Lobbying is a Lucrative Investment, Researchers Find
Tax Shelters Slowed DC Metro Upgrade
| What happens behind the scenes affects the wellbeing of the public. So let's geonomize and replace taxes with "land dues" and replace subsidies with a "Citizens Dividend". We trim, blend, and append three 2009 articles from: (1) OpenSecrets.org of the Center for Responsive Politics, Jun 25, on lobbying by Aaron Kiersh; (2) the Washington Post, Jun 29, on GE by Jeff Gerth, ProPublica, and Brady Dennis, Washington Post; and (3) The Wall Street Journal, Jun 26, on DC Metro by Jesse Drucker and Christopher Conkey. |
by Kiersh, by Gerth & Dennis, and by Drucker & Conkey
- Lobbying is a Lucrative Investment, Researchers Find
Your investments might have suffered as a result of the financial crisis, but Big Business has found one successful investment that may be recession-proof: lobbying.
For every dollar a company spends on lobbying, its value increases by $200 (see "Determinants and Effects of Corporate Lobbying", June 15, by Robert Van Ness and Matthew Hill and Wayne Kelly). The average investment in lobbying by the sampled firms, which slightly exceeds $1 million, can increase shareholder wealth by roughly $253 million per year. That equates to a 22,000% return on the investment in lobbying.
Overall spending on lobbying has increased each year since 1999, rising to $3.27 billion in 2008.
Over the past 11 years, the US Chamber of Commerce has spent the most money ($477 million) on lobbyists. The American Medical Association ranks second ($204.3 million). Both are major players in the current debate over health care reform. Weaponeer General Electric, No. 3 on the list of top spenders, has spent more on lobbying ($187.2 million) than any other corporation.
Conversely, donations to candidates made by individuals and PACs affiliated with a company did not lead to an increase in the company's value. Nevertheless, some groups still spend big on such politicking. Two unions, two private-sector companies and two trade associations have each contributed more than $30 million since 1989 to politicians across the political spectrum. And the American Medical Association and General Electric, for example, also bolster their lobbying efforts by ranking 14th and 36th, respectively, on the list of top political contributors since 1989.
JJS: So, what did GE get for its money?
- How a Loophole in Bank Rescue Benefits GE
General Electric, the world's largest industrial company, has quietly become the biggest beneficiary of one of the government's rescue programs for banks.
The company did not initially qualify for the program, but regulators soon loosened the eligibility requirements, in part because of behind-the-scenes appeals from GE.
In the Great Depression, GE created a consumer finance arm so that cash-starved families could buy its appliances. In the past five years it accounted for nearly half of its parent's net earnings. GE may be better known for light bulbs and home appliances, but GE Capital is one of the world's largest financial operations, lending money for commercial real estate, aircraft leasing, and credit cards for stores such as Wal-Mart.
At the height of last fall's financial crisis when credit markets froze, it was hard even for GE Capital to sell “commercial paper”, short-term corporate IOUs sold to large investors.
Initially GE couldn't meet the government’s rescue program's eligibility requirements. So the company requested that an FDIC program be broadened. Days later, the FDIC announced a new category of eligible applicants -- "affiliates" of an FDIC-insured institution. Owning two small Utah banks, GE Capital now was eligible.
Like other companies in the program, GE pays the FDIC fees to use the guarantees -- a little more than $1 billion so far. But the fees are far below the cost of credit protection now.
The FDIC program (TLGP) originally was slated to end in June. But at the Treasury's request the FDIC agreed to extend it until Oct. 31. Some participants have stopped using the program but GE Capital continues.
Much of the $340 billion in debt will come due in 2012, the year the FDIC guarantees expire. At that point, known in banking circles as the "cliff," the agency would have to make good if companies such as GE are unable to honor their obligations. FDIC officials say the agency has collected more than enough money to cover potential losses.
JJS: Not just pseudo banks but real ones, too, get favors from the state, some of which turn out to harm people.
- Tax Shelters Slowed DC Metro Upgrade
Washington transit authorities failed to upgrade aging rail cars in part because of tax-shelter deals, triggering charges days after a fatal train crash that financial concerns were outweighing passenger safety.
The nine victims may have had a better chance of surviving had they been riding in newer cars with better safety features. The National Transportation Safety Board recommended in 2006 that the Washington Metropolitan Area Transit Authority either accelerate retirement of some of its oldest rail cars or rehabilitate them. The authority responded in 2007 that it was "constrained by tax advantage leases, which require that WMATA keep the 1000 Series cars in service at least until the end of 2014."
While municipalities are not taxed, owners of rail cars that they lease out can claim tax deductions. So Washington DC transit sold its cars to banks, leased them back, and got large slugs of cash from the banks who deducted the cars’ depreciation.
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Jeffery J. Smith runs the Forum on Geonomics.
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Also see: Banks Getting TARP Money Lending Less Than Other Banks
Richest Americans' Income Doubled as Tax Rate Slashed
A retrospective on the recent rescue |
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