President Trump and his DOGE team are busy cutting the federal bureaucracy. Meanwhile, the House Republicans’ recently passed budget resolution targets entitlement programs for savings.

So far so good, but we also need action to cut the most wasteful spending of all — corporate welfare. My new Cato study finds $181 billion in annual spending on corporate welfare (a.k.a. business subsidies), including handouts for agriculture, broadband, semiconductors, energy, airports, automobiles, and many other industries.

Republicans must cut spending to ensure that they do not increase already massive deficits. The House budget plan includes $4.8 trillion in tax cuts and new spending over a decade but only $1.5 trillion in spending cuts. The GOP should add corporate-welfare cuts of $1.8 trillion over a decade, and they should repeal $1 trillion of energy-tax loopholes passed under President Biden, which are essentially corporate welfare as well.

Corporate welfare is costly to the budget and harmful in many ways, as detailed in the Cato study.

  1. Central Planning. When politicians choose businesses to subsidize, they often make wrong guesses about technology and the economy. For example, the government has spent billions of dollars on carbon-capture projects that have nearly all failed, and they have subsidized numerous boondoggle solar-power projects, such as Crescent Dunes and Ivanpah.
  2. Collateral Damage. Subsidies cause damaging side effects that can outweigh any benefits. For example, President Biden’s subsidies for wind and solar power, batteries, and electric vehicles (EVs) are not particularly green, as these technologies can harm wildlife and damage natural landscapes while creating large piles of trash down the road.
  3. Distraction. Subsidies distract businesses, divorcing them from consumers. Ford Motor and other automakers are losing billions of dollars because subsidies induced them to build too many high-cost EVs that their customers do not want.
  4. Regulations. Subsidies are not simple transfers of money, since they are often paired with complex regulations for labor, environment, domestic content, and other political mandates. Such rules raise project costs and cause delays, as we have seen with Biden’s subsidies for the semiconductor industry.
  5. Displacement. Subsidies displace activities that markets can provide. Federal grants to technology industries displace private venture capital. Federal loans to businesses displace loans from banks. And subsidies for federally owned businesses, such as Amtrak, displace entrepreneurs from providing those services.
  6. Bureaucracy. Subsidies create bureaucracies of high-cost lawyers. Biden’s tax breaks and spending subsidies for renewable energy have generated tens of thousands of pages of regulations that only experts understand. Bloomberg reported last year, “Large law firms have experienced a boom in renewable energy work,” with experienced attorneys at big firms earning at least $300,000 a year.
  7. Fraud and Abuse. All subsidy programs are targets for fraud and abuse, and business subsidies are no exception, such as those for farm businesses and housing developers. Federal auditors found that up to $200 billion was stolen from Covid-era business-subsidy programs.
  8. Unfairness. The U.S. Supreme Court’s façade promises “equal justice under law,” but business subsidies create winners and losers. Big corporations often get massive subsidies and tax breaks for new facilities, but most small businesses pay heavy tax burdens and don’t get subsidies. Place-based subsidies are also unfair. Businesses in Republican-enacted “opportunity zones” and Democrat-enacted “energy communities” get showered with subsidies that are not available elsewhere.
  9. Corruption. Enron and Solyndra were subsidized failures with corrupt ties to the George W. Bush and Barack Obama White Houses, respectively. As for the Biden White House, the Associated Press reported, “First Solar’s … profits have soared thanks to new federal subsidies that could be worth up to $10 billion over a decade. The success has delivered a massive windfall to a small group of Democratic donors who invested heavily in the company.” First Solar’s executives had meetings with top Biden officials, and the company dished out millions of dollars on lobbying and campaign contributions.
  10. Trust. A Gallup poll found that just 9 percent of Americans have “a great deal” or “quite a lot” of confidence in Congress, and just 16 percent had that level of trust in big business. One reason for this is disgust at corporate cronyism. To regain trust, Congress should open markets, end corporate welfare, and level the playing field in all industries.

Corporate welfare is nothing new. Congress subsidized the fur industry in the 18th century, railroads in the 19th century, and farm businesses beginning in the 1920s. But the size and scope of business subsidies have grown sharply in recent years.

In addition to spending subsidies, President Biden expanded corporate-tax loopholes for supposedly green industries, and President Trump is protecting favored industries with high tariffs. More American industries than ever are being driven by politics, which undermines the economy’s fairness, growth, and dynamism.

Republicans often claim that the Democrats caused our huge deficits and have corrupt ties to industry. Now is their chance to prove that they are different by slashing corporate welfare in upcoming budget legislation.