial price supports (which force us all to pay more for food).
Farm supports are as destructive as the old welfare payments to poor people were. Just as addictive, too. Subsidies are supposed to help farmers recover from low prices caused by overproduction, but the subsidies lead farmers to plant more crops, creating more overproduction, which lowers prices, making farmers even more dependent on handouts.
The programs wreck the lives of farmers in poor countries because they can’t compete with subsidized American farmers (or with even more-subsidized European farmers). Hypocritical politicians blather constantly about helping the poor and demand more of your tax money for foreign aid. But they simultaneously give out farm subsidies, which rig the system so that all over the world poor farmers stay poor.
Why shovel all this money to American farmers?
Because we like farms. Farms are romantic. No one wants to lose the family farm. Of course, most handouts don’t go to family farms. They end up going to big farm corporations, because the big, established companies are most skilled at using the system. Fortune 500 firms like Westvaco, Chevron, John Hancock Life Insurance, Du Pont, and Caterpillar each get hundreds of thousands of dollars in subsidies.
Another reason farmers get these ridiculous handouts is that they’ve become remarkably proficient at panhandling. Every state has a politically aggressive farm lobby, and every politician wants to stay on its good side. Watching the 2000 election’s Iowa caucuses was nauseating. At Vice President Al Gore’s rallies, they played country music while Gore regaled crowds with farm stories. "Every summer," said Gore, who grew up in a fancy Washington hotel, "we went back down to the farm. I was in the 4-H club."
Even so-called shrink-the-government Republicans will make government bigger for farmers. The candidate the press called the most "conservative," Alan Keyes, said farm supports are absolutely necessary: "It’s a question of America’s moral decency."
Oh, please. Most American farmers do just fine -- better than most other Americans. Subsidies go to corn growers who earn more than $200,000 a year, even to "farmers" like my ABC colleague Sam Donaldson, who got thousands of dollars in wool and mohair payments because he and his wife raised sheep and goats on their New Mexico ranch. Donaldson calls the payments "a horrible mess" (he’s sold the livestock and no longer collects subsidies), but he compares them to the home mortgage deduction, saying, "As long as the law is on the books, it’s appropriate to take advantage of it." Rich people take extra advantage: From 1996 to 2000, David Rockefeller got $352,187; Ted Turner, $176,077; basketball star Scottie Pippen, $131,575.
Farmers argue, "We need subsidies -- because the food supply is too important to be left to the uncertainties of free market competition." But farmers who grow beans, pears, and apples receive no government subsidies, and they thrive. Free markets are best at producing ample supplies of everything. Notice any shortages of unsubsidized green beans, pears, and apples? Me neither.
Yes, some farmers have a tough time. Some will go broke and lose their farms. That’s sad. But it’s also sad when people at Woolworth’s or TWA lose their jobs. Letting businesses fail is vital for the creative destruction that allows the market to work. Those who fail move on to jobs where their skills are put to better use. In the long run, it makes life better for the majority.
The Biggest Piggie?
When public interest groups compile lists of corporate welfare recipients, a company called Archer Daniels Midland (ADM) is usually at the top of the list. You may never have heard of ADM, because its name rarely appears on consumer products, but it’s huge. Its products are in most processed foods.
ADM collects welfare because of two cleverly designed special deals. The first is the government’s mandated minimum price for sugar. Because of the price supports, if a soft drink maker wants to buy sugar for its soda, it has to pay 22 cents a pound -- more than twice the world price. So Coca-Cola (and almost everyone else) buys corn sweetener instead. Guess who makes corn sweetener? ADM, of course. Now guess who finances the groups that lobby to keep sugar prices high?
ADM’s second federal feeding trough is the tax break on ethanol. Ethanol is a fuel additive made from corn, kind of like Hamburger Helper for gasoline, except that it’s more expensive, so no one would buy it if government didn’t give companies that use ethanol a special 52-cent-a-gallon tax break. That costs the treasury half a billion dollars a year. ADM produces half the ethanol made in America.
Why does ADM get these special deals? Bribery. OK, it’s not technically bribery -- that would be illegal. ADM just makes "contributions." Through his business and his family, former ADM Chairman Dwayne Andreas gave millions in campaign funds to both Mondale and Reagan, Dukakis and Bush, Dole and Clinton. President Nixon’s secretary, Rosemary Woods, says Andreas himself brought $100,000 in cash to the White House. He even paid tuition for Vice President Hubert Humphrey’s son. Republicans, Democrats -- it doesn’t matter. ADM just gives.
It also flies people around on its corporate jets. When we contacted Andreas to ask for an interview, he arranged to fly us to ADM’s Decatur, Illinois, headquarters in one of ADM’s jets. I’ve seen private jets before, but ADM’s was a step above. A flight attendant served us excellent food on gold-plated china. The camera crew and I loved it. Bet the politicians like it too.
A limo took us to Dwayne Andreas’ office. Once the cameras were rolling, I brought out the questions about "corporate welfare." I foolishly thought I could get him to admit he was a rich guy milking the system. I thought he’d at least act embarrassed about it. Fuggeddaboutit. He was unfazed.
Stossel: Mother Jones [magazine] pictured you as a pig. You’re a pig feeding at the welfare trough.
Andreas: Why should I care?
Stossel: It doesn’t bother you?
Andreas: Not a bit.
I still wonder why he granted the interview. I asked him about his bribes -- I mean, contributions. For example, Andreas gave the Democrats a check for $100,000. A few days later, President Clinton ordered 10 percent of the country to use ethanol.
Stossel: And the purpose of this money wasn’t to influence the president?
Andreas: Certainly not.
Stossel: So why give him the money?
Andreas: Because somebody asked for it.
Because they asked for it? Give me a break.
In an ABC special I made called Freeloaders, economist Walter Williams aptly noted: "A panhandler is far more moral than corporate welfare queens....The panhandler doesn’t enlist anyone to force you to give him money. He’s coming up to you and saying, ‘Will you help me out?’ The farmers, when they want subsidies, they’re not asking for a voluntary transaction. They go to a congressman and say, ‘Could you take his money and give it to us?’ That’s immoral."
Andreas’ attitude is rampant in many different areas of corporate America, and it’s an ugly one. But there’s always some legitimate-sounding justification. The politicians need your money for national security, research, job protection, or to "protect the food supply." After spending time on the golf course with lobbyists, politicians will find a way to justify almost anything. They justify giving subsidies to prosperous companies that sell goods overseas by saying that the resulting exports will be "good for America." They will be. But does Sunkist need taxpayer help to sell oranges? McDonald’s to sell McNuggets to the Third World? Let them do their own marketing. My employer -- Disney, which owns ABC -- got tax money to create better fireworks at Disney World. Really.
Politicians will hand over millions of dollars to sports teams under the pretense that it will help create jobs and economic activity -- ignoring the jobs and economic activity that would have resulted had the taxpayers been able to keep their millions to spend on what they chose. (See "If You Build It, They Will Leave," January.)
Some handouts allegedly keep certain industries alive in America -- even though we’d all be better off just buying their products from overseas if foreign producers can make them cheaper. The shipping industry, for example, gets billions in handouts. Without them, American shipbuilders say, they can’t compete with low-cost shipbuilders overseas. American politicians should say: "They’re more efficient overseas? Fine! We’ll buy their cheaper ships." And American taxpayers would be richer. But we don’t do that -- because the shipping industry has friends like former Senate Majority Leader Trent Lott (R-Miss.). He makes sure Congress keeps your money close to home -- his home.
I interviewed Lott. Without moving the tripod, our camera could pan from his Mississippi home to the shipyard that got half a billion dollars of your money to build a ship the Defense Department never even requested. Lott didn’t even seem ashamed of that. "Pork is in the eye of the beholder," he joked. "Where I’m from...[pork] is federal programs that go north of Memphis."
Isn’t Your Home Your Castle?
Occasionally, politicians are so eager to help their rich friends that they’ll take your home to do it. The legal doctrine of "eminent domain" (which means "superior ownership") allows government officials to take possession of your property if they decide they need it for the greater good. Traditionally this meant building highways, bridges, and parks, and eminent domain was used only in unusual situations.
But today government officials use eminent domain to help private companies -- Kmart, Home Depot, baseball teams, shopping malls. Hurst, Texas, condemned 127 homes that stood in the way of a developer’s plan to expand a mall. Toledo, Ohio, got a $28.8 million HUD loan to forcibly relocate the owners of 83 perfectly nice homes that were condemned to make way for a Jeep factory. A county in Kansas condemned property belonging to 150 families to make way for NASCAR’s Kansas International Speedway.
Sometimes citizens fight back, and when they do they can win -- even against a foe as big as Donald Trump and the Atlantic City politicians in his pocket. In the early 1990s, the billionaire already owned Trump Plaza, Trump Tower, Trump Parc, Trump International Hotel, Trump Palace, Trump World’s Fair, and Trump Taj Mahal. But he wanted more. He wanted to expand one of his casinos in Atlantic City.
Vera Coking was in the way. The elderly widow had lived in a house in Atlantic City for more than 30 years, and she didn’t want to move. Trump offered Coking $1 million if she’d sell. She said no.
This annoyed Trump. He told reporters her house was ugly, and it would be better if it were torn down to make room for a parking lot for limousines waiting outside his casino.
I wouldn’t think that was "public use," but before you could say "corporate welfare," New Jersey’s Casino Reinvestment Development Authority filed a lawsuit in 1994 to "acquire" Coking’s property. It told Coking she must vacate her home within 90 days or the sheriff would forcibly remove her.
Suddenly the $1 million offer was off the table. The authority said Coking’s house was worth only $251,000 -- one-fifth what Trump paid for a smaller lot nearby.
It looked to me like the government was robbing Vera Coking to pay off Donald Trump. The government officials wouldn’t talk to me about it, but Trump did.
Stossel: In the old days, big developers came in with thugs with clubs. Now you use lawyers. You go to court and you force people out.
Trump: Excuse me. Other people maybe use thugs today. I don’t. I’ve done this very nicely. If I wanted to use thugs, we wouldn’t have any problems. It would have been all taken care of many years ago. I don’t do business that way. We have been so nice to this woman.
Trump said Coking turned down his offer because "her lawyer wants to get rich, and everybody wants to get rich off me."
Stossel: So don’t pay it. Let them stay. Basic to freedom is that if you own something, it’s yours. The government doesn’t just come and take it away.
Trump: Do you want to live in a city where you can’t build roads or highways or have access to hospitals? Condemnation is a necessary evil.
Stossel: But we’re not talking about a hospital. This is a building a rich guy finds ugly.
Trump: You’re talking about at the tip of this city, lies a little group of terrible, terrible tenements -- just terrible stuff, tenement housing.
Stossel: So what?
Trump: So what?...Atlantic City does a lot less business, and senior citizens get a lot less money and a lot less taxes and a lot less this and that.
Sadly, claims that people will be deprived of "this and that" can now be used by politicians to condemn your house. It didn’t seem right to Vera Coking. "This is America," she said. "My husband fought in the war and worked to make sure I would have a roof over my head, and they want to take it from me?"
Usually the Donald Trumps of the world and their partners in government get what they want. But Vera Coking was lucky enough to get media attention -- and to have a public-interest law firm, the Institute for Justice, take her case to court. In 1998 a judge finally ruled against Trump and the government, finding that taking the property would benefit Trump, not the public. Vera Coking got to keep her home. She still lives there, surrounded by Trump’s hotel.
Such victories against the awful advantages that government loves to grant to the wealthy and well-connected are possible. But to see more of them will require a great deal of diligence on the part of citizens -- and the news media. If we want to live up to the old saw that the press should "comfort the afflicted and afflict the comfortable," the TV cameras need to spend more time focused on the ugly realities of welfare for the rich.