State gifts to the likes of Boeing, Ford, Google and Apple are unnecessary and unfair. Better to cut the tax rate and reduce regulation.
Competition is at the heart of America’s economic success, but not every type of contest benefits society. Consider the growing trend of businesses cajoling states and politicians to compete for who can dole out the most corporate welfare. It’s especially frustrating because there are already plenty of ways to promote job growth without robbing taxpayers.
General Electric is one of the latest companies to shamelessly demand taxpayer-funded goodies from government. The company’s senior tax counsel Bobby Burgner spoke freely about the firm’s strategy earlier this month at a panel hosted by the National Bureau of Economic Research. Mr. Burgner declared that GE would generally avoid states with congressional delegations opposed to federal-subsidy programs like the Export-Import Bank, which hands out taxpayer-backed loans and guarantees to businesses like GE. This followed the company’s refusal last summer to relocate its headquarters to Dallas, because some prominent Texas lawmakers opposed reauthorizing the bank.
Increasingly, major companies determine where to maintain, expand or relocate facilities based on how much money they can take from taxpayers’ pockets in the process. They sometimes hold jobs and entire communities hostage until they get their way.
The most frequent tactic is to demand tax credits or direct subsidies from state governments. In 2010 John Deere secured $15 million from Iowa to maintain roughly 300 jobs at a Waterloo plant. A year later in neighboring Illinois, Sears and the Chicago Mercantile Exchange Group threatened to relocate their headquarters unless the state forked over about $100 million in tax breaks. General Electric was in on the game as early as 2010 when it sought $25 million in tax credits from Massachusetts to maintain 150 local jobs.
States also use tax giveaways to lure businesses to relocate or expand. North Carolina gave presents of $320 million to Apple and $250 million to Google so they would build data servers in the Tar Heel State. Kentucky has doled out more than $500 million in tax breaks and subsidies for Toyota and Ford auto plants. Medical companies have milked Florida for well over $1 billion in various handouts. Nevada threw $1.3 billion at Tesla Motors to build an electric-car-battery plant.
And then there’s Boeing. In 2013, the company, which assembles jetliners in the world’s largest building in Everett, Wash., announced that it was looking for a location to build its new 777X. This spurred a furious scramble by multiple states to win the company’s favor. Although most kept their bids under wraps, Missouri tried to tip the scales by passing a bill containing $1.7 billion in tax incentives.
That still wasn’t enough, and Boeing decided to stay in Washington. The price? An $8.7 billion package, the largest such giveaway in American history, that included tax breaks on airplane production, a sales-and-use tax exemption for new buildings and taxpayer-funded training for employees.
Some states now devote part of their annual budget to doling out taxpayer-funded goodies to businesses, and many have established government agencies to grease company wheels. New York has its Empire State Development Corporation. California’s is known as the California Infrastructure and Economic Development Bank. And, as usual, everything is bigger in Texas: The state annually hands out more than $19 billion in corporate welfare through the Texas Enterprise Fund and other programs, according to the New York Times.
It’s not all bad news for taxpayers. Wisconsin lawmakers last year rejected Gov. Scott Walker’s plan to inject $55 million into the Wisconsin Economic Development Corporation. In February Florida lawmakers rejected Gov. Rick Scott’s proposal to give $250 million to Enterprise Florida. The state agency will now be shrunk by roughly two-thirds—a big win for anyone paying taxes in the Sunshine State.
Yet these are only exceptions that prove the rule in this special-interest race to the bottom. If state and local lawmakers are truly interested in spurring job creation and economic growth, they have better options than handing out taxpayer money to a lucky few.
States could start with eliminating tax carve outs and replacing them with lower-overall tax rates and lighter regulatory burdens. Federal lawmakers could also do their part by lowering America’s highest-in-the-developed-world corporate tax rate. These already proven ideas would help states create a healthy economic climate to attract businesses and investment.
Embracing these policies would protect taxpayers, who should never be forced to fork over their money to companies that include multinational firms with multimillion-dollar profit margins. Consumers and taxpayers will also benefit once a level economic playing field forces businesses to compete with each other based solely on the quality of their products and services.
That might seem like a novel concept to many of today’s lawmakers and business leaders. But it’s the kind of competition that has spurred the innovation and advances that made America the economic envy of the world—not a corporate welfare free-for-all.
Source: Brent Gardner, http://www.wsj.com