By Matt Stoller, a fellow at the Roosevelt Institute. You can follow him at http://www.twitter.com/matthewstoller
One of the consequences of the tragedy at Sandy Hook is an ardent debate over gun control laws all over the country. In Massachusetts, for instance, which has an assault weapons ban, Governor Deval Patrick, along with members of the legislature, is now trying to figure out how to close gun loopholes. Rep. David Linsky says he wants to go over “every single line, every single comma of our gun laws” to prevent ownership of the kinds of gun used in Connecticut. These debates are interesting mostly for what they leave out – the economics of the gun industry itself and its subsidization by the state through various tax credits, direct spending, and legal forbearance.
Smith & Wesson, one of the largest gun makers in the country, is headquartered in Springfield, MA. According to the company’s 2012 annual investment report to the SEC (10-k), Smith & Wesson received a large multi-million dollar tax credit from the state that started in 2010 and will continue until 2017. This tax credit, of $6.0 million, brought a maximum of 225 jobs to the state, or roughly twenty seven thousand dollars of taxpayer money per job, and was awarded by an obscure committee called “the Massachusetts Economic Assistance Coordinating Council.” That amount works out to a little less than $1 per person in Massachusetts, money that goes straight to Smith & Wesson’s bottom line. Most Massachusetts residents don’t know their legislators and Governor have donated a dollar in their name to Smith & Wesson through job creation tax credits. Regardless of their views on gun control, I’m guessing Massachusetts taxpayers probably don’t favor subsidization of the industry at such a rich rate.
At the same time as Smith & Wesson receives such bounty from the state, the gunmaker has given over $1 million to the National Rifle Association (NRA), the biggest lobbying group for guns. This means that the state of Massachusetts, while considering further regulations on gun purchases, is at the same time indirectly funding the gun lobby. To actually reduce the number of guns on the streets, Linsky, and many of our state and Federal officials, could start by ending the subsidization of gun makers through tax credits and security funds.
Subsidization goes well beyond tax credits like this. According to Smith and Wesson’s investor documents, gun sales growth is driven by two factors. One is security spending by law enforcement. The other is media-stoked fear of the political process driving consumer purchases. Or, as the company put it, ”speculation surrounding increased gun control and heightened fears of terrorism and crime can affect consumer demand for our products.” In the 1990s, Bill Clinton was considered “gun salesman of the year” by gun culture magazines, and gun makers were licking their chops in anticipation of Obama’s Presidency. In 2009, according to CNN, gun makers were a hot investment.
The election of President Barack Obama brought worries of new gun regulations, and the country’s growing economic malaise led talk radio to whisper of coming food shortages and unchecked crime. Such concerns engineered a surprising surge in gun and ammo sales, a trend Smith & Wesson CEO Michael Golden called “pretty exciting.”
Smith & Wesson’s 2012 annual report to the SEC (10-k) lays out how consumer demand works. “There was a substantial increase in sales in the early 1990s during the period leading up to and shortly after the enactment of the Brady Bill,” and then handgun sales increased by 50% from 1992-1994 due to “the fear of prohibition of handgun ownership.” Gun sales dropped back to pre-1992 levels until “late in calendar 2008, when sales increased in what appears to be fears surrounding crime and terrorism, an economic downturn, and a change in the White House administration.”
But it goes beyond that. State subsidization of the gun industry is extensive. In an article published in 2009, the Christian Science Monitor noted that the “surprise winner” of the 2009 stimulus package was the gun industry. As journalist Patrik Jonsson wrote, “Police departments are using some of the stimulus money to arm up, helping to make Obama ‘gun salesman of the century.” Consumer sales in 2009 were up 29%, a remarkable amount due to intense fear among consumers. Even so, law enforcement spending on guns jumped even more, by 32%. Gun purchases by government were apparently shovel-ready, as the expression goes.
Smith & Wesson, unlike a lot of American corporations, still makes products in America, specifically, in Springfield, Massachusetts. One doesn’t typically think about Massachusetts as a center of the gun industry, or of the seat of opposition to gun control laws, but that’s because the frame of the debate is social, not economic. When Smith & Wesson shut down a smaller manufacturing plant in New Hampshire in 2011, it moved 225 jobs from that state to its much larger plant in Springfield, MA. This was partially due to economic efficiencies implied in consolidating the plant, but also due to state subsidy mentioned above. So far, $4.4 million of the tax credit has been doled out. And the program is considered a success. Even as the Governor discusses new gun control legislation, local business development officers are bragging about bringing new jobs making these weapons to Western Massachusetts, with taxpayer money.
There’s more. It won’t surprise you that the gun industry is pretty dirty. Back in 2010, about the time Massachusetts was deciding to grant the company a $6 million subsidy, the VP of sales for Smith & Wesson was indicted for attempting to ”bribe the representative of an African country that was taking bids for a $15 million deal to outfit that country’s presidential guard.” The representative, it turns out, was an undercover FBI officer. Bribing a foreign official is a violation of the Foreign Corrupt Practices Act, a law that Department of Justice criminal chief Lanny Breuer has bragged about enforcing vigorously. The SEC commenced an investigation as well. Yet, just two years after indicting, “22 individuals from the law enforcement and military equipment industries, one of whom was our former Vice President-Sales, International & U.S. Law Enforcement,” the DOJ “filed a motion to dismiss with prejudice the indictments of the remaining defendants who are pending trial, including our former Vice President-Sales, International & U.S. Law Enforcement.” This is potentially legal forbearance, where lax enforcement of laws could be considered another type of subsidy. It would be consistent with the economic aid going to this company, and the corporate world in general, in other areas.
This is simply one example of one gunmaker getting subsidized under various schemes, at the state and Federal level. The use of Federal stimulus funds to increase the profitability of gun makers is a significant policy consequence, as is the public policy choice of giving away taxpayer money to attract jobs building controversial weapons. Fortunately, there can now be a debate that goes beyond the question of mild measures to ban specific types of weapons, to the economics of the gun industry itself. After all, the council that awarded taxpayer money to gunmaker Smith & Wesson serves ”at the pleasure of the Governor.” If Massachusetts Governor Deval Patrick wanted to make a statement about gun control that went to the root cause, he could simply ask his council to attach rules on disbursed government funds to restrict them to companies that do not manufacture weapons. And if local and state officials, or think tanks, or concerned citizens, want to make a difference, they can uncover more taxpayer subsidies going to the gun industry.