When Federal Contracts Turn Into Corporate Welfare

October 7, 2013 | | In These Times |

Where does the corporate bottom line end and the public interest begin? Through the voodoo economics of federal contracting, Washington's "partnerships" with private corporations have drained the public trust straight into the pockets of top corporate executives.

The progressive think tank Demos calculates in a new research report that private contractors have funneled up to $24 billion in federal funds into executive salaries. Yet, according to the analysis, the same system of contracted firms—from defense manufacturers to concession stands at national tourist sites—also employs hundreds of thousands of poverty-wage workers at the bottom.

Federal contractors are currently subject to a very loose limit on the amount of an executive's salary that can come directly from federal subsidies: about $763,000. Extrapolating from survey data on the top contractor executive salaries fromthe Government Accountability Office, Demos estimates the aggregate share of public money that is ultimately funneled into executive pay at $23.9 billion.

Besides taxpayers, those who stand to lose most from these skewed CEO pay schemes may be the low-wage laborers carrying out the actual work of the contract projects, such as repairing a school or building a bridge. These are the workers featured in another recent Demos analysis of contractors, showing that “an estimated 560,000 Americans employed by federal contractors were paid $12 an hour or less.”

Demos points out that the government could save taxpayers a hefty sum by simply shrinking the CEO portion of contractor payments. For example, by capping it at the level of the U.S. vice presidential salary, taxpayers could save “$6.97 to $7.65 billion.” Theoretically, under a more equitable pay distribution, that sum would be enough to significantly lift the lowest tier of worker wages:

If taxpayer-funded payouts for these executives were capped at $230,700—the salary of the U.S. Vice President—the pay of hundreds of thousands of low-wage federal contract workers could be raised by as much as $6.69 per hour or $13,902 per year for a full-time worker, without costing taxpayers an additional dime.

Demos notes that these are "conservative estimates" based on extrapolated data. Researchers based the analysis on a representative sample of defense contractors evaluated by the Government Accountability Office, with some adjustments for civilian contractors. The takeaway is that while legions of workers struggle to survive on the wages paid through federal contracts, the same grants are fattening the wallets of some of the wealthiest executives in the country.

Demos analyst Amy Traub tells In These Times that as the country’s chief executive, Obama can take immediate steps to tighten the CEO payout cap without having to battle congressional conservatives who disdain any government intervention to mitigate income inequality:

When it comes to... raising standards for low-wage contract employees, this is something that President Obama can do with an executive order… He has advocated raising minimum wage--that's great, but… this is something that can be done without Congressional action.

Demos contends that curbing subsidies to CEOs would complement grassroots efforts to raise the base wage for the poorest contract workers. Worker-led protests have in recent weeks spearheaded a national campaign calling attention to the subsidization of bad jobs on the federal dime and demanding fair pay for rank-and-file contractors.