Small Retailers Being Forced Out By Government Subsidies to Big Chains

Small retailers the nation over are being pushed out of business by government subsidies to chain competitors such as Wal-Mart and Target through a variety of “corporate socialism” schemes, taxation authority David Cay Johnston says.

Municipalities are permitting “tax increment financing” that allow the big chains “to keep the sales taxes that you are forced to pay at the tax register,” Johnston said on the television interview program Books of Our Time, sponsored by the Massachusetts School of Law at Andover and broadcast by Comcast.

“Instead of that money going to the schools and the fire department and the police department and the library, it is funneled through a mechanism of local government, usually a special authority, to finance the purchase of municipal bonds so that means that the wealthy underwriters and the lawyers and auditors all get a piece of this money to buy the land and build the store,” Johnson told TV host Lawrence Velvel, dean of the law school.

The store is then leased to the big chain developer “at terms that amount to giving it to them for free or nearly free over a period of time,” Johnston said, “and it’s destroying local business.” An amazing aspect of this “corporate socialism” policy, Johnston says, “is that local business owners have not risen up and stopped this.”

“A system in which government, whether Federal or local, picks the winners in the economy, is not capitalism, it’s not competition, it’s not free market, it is corporate socialism, it is statism, it’s the state making these choices,” Johnston said.

In his new book, Free Lunch (Portfolio) Johnston amplifies this point by noting “Sam Walton practiced corporate socialism. As much as he could, he put the public’s money to work for his benefit. Free land, long-term leases at below-market rates, pocketing sales taxes, even getting workers trained at government expense were among the ways Wal-Mart took every dollar of welfare it could get.”

“Walton had a particular fondness for government-sponsored industrial revenue bonds,” Johnston continued, “which cost him less in interest charges than the corporate bonds the market economy uses to raise money.”

Johnston said in the television interview that if the public really understood what was happening they would not permit government subsidies to corporations to go forward.

Johnston pointed out: “Subsidies to retail cannot make us wealthier. Retail is at the end of the economic line. If you want to subsidize things, first subsidize education, then subsidize basic research, then subsidize applied research and development and subsidize infrastructure — rails and canals and highways — and maybe in some cases manufacturing and mining to get something going. But the least bang for the buck, and often the negative bang for the buck, would be subsidizing retail. What’s happening is wealthy families, the richest families in America, are getting welfare and they apparently have no shame about this.”

Johnston points out government handouts for Wal-Mart “reduce the costs of competing in the market” and by soliciting the subsidies “Wal-Mart shifted some of the risks of its expansion onto the majority of Americans who are not regular Wal-Mart shoppers.”

He said the fortune Wal-Mart is reaping is no different from what other corporate players are getting. “We are transferring enormous amounts of money to corporations and wealthy individuals,” Johnston pointed out. For example, he said, “We gave Warren Buffett’s companies a hundred million dollar gift last year.” (Buffett’s firm has a two-thirds-billion-dollar, interest-free loan from our government for more than 28 years, Johnston notes. Similarly, Donald Trump benefits from a tax enacted to help the elderly and the poor but part of which is now diverted to his casinos, Johnston says.)

“The incomes of the top one percent are exploding, are pulling away from everybody else,” Johnston said, “while the middle-class is stifling and the bottom is dropping out (of the economy).”

Author Johnson, for many years the tax reporter for The New York Times, has won a Pulitzer Prize and many other awards and uncovered so many tax dodges that he has been called the “de facto chief tax enforcement officer of the United States.”

* The Massachusetts School of Law(MSL), sponsors of Books Of Our Time, is a non-profit institution dedicated to providing a quality, affordable legal education to minorities, immigrants, and students from economically disadvantaged families who would otherwise not be able to attend law school and enter the legal profession.

Sherwood Ross is an American writer who has worked in the civil rights movement and reported for major dailies and wire services. He can be reached at: Read other articles by Sherwood, or visit Sherwood's website.

13 comments on this article so far ...

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  1. John Q said on March 25th, 2008 at 9:14am #

    So how do we stop it?

  2. George Donnelly said on March 25th, 2008 at 11:40am #

    End all subsidies. Enact a strict separation of state and economy.

  3. The Savage said on March 25th, 2008 at 11:44am #

    Elect small government (libertarian) officials. Get involved in local politics in both the democrat and republican parties. The problem is… the government has too much money and too much power. We need a return to the basic tenants of the constitution. In terms of corporate subsidies there is no difference between the major parties right now. The first party that takes this message to the people will win and win big.

    The answer is ‘limited government.’

  4. Dave Greiman said on March 25th, 2008 at 12:55pm #

    Oust elected officials who vote in favor for such corporate welfare.

  5. Chaos Motor said on March 25th, 2008 at 2:22pm #

    Thank God I’m not the only one who realizes this. Kansas City has paid for its entire downtown with TIF, and no one seems to care about how we will finance ongoing maintenance on our infrastructure during their 25 year tax abatements. The city is falling apart, and we’re giving all the breaks to companies who profit from our commerce but don’t provide any infrastructure (tax) support whatsoever.

  6. feckineejit said on March 25th, 2008 at 2:27pm #

    Stop corporate personhood, stop allowing lobbyists to decide legislation on the state and federal level.

  7. HR said on March 25th, 2008 at 2:39pm #

    I find the public subsidy of ANY private business to be an outrage, not just the subsidy of large outfits like Wal-Mart. That said, I get so tired of hearing the sad old story of how bad Wal-Mart is, while small business is left out of the equation, except as something to be admired, nurtured, and loved. Those folks are as bad, or worse than Wal-Mart, and, on a collective scale, owing to their numbers, probably more damaging to the overall well-being of working people than Wal-Mart and all the other “evil” big-box outfits combined.

    I grew up in a rural area where the livestock industry and the Chamber of Commerce ruled absolutely. The local merchants tended to look down their noses at customers who were not members of the old local ruling elite. They were also among the first to oppose bond issues to fund public services, particularly schools. Additionally, they paid the lowest possible dollar for employee wages, with NO benefits. As a result, my opinion of the Chamber and its members was formed early. Nothing since has made me change that opinion.

    Following graduation, I moved to a metropolitan area and enrolled in a public university, which in those days was easily affordable for a working-class kid like me, willing to work part-time. The hard part was meeting the scholastic requirements for acceptance. Even failing that, almost anyone could get accepted by a state college, even cheaper, or a junior college, practically free and, for most, the best way to complete lower-division classes before advancing to a 4-year college. During that time, I worked for small businesses. The experience reinforced my earlier opinion, as I constantly heard the bosses’ cry about losing money, or employees tapping the till, not being able to afford raises, not being able to afford benefits as basic as sick leave and vacation, even as they bought new vehicles, new toys, new houses, and basically lived as minor lords of the manor. I vowed then to avoid small businesses, or business in general as a means of employment following graduation. I also avoided small business like the plague when making purchases, since now I had access to real stores, like Sears and Penneys, which sold goods at reasonable prices and which paid a living wage, with benefits, to their employees.

    As time went by, I welcomed big box stores, like Price Club, and the various home supply stores. I encountered my first Wal-Mart in 1990, and was delighted. They sold the same imported goods proffered by the vaunted small businesses, but at a price I could afford … and they treated their employees no worse than the small-business “saints”, who would hire part-time to avoid paying benefits, who “let go” employees after 5 months and 29 days for the same reason, and who expected employees to arrive early and work late, with no compensation for the extra time put in. You were off the clock when the business closed, even though it might take a quarter hour or more per shift to count the change, bag it up and lock it away, turn off the lights and lock the doors.

    More time went by, and I noted that most elected local government officials – you know, the ones who use public (your tax) money for airports and stadia, which primarily benefit the business community, and who cut deals with outfits like Wal-Mart – were small business owners, or self-employed professionals, like doctors and lawyers. An example of the willingness of small business owners willing to do anything for a buck.

    I also began to wonder how outfits like Wal-Mart could find employees if the saintly small businesses were doing such a fine job of providing employment in the areas where Wal-Marts went. I concluded either that Wal-Mart imported all its employees (unlikely, given what they pay), that unemployment was high in the wonderful world brought to us by small business, or that people working for our illustrious small businesses saw even the lousy wages and benefits of Wal-Mart as a step up. I suspect the latter.

    So, small business owners, don’t look for a damned bit of sympathy for me, and there are plenty who share my opinion of you. It just aint there. I hope that Wal-Mart gets its ass kicked, and hard, for the way it treats employees, but I hope the same thing happens to whining small business owners … you’re just as bad, or worse, given your numbers.

  8. Dave Daley said on March 25th, 2008 at 4:22pm #

    HR, you are poorly informed, and lacking the knowledge to see what is going on.

    Go on, love your cheap imported goods, but please try not to be blind to WHY you get these goods, or WHAT the effect of big box is on the local economy.

    Your claims of how much you “know” and how much you “have seen” are belied by your ignorance of what is going on. Whether you like one side or the other, it is stupid for you to talk like corporate welfare is not going on.

  9. Chris said on March 25th, 2008 at 6:56pm #

    I think that you need to go review the Tax Increment financing legislation. The real estate taxes continue to support the schools, fire dept, etc; in fact there is an increase in the real estate taxes above the current valuation to the estimated assessment of the development. So the fact that local government’s are supporting developments that developers wouldn’t touch are being redeveloped because in at least 3 states that I know of require the site to be blighted and the stringent laws on blighting restrict developers from blighting anything and everything. And the TIF money can only be used for certain things like infastructure and demo for instance. And most TIF legislation requires the loan to be paid back in 15 years, but most of the time because the land has been assessed at a higher rate the loan is paid back faster and the local government’s purse is filled with more money supporting the schools and such with more money than it was receiving before.

  10. vince said on March 25th, 2008 at 7:34pm #

    > Q. So how do we stop it?

    A. Buy Indie (

    Anyone can get involved.. every dollar is a vote.

  11. HR said on March 25th, 2008 at 8:43pm #

    Dave Daley, as stated, I oppose subsidy (welfare) of any business, for any purpose, by any level of government, and did not suggest in any way that it does not occur. How you conclude that makes me question whether you read carefully. What I dispute is hanging all the blame on outfits like Wal-Mart, while small businesses, which are guilty of the same practices undertaken by the big guys, or worse, gets lauded, portrayed as injured parties, and left out of the analysis. They sell the same imported goods as the big outfits, but charge more for them, and the extra money goes into the pockets of owners, enriching them, not their workers, either in terms of wages or benefits.

  12. KR said on March 26th, 2008 at 9:18am #

    I think a living wage strategy helps. Tie all goernment subsidies to businesses, such as TIF, to a living wage (defined by workers in each community), benefits, and a union card-check agreement. It’s only fair.

    And I agree with HR’s assessment of small businesses, generally. As the co-owner of a small construction business which chose to be union from the get-go out of principle, I find that it really pisses me off to observe other small construction companies get ahead by expoliting the workers. We barely get by, and believe me, there’s no government subsidy, new truck or vacation or house in the picture, but the other guys are seemingly living the high life. It sure would be nice to have a level playing field that was based on workers’ rights and good pay and benefits. I don’t know if we’re going to make it, but we figure if you can’t do it right, you shouldn’t do it at all, and coming to it as working people ourselves, we understand about being exploited by the boss.

  13. Luis Cayetano said on March 26th, 2008 at 11:31pm #

    “End all subsidies. Enact a strict separation of state and economy.”

    A strict separation of state and economy sounds nice, but it’s complete hogwash. Not only won’t it ever happen, it CAN’T ever happen. Private enterprise has always relied on the state to remain afloat, through subsidies, bail-outs, unfair trading conditions imposed on other countries, adjustments to the currency, and military interventions. Without these “market distortions”, the whole system would have collapsed long ago. The answer isn’t to acquiesce to the ideological fantasies of those who hypocritically talk about “free markets” – fantasies that are never going to come true – it’s to restructure the whole society so that resources are in the hands of the people rather than concentrated in those of a relative few.