So goes the Export-Import Bank
Has Massachusetts’ economy suffered since July 1? It was supposed to.
At least, that’s what lobbyists in Washington predicted would happen after the Export-Import Bank expired on June 30. Over the past decade, this little-known federal agency handed out more than $200 billion in taxpayer-backed financing to businesses, supporting only 3.6 percent of Massachusetts’ exports along the way. Many of those companies claimed the sky would fall if Congress didn’t keep the taxpayer money flowing.
Then Congress called their bluff.
At midnight on June 30, the bank expired, which means it can’t offer new taxpayer-backed financing to companies. And the sky didn’t fall, either in Massachusetts or anywhere else in America.
But this shouldn’t come as a surprise. The Ex-Im Bank is corporate welfare, using public money to finance private profits. Although this helps a select few well-connected companies—a mere ten major businesses benefitted from roughly two-thirds of the bank’s money in 2013—it simultaneously harms the broader economy. In that sense, Ex-Im’s expiration is actually good news for countless businesses, big and small, in Massachusetts.
Here’s why. The Export-Import Bank uses tens of billions of dollars every year to support less than two percent of America’s exporters. The other 98 percent—over 300,000 companies—don’t get this taxpayer-financed help.
This has put many of those firms at a competitive disadvantage for years. When Ex-Im gives taxpayer-backed support to one business, that business gets a leg up on its domestic rivals. Similarly, the bank helps foreign companies gain market share over American companies when it helps them buy exports with the taxpayer’s help. And when the bank supports one business’ exports, that same business’ local buyers can face higher prices for the same product.
This is what happens when politicians and bureaucrats try to pick the economy’s winners. They end up picking losers, too. It’s Economics 101.
Yet that isn’t what the Ex-Im Bank’s beneficiaries have been telling Massachusetts’ politicians in Washington. They’ve been claiming that the bank’s expiration will cost jobs and hurt the economy. One company has even threatened to move jobs overseas if it stops getting taxpayer handouts.
Then again, that’s a common refrain with all examples of corporate welfare. The businesses that benefit complain—and even threaten—when their subsidies are at risk. Yet if these deals are actually beneficial, the private sector will have little problem financing them. Financial analysts on Wall Street have already indicated that private banks want a bite of Ex-Im’s business.
Unfortunately, Ex-Im’s business backers—and the politicians they support—are still scheming to resurrect the bank later this month. Instead, they should look to policies that could boost America’s exports without putting taxpayers on the hook. Three reforms in particular stand out.
Congress should lower the corporate tax rate, which at 39.1 percent is currently the highest in the industrialized world. This puts American companies at a gross disadvantage compared to their international competitors.
Lawmakers should scale back excessive and unnecessary regulations. Federal regulations alone cost nearly $2 trillion every year, or roughly ten percent of America’s economy. Businesses can’t create jobs and grow the economy—or sometimes even get off the ground—when they’re strangled by red tape.
And Congress should also work to break down artificial barriers to international trade. Tariffs, duties, and other protectionist barriers stifle the global commerce that’s crucial for economic well-being.
Reforms in these areas would dramatically improve America’s economy. Resurrecting the Export-Import Bank would not. Until June 30, this federal agency used taxpayer money to help a select few well-connected companies while simultaneously harming their competitors. Now those businesses are finally on a level playing field.
Tilting it back in the other direction may sound good to politicians in Washington, but it shouldn’t to taxpayers in Massachusetts.
Andy Koenig is senior policy adviser at Freedom Partners Chamber of Commerce.