WHY SUBSIDIES SURVIVE

By Karen Tumulty/Washington

THE MILLION DOLLARS THAT TAXPAYers spend to promote Uncle Ben's rice in Poland, Turkey and Saudi Arabia. The $2 billion government outlay that helps keep electric power a bargain in Aspen and Hilton Head. The $3 million that a cargo-ship owner can expect to pocket for making his vessel available to Uncle Sam in wartime--even though the Pentagon no longer wants it. Was it only a year ago that the full-throated budget warriors of the Republican revolution were unleashing a pitiless campaign to cut off the tens of billions of dollars expended each year on subsidies and tax breaks for big business?

Earlier this month a bipartisan group of Senators proposed creating an independent commission to handle corporate-welfare reform. This is Washington's version of "Please continue to hold. A service representative will be with you shortly." But it was the best they could do, since neither Congress nor the White House seems capable of tackling the issue.

Even that feeble effort stands little chance of being taken seriously. The urgency of balancing the budget has given way to the urgency of getting re-elected. That means politicians of both parties will be busy collecting campaign contributions from PACs and interest groups tied to the very businesses that are targets of reform.

Ending corporate handouts is one of the rare topics on which activists and think tanks from both the left and the right find agreement. By some estimates, the government funnels up to $75 billion a year to business, enough to account for almost half the federal deficit. The Agriculture Department, for instance, will spend $110 million this year to advertise overseas everything from V8 juice to Friskies, a "market promotion" budget that is almost 30% higher than in 1995. As these companies are among the world's best at marketing, "it's hard for me to believe that McDonald's needs government bureaucrats to tell them how to sell Chicken McNuggets," says Beau Boulter, chairman of the antitax group CapitolWatch.

Governments have long used subsidies as economic-development tools, particularly in nascent industries. But economists argue that in mature industries subsidies ultimately do harm by propping up inefficient and unproductive firms.

In some cases, federal help distorts the industries it seeks to stabilize. For instance, by spending billions to insulate the nation's dwindling shipbuilding industry from cheaper foreign competition, the government may be temporarily salvaging high-paying jobs. But why put more ships into the water when the ones already afloat are having trouble making a profit? Still, this Depression-era program stands a good chance of being renewed this year--in no small measure because maritime unions and business PACs have contributed more than $17 million to congressional campaigns over the past decade, according to the watchdog group Common Cause.

Last year virtually every proposal to cut corporate welfare met a quiet death at the hands of the committees that pass on spending and tax legislation. What House Budget Committee chairman John Kasich and his forces considered unjustifiable giveaways other Congressmen defended as vital to their districts. In the end, the 25 or so programs considered most egregious by critics from all sides--say, building logging roads for timber companies at government expense--saw their budgets nicked some $2.6 billion, or only 16%, says Stephen Moore, fiscal-policy director of the libertarian-leaning Cato Institute. And for all its denunciation of "aid to dependent corporations," the White House actually recommended a 4% increase in spending for those programs.

Kasich has pledged to renew the fight, but he has already given up at least half the battle. This year the Budget Committee will focus its effort entirely on direct payments the government makes to business, ignoring the estimated $50 billion a year Washington grants in tax breaks.

The Republicans are aware that voters will not rally to a party that doesn't extend the war on entitlements to wealthy contributors as well as less powerful interests. "It obviously harms our credibility," says Arizona Republican John McCain, a leading backer of the idea of creating an independent commission. "And that's why, over time, we're going to succeed."

--With reporting by Bernard Baumohl/New York

With reporting by Bernard Baumohl/New York