The Corner

Room for Favors in ‘Cliff’ Deal: Harry Reid Edition

Last week, I mentioned (again) how much well-connected companies benefited from the fiscal-cliff deal. The bargain included some $67.7 billion in tax benefits for various corporate interest groups for FY 2013 alone. Unfortunately, this form of cronyism-by-tax-expenditures is quite common. But there are other ways that lawmakers reward their friends in the business community. For instance, they can penalize a specific company’s competitors through targeted regulations or payment schemes. In this particular case, the fiscal-cliff deal included cuts in Medicare payments to a company that is a direct competitor to Harry Reid–friendly company. Alicia Mundy of the Wall Street Journal has the details:

The New Year’s Day legislation that averted tax increases for millions of Americans brought an unwelcome surprise for Elekta AB, EKTA-B.SK +0.21% a Swedish maker of radiation tools designed to battle brain tumors.

A provision, inserted at the last minute, sharply cut Medicare payments for the company’s product while leaving unchanged those of its direct competitor, Varian Medical Systems Inc., VAR -0.53% of Palo Alto, Calif.

Varian lobbyists pushed for the change, according to congressional staff and other lobbyists, which was put through by Senate Majority Leader Harry Reid (D., Nev.). Under the change, payments for hospital outpatient surgeries using Elekta’s technology would drop by 58%, news that knocked the company’s stock sharply through early January. . . .

In another section, first noted by the New York Times, the Centers for Medicare & Medicaid Services postponed a payment reduction to Amgen Inc. AMGN -0.19%for its anti-anemia drugs, a move that could cost Medicare about a half-billion dollars over the next two years. The Elekta cuts were used to help pay for delaying a series of cuts known as the sequester. . . .

Mr. Reid has a deep relationship with Varian. About nine years ago, he secured federal funding for Varian to work with the Harry Reid Center for Environmental Studies at the University of Nevada, Las Vegas, according to Oliver Hemmers, the center’s director. The project looked at technologies that could X-ray cargo shipments as part of antiterror efforts.

The one sentence summary: Senator Harry Reid helped his friends at Varian by penalizing other companies such as Elekta. Don’t get me wrong, I think none of these companies should be getting any help from the government via Medicare payments in the first place. But if you reduce the government benefits for one company, you should cut the benefits for all of them. 

On this matter more broadly, I would suggest looking at my colleague Matt Mitchell’s fantastic paper called “The Pathology of Privilege,” which catalogues all the forms that favoritism can take. It is time to put an end to corporate goodies in all forms.

Veronique de Rugy — Veronique de Rugy is a senior research fellow at the Mercatus Center at George Mason University.

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