VIEW FROM WASHINGTON / JAMES RISEN : Enemies of ‘Corporate Welfare’ Make an Odd Political Alliance

Since taking office in January, congressional Republicans have proven they weren’t kidding.

In the House, they followed through with their vows to go after welfare, school lunches, food stamps--the entire anti-poverty structure--to reverse what they see as decades of wrongheaded policies that have redistributed income to the betterment of the bureaucratic class rather than the poor.

Yet Republican leaders know that even if they were to “zero out” every welfare-related program, they still would fall far short of their goal of balancing the budget.

A credible deficit reduction program must dam the gushing river of federal benefits flowing to the middle class, farmers, veterans, retirees, the rich--and to business.

In fact, the hundreds of billions of dollars’ worth of federal subsidies and tax breaks enjoyed by American business are inviting targets. That’s a huge and long-neglected pool of taxpayer money, and it is attracting new scrutiny from a strange, bipartisan alliance of liberal and conservative politicians and analysts who believe that if poor America has to take its lumps then it’s time to take corporate America off the dole, too.

For liberals like Labor Secretary Robert B. Reich, attacks on “corporate welfare” come naturally. Cutting business subsidies frees up more money for the kind of federal spending that Reich prefers--such as for job training and education.

What is new and different this year is that Reich has found an ally in none other than Sen. Phil Gramm, the Texas Republican who hopes to replace Reich’s boss in the White House in 1997.

Gramm was one of the few major political figures in Washington who supported Reich last fall, when the labor secretary gave a controversial speech--not cleared with the White House--calling for elimination of dozens of special breaks for business. Now, as he stumps for the presidency, Gramm cites his support for ending such subsidies as proof that he doesn’t want to force the poor to carry the entire budget-balancing burden.

Still, Gramm and Reich have very different goals in mind. While Reich hopes to devote funds to “human investments,” Gramm takes a libertarian view: He sees the money as a way to finance broader tax breaks for all businesses--especially a lower capital-gains tax rate--that would “level the playing field” for free-market competition.

“What I would like to do,” Gramm said last week, “is take all these programs in the Department of Commerce, where the government is basically subsidizing business activity, take some of the programs in the Small Business Administration, take corporate subsidies from the Department of Agriculture, cut those government subsidies and take the funds to reduce the capital-gains tax rate and let private business make decisions.

“Let incentives flow from the ability of businesses to keep more of what they earn,” Gramm said, “and let’s let the private marketplace choose winners--not the government.”

Gramm is hardly the only conservative stalwart to suddenly see corporate pork as an attractive target.

Last year, when the Progressive Policy Institute--a Democratic think tank with close ties to the White House--recommended slashing corporate subsidies, official Washington yawned. But in early March, when PPI analyst Robert Shapiro issued a second report calling for $265 billion in cuts over five years from corporate tax and spending subsidies, he found himself leading a coalition that included the Cato Institute, a hard-right think tank with close ties to the new House Republican leadership.

Like Reich and Gramm, PPI and Cato couldn’t agree on what to do with the savings from such cuts. Shapiro recommended making a down payment toward deficit reduction while also backing some Reich-style social programs as well as tax relief for families. Cato, which shares Gramm’s libertarian economic philosophy, refused to endorse Shapiro’s new spending priorities.

But Stephen Moore, Cato’s fiscal expert, argued at a recent Capitol Hill news conference that Republicans cannot ignore the issue. If they refuse to take on corporate pork, he said, the GOP’s spending inconsistencies will badly damage the party’s campaign to transform the nation’s economic agenda.

After all, corporate welfare represents one of the biggest potential sources of savings outside the “entitlements” such as Medicare, Medicaid and Social Security.

“Whether Republicans are willing to go after corporate welfare is an important test,” Moore said. “I think they will attack these subsidies, but I admit if they don’t, Republicans will have a major problem.”

If Republicans do take the issue on, the congressional subsidy wars are likely to get ugly--and fast. Every special break is backed by lots of power and even more money.

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Just a partial list of the subsidies identified by Shapiro gives a sense of the formidable task required to end them. Below-cost grazing fees in the West, tax credits for timber companies, milk price supports, tax credits for alcohol fuels--all benefit long-entrenched industries at a cost to taxpayers of billions of dollars. And all have proven impervious to the budget ax, after having been targets for elimination for years.

And while Moore feels confident that congressional Republicans will go on the attack against corporate welfare, few Republican leaders have so far been willing to join Gramm out on his limb.

Part of the problem for the GOP is that since many of the subsidies are on the tax side, closing those loopholes could be seen--horrors!--as a tax increase. That’s a tough vote for any Republican.

Indeed, rather than subtracting tax subsidies, House Republicans have been adding them; the package of tax cuts in their “contract with America” calls for repealing the alternative minimum tax for corporations and other new write-offs included at the behest of small business.

So chances are good that at this same time next year, Shapiro still will have plenty to write about in a third report.