Mitt Romney takes a tough line on welfare. In 2008 Republicans cheered when he said that America’s culture was threatened by welfare payments to poor people. Asked how tax reform plan would help Americans on low incomes he said his plan was "primarily based on trying to create jobs, not handing out cash to individuals."
But while Romney opposes cash handouts to individuals, he seems relaxed about cash handouts to business. In the early 1990s his private equity firm Bain Capital helped finance a company called Steel Dynamics. According to a report in the Los Angeles Times:
Bain Capital began looking at investing in the steel start-up in late 1993. At the time, Steel Dynamics was weighing where to locate its first plant, based in part on which region offered the best tax incentives. In June 1994, Bain put $18.2 million into Steel Dynamics, making it the largest domestic equity holder. It sold its stake five years later for $104 million, a return of more than $85 million.
As Bain made its investment, the state and county pledged $37 million in subsidies and grants for the $385-million plant project. The county also levied a new income tax to finance infrastructure improvements to benefit the steel mill over the heated objections of some county residents.
"I’m very pro-business, but I’m not pro-business-welfare," said DeKalb County resident Suzanne Beaman, 58, who fought the incentives. Steel Dynamics "would have done fine without our tax dollars, I have no doubt."
Another steel company in which Bain invested, GS Industries, went bankrupt in 2001, causing more than 700 workers to lose their jobs, health insurance and a part of their pensions. Before going under, the company paid large dividends to Bain partners and expanded its Kansas City plant with the help of tax subsidies. It also sought a $50-million federal loan guarantee.
Is this what Romney meant when he spoke about providing "incentives to help companies to be creating new jobs"?
According to Kenneth Thomas, the author of Investment Incentives and the Global Competition for Capital: "investment incentives tend to be economically inefficient and make income distributions more unequal (by transferring funds from average taxpayers to owners of capital)."
Thomas argues that cutting subsidies to business would help state and local governments reduce deficits and avoid making cuts in areas such as health and education. He estimates that state and local governments hand out almost $50 billion in tax incentives and other subsidies. In most cases, state subsidies "are enacted in order to compete with other states, and they largely offset each other without having much effect on the national distribution of investment."