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Charles Koch: We’re creating welfare for the wealthy

Charles Koch, the billionaire CEO of Koch Industries, says welfare is making people’s lives worse, but he’s not talking about welfare for low-income parents or the elderly. He’s aiming at a much bigger target. He’s talking about welfare for some of the most valuable companies in the world in the form of government handouts such as tax breaks and subsidies.

Before you go on a rant about how Koch’s own company—the second largest private company in the United States behind Cargill—benefits from the very same corporate benefits, he readily acknowledges that fact.

In his new book, Good Profit: How Creating Value for Others Built One of the World’s Most Successful Companies, Koch writes:

“We advocate the elimination of all these distortions, even those from which we currently benefit – such as ethanol mandates, restrictions on the export of crude oil and natural gas, and import tariffs. As an ethanol producer and large consumer of U.S. crude oil and natural gas, we profit short term from these market distortions. But rules like these – that don’t lead to good profit – leave virtually everyone worse off long term, including us.”

In an effort to change that, Koch is advocating for CEOs to reject the tax breaks and to push for changes in the laws that have netted America’s largest corporations hundreds of billions of dollars. It may seem like a fool’s errand to try to convince a CEO of a massive multinational corporation who must answer to a board and shareholders to forego anything that boosts their company’s bottom line.

It is asking a lot. According to a report from Good Jobs First, which tracks government subsidies, some of the biggest companies in the United States received hundreds of billions of dollars in federal grants and tax credits. General Electric (GE) received $836,000,000 and General Motors (GM) received $529,000,000.

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So why would these companies want to give that up? In Koch’s view, the dangers far outweigh the lost profits. He sees a not-too-distant future in which the federal government, largely through the Federal Reserve, will control American companies. If that sounds far-fetched, consider the too-big-to-fail phenomenon of the last decade, in which the federal government, represented by the Federal Reserve chairman, gathered the CEOs of some of the nation’s largest banks in a room and essentially handed them cash and engineered deals that allowed them to remain viable businesses.

It is one example of what Koch describes as the government picking winners and losers and leaving the most needy behind.

“This is creating a two-tiered system where opportunities for the disadvantaged are being destroyed and we’re creating welfare for the wealthy, so it’s unjust,” he told Yahoo Finance editor-in-chief Andy Serwer at the EY Strategic Growth Forum in California. “It’s an unjust system, and it’s making people’s lives worse.”

Household income last year was $53,657 adjusted for inflation, according to the Census Bureau. That’s down 6.5% since 2007, the year before the recession began.

The unemployment rate is down to 5%, but the labor force is at its lowest level since 1977, and the U.S. saw a sharp slowdown in economic growth in the third quarter, growing at just 1.5%.

Would cutting tax breaks and government subsidies for corporations encourage companies to hire? Or would it have the opposite effect?

Koch believes that allowing the free market and the customer to drive companies’ decisions will ultimately benefit the greater good, more so than if the government drives those decisions. Do you agree? Post a comment below and share your thoughts.

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