By PJ Austin, Special for USDR
This fall, Congress will have an opportunity to shut off a massive spigot of corporate welfare that costs taxpayers hundreds of millions of dollars each year. All that senators and representatives have to do is what they do best: absolutely nothing. When the authorization for the Export-Import Bank (Ex-Im Bank) expires on September 30, 2014, Congress should not renew its charter.
The Ex-Im Bank is an independent government agency founded in 1934 in an effort to encourage U.S. exports. The bank provides taxpayer-backed direct loans, guarantees, and export credit insurance to private firms and foreign governments. The total amount of such support provided by Ex-Im Bank was $27 billion in fiscal year 2013.
Supporters of the bank promulgate a variety of arguments, including that Ex-Im makes loans that private sector lenders would not, creates jobs, and costs taxpayers nothing. Each of these statements is untrue. The largest beneficiaries of Ex-Im Bank’s largesse are major corporations that have no trouble receiving financing from private sources.
Ex-Im has commonly been referred to as “Boeing’s Bank,” as the corporation receives a disproportionately large share of the Bank’s corporate welfare. According to a November 11, 2013 article in Crain’s Chicago Business, Boeing was the recipient of 197 transactions and “financing totaling $48.63 billion for aircraft …over the past five years.” The next largest recipient of Ex-Im support was General Electric, with 88 transactions totaling $5.22 billion. Other companies that benefit from Ex-Im Bank’s largess include Caterpillar, ExxonMobil, and Westinghouse.
In a May 27, 2014 article, U.S. Chamber of Commerce CEO Thomas Donohue stated that, “Last year alone, the bank provided financing or loan guarantees for $34.7 billion in U.S. exports and supported more than 200,000 American jobs.” However, as Citizens Against Government Waste stated in a February 28, 2011 WasteWatcher, “By allowing those who borrow from Ex-Im Bank to do so more cheaply than they otherwise would, Ex-Im Bank undeniably creates jobs at specific exporting firms. However, Ex-Im Bank takes its money from taxpayers, thus reducing demand and employment by at least an equal amount in every other industry.”
Lastly, Ex-Im Bank’s supporters claim that the bank does not cost anything. By using the accounting method prescribed by the Federal Credit Reform Act (FCRA) of 1990 to evaluate the bank’s cost, proponents claim the bank will save taxpayers $14 billion over the next decade. However, a May 2014 Congressional Budget Office (CBO) report found that when the more traditional fair value accounting method is used, Ex-Im Bank is estimated to have a 10-year cost of $2 billion.
The difference between these two methods is summed up in a May 28, 2014 articleby Veronique de Rugy of the Mercatus Center: “The discrepancy between the Export-Import Bank’s FCRA accounting and the CBO’s fair-value accounting rests in the different interest rates that each method employs. The Bank’s FCRA calculates the present value of future interest payments using U.S. Treasury securities rates as a guide; the CBO’s fair-value approach, on the other hand, uses market interest rates when calculating the present value of expected future cash flows. Using market values, as the CBO notes, more properly accounts for the cost of the risk that the government takes on.”
Whatever its original intent may have been, today Ex-Im Bank is a prime example of excessive corporate welfare. Denying the renewal of Ex-Im Bank’s charter would eradicate a regressive, wasteful institution whose time has long passed. And it can be done by doing nothing.