When All Else Fails, Tax Incentives Probably Will, Too

May 08, 2018 · 59 comments
Larry (Left Chicago's High Taxes)
High taxes retard economic activity, this is a fact that cannot be denied. When localities refuse to lower taxes, people give themselves a tax cut by moving to or at least shopping in lower tax locations
6456snow (ohio)
The use of tax breaks as a type of corporate welfare is a serious disruption of market economics and misuse of public funds better used for basic governmental purposes. Within a state it is inconceivable why the state would allow cities and suburbs, for example, to waste taxpayer dollars to lure business from each other which is often the case. The state can shut this down by prohibitive legislation or by treating these funds as what they are: income to the corporations and tax it. Across state lines the federal government can do the same thing - treat it as taxable income. Real economic development is better served with tax monies which develop infrastructure, a better educated workforce and other incentives which allow businesses of all sizes with forward looking business models and functions to succeed.
Tom Mcinerney (L.I.)
I'm a big fan of Eduardo's reporting. Today's column by Jared Bernstein cites Tim Bartik, and also work by Susan Housman... and renders the present report --and much of the conventional wisdom-- obsolete. See : (1) https://www.washingtonpost.com/news/posteverything/wp/2018/05/09/helping... Helping U.S. manufacturers: What works? By Jared Bernstein and Somin Park May 9th at 6:14 AM (2) and referred to by Dr. Bernstein... https://qz.com/1269172/the-epic-mistake-about-manufacturing-thats-cost-a... COST OF COMPLACENCY The epic mistake about manufacturing that’s cost Americans millions of jobs WRITTEN BY Gwynn Guilford May 03, 2018
Larry (Left Chicago's High Taxes)
You’re quoting Jared Bernstein? He’s the Biden advisor who promised that summer 2009 would be “Recovery Summer”! He has no credibility!
DickeyFuller (DC)
This is not news. Well-documented for decades.
Betsy (NYC)
Yay for American jobs and manufacturing...but only if you are a gigantic corporation. For manufacturers, like myself, looking to create a small factory, maybe 20-40 employees, no one wants me. If they do, incentives only exist in the bad part of towns and we have so many hoops to jump through. We pay our dues in full, usually bootstrapping the entire project. Those jobs don't amount to much for the big state picture, but for a small town of maybe 3,000 it's a big deal.
b fagan (chicago)
Don't forget that Scott Pruitt intervened on behalf of the Wisconsin Foxconn deal - over-ruling the EPA experts that would have required more pollution controls on the still-not-built Foxconn plant to manage ozone-producing pollutants. So they got the incentives, they got a lot of pesky environmental study bosh brushed aside before construction can start, they get to stick a straw into Lake Michigan, and now the county they're locating in got, with a wave of Pruitt's wand, a clean bill after failing ozone standards. So the locals will get something. It won't be good for them, but they'll get it.
Matthew (Washington DC)
We need a federal law that prevents corporations from pitting different state and local governments against each other in their quest for government hand-outs. The European Union addresses this problem by imposing limits on what they call "state aid". The EU limits the extent to which Ireland, for example, can give away tax subsidies and other goodies in order to attract investment away from, say, Germany. We need a similar law in the United States. Otherwise, corporations will continue to drain state and local coffers with these unwarranted (and ineffective) hand-outs. Of course, there's no chance that the current Congress would actually pass such a law, because it would make far too much sense and would run contrary to the GOP's ethos that whatever is good for corporations is good for America.
Len J (Newtown, PA)
I would disagree with lumping Newark NJ and Racine County Wisconsin in this analysis. A decaying city like Newark nested within the greater New York metro area has infrastructure like the Northeast corridor, PATH, Newark Liberty Airport and the Elizabeth Seaport all within its' footprint. Building Amazon HQ2 there would likely drive continued improvements for all residents, not just those employed by Amazon. Whether one calls it gentrification or not, the greater Newark area is much more capable of absorbing the Bike/Train/Uber generation than most Rust Belt cities and the influx of millenials is what the state needs to counter the population bleed-off from emigres to the Sun Belt. The $5 Billion is presumably valued over time, likely a 10-year period, so the now $10K per annum state/local rebate per employee is likely offset to a great extent by the secondary business opportunities, employment and revenue that result. The Tax Break is Zero if Amazon chooses to go elsewhere, so why not take the bold step of modernizing your city for the 21st century?
Deus (Toronto)
A country that claims to be the bastion of entrepreneurship and free enterprise should not have to constantly hand out "corporate welfare" to those that don't need it. America is the poster child for this nonsense. The Republicans have already provided a large tax break to corporations yet, want to hand out even more? This is another scam provided by politicians whom probably already receive considerable campaign funds from the same companies that are looking for more dollars to reduce their own costs. History has continually shown one of the biggest drawbacks is that even when money is handed out, it is usually done with no "strings attached" and no mid-long term job guarantees, so what is the point? If a community is looking to attract jobs, it should be solely be based on its merit and it does it by building bigger and better infrastructure, housing and upgrading the educational and training of its citizens to meet the demands of employers. Jeff Bezos personal wealth already exceeds $100 BILLION dollars, he doesn't need any more.
Linda (Oklahoma)
More people work in museums than work in the coal industry. The arts bring tremendous amounts of money into communities. What's the first thing schools cut when they're broke? Art, theater, choir. When the heads of companies look for places to relocate, they look for more than cheap land and tax breaks. They want their workers to be happy so they stay. They look for culture, outdoor recreation, good schools, nearby colleges and universities. A state like Oklahoma lets their schools go to pot and never invested much in the arts to begin with, and has no public land for outdoor recreation, and the state wonders why they can't attract anyone but frackers.
Kaleberg (Port Angeles, WA)
It's not that companies want their workers to be happy; they want to attract and retain high quality workers.
EW (Glen Cove, NY)
What’s wrong with these efforts is that the developers usually obtain these guarantees up front. Essentially making the government an investor in their business. However Government employees are usually not trained enough to fully understand the business prospects and potential payouts. They should leave that up to the bankers and investors. What local governments should do is offer to reduce a businesses taxes by the amount of offsetting taxes they create in a community, after the development phases. This switches the tables around, making the business a partner in growing the tax base.
Kit (Ma)
As if companies like Amazon need or deserve tax breaks or incentives. Who needs them, ruining and over running cities. Ask just about any citizen of Seattle what they think about Amazon. This one company alone has wrecked havoc on them.
Richard (Madison)
Why do they do it? Well, Scott Walker did it because he’s running for re-election and is desperate to have something positive to talk about to distract from Wisconsin’s bottom-half jobs and GDP growth numbers. By the way, the Foxconn deal will actually cost the “hard working taxpayers” Walker always claims to care about $4 billion.
George Orwell (USA)
What is the opposite of "putting lipstick on a pig"? That's what this article does.
David (California)
Affirmative action for businesses and sports teams - in the form of tax breaks - should be illegal.
donmintz (Trumansburg, NY)
These so-called incentives are in effect legalized extortion and bribery. Here in NY State the record of Industrial Development Authorities and local jurisdictions in effect giving money to wealthy corporations (or would-be wealthy corporations) has been dismal almost beyond belief.
David (Nevada Desert)
I live in Storey County, NV where Tesla has its gigafactory. The general thinking is that we will never see any tax money after the 10-year tax break from Tesla...because Tesla will be building most of its cars in a bigger gigafactory in Shanghai.
Kit (Ma)
Talk to the citizens of many towns and communities across the country who are now struggling with near empty, behemoth mall structures and massive, decrepit parking lots. 1000's of businesses, (mostly chains), were given huge tax incentives to move in to these now deteriorated, rotting buildings. Now that business is down in brick and mortar retail they have all fled. Leaving the detritus for those communities to deal with.
John Joseph Laffiteau MS in Econ (APS08)
1) Some background in addressing this issue: In a perfectly competitive economy: a) Unimpeded entry of new suppliers leads to "normal" profits, or very small profits. b) Perfect, symmetrical market info exists between buyers and sellers. c) Each supplier's influence on total supply is tiny, given the almost infinite supply of output possible. d) Product differentiation in relevant markets is impossible because the goods traded are commodities such as corn. 2) Extraordinary profits and success in global, capitalistic markets simply mean refuting these basic assumptions of perfect competition. Barriers to entry are erected by successful firms to limit entry of new suppliers into the market. Examples of these barriers include exclusive patents for intellectual property, large capital expenditures for plant and equipment that are difficult to match, and a workforce with expertise that is difficult to replicate. 3) With the development of such market barriers, "rents" or very large ROIs to shareholder investments become possible, as Mr Porter notes in his column of Feb. 13, 2018 entitled: "Big Profits Drove a Stock Boom. Did the Economy Pay a Price?" Or, as Mr Buffett, and Mr Musk address in a recent Dealbook column by Mr. Sorkin, these same barriers to entry are termed "moats" by Mr Buffett. 4) With this limited menu of actionable options, for a government to bestow other than a short-term tax advantage would have it act with a conflict-of-interests. 5/9 W 11:25a Greenville NC
q2 (Brooklyn)
Why is this (headline) news? If all of the "jobs and taxes" promised over the last decades to (supposedly) justify tax exemptions, zoning variances and other perks that went to directly to developers in New York City (for example) had come true, everyone would have (if they wanted) two or more jobs and there would be so much money for government no cuts would ever be needed. Look around. It didn't happen. It seldom (or never) does. In fact, new construction often overwhelms existing infrastructure, costing the localities more, not less. Meanwhile, the developers take their money (often away from the city), get their names on public buildings and proudly proclaim how much they have benefited our residents and businesses. At this point, why does anyone (including the media) ever take such claims seriously?
Steve (Ann Arbor)
Tax incentives are a race to the bottom. They are, in effect, corporate welfare. As is the case with so much U.S. economic policy enacted since the 1980s—including manufacturing outsourcing to developing nations the majority of benefits accrue to the corporate investor class who drive these policies. Mr. Porter leaves out a major cause for our "decrepit industrial enclaves": competition with so-called "right-to-work" states. As is the case with the American labor force unable to compete with ultra-low-wage labor nations that are also unbound by pesky U.S. environmental and safety regulations, industrialized states with hard-fought-for unionized labor forces—mainly in the Northeast and Midwest—must complete on an unlevel playing field with union-unfriendly southern states, who also offer corporate tax incentives to lure Toyota, Nissan Hyundai, Mercedes, Volkswagen, BMW and other auto manufacturers to site there. One particularly dramatic corporate giveaway by a unionized state: in 2013 alone, Washington State gave Boeing $12 billion—yes, billion—in tax incentives to keep it from locating a second new factory in South Carolina. The only solution to state-against-state, region-against-region corporate tax giveaways is to regulate it nationally. As for unions, we can also prevent states from enacting anti-union laws, or we can continue to allow southern states to destroy the manufacturing unions that built the middle class and spread the wealth in the 20th century.
Dan Ari (Boston, MA)
Education and infrastructure. There are options.
Deus (Toronto)
Money spent on the two critical areas you mentioned is how cities attract new businesses on merit, not corporate welfare. If infrastructure is poor and local constituents are not educated enough with the skills required to meet the demands of many current day employers, "taxpayer handouts" is throwing money down the drain.
South Of Albany (Not Indiana)
State tax incentives should only go to offsetting labor overhead. This is the only way to attract a job producer and make the state competitive. Any higher ups or highly compensated employees should not count in an incentive program. Anything that actually creates jobs locally and uses local services can work well but transparent accounting is key. This type of policy should be discussed separate from the Amazon giveaway plans. Locals, especially with no equity, will be hurt by outside money flowing in and their lost tax dollars furthering their displacement.
Richardthe Engineer (NYC)
ManufacturingVillage.com, a project to bring small manufacturing to the communities mentioned in this article. The article mentions many of the impediments of real change which require not only entrepreneurial solutions, but, additionally, social solutions. Modern problems of the Rust Belt need modern solutions, such as giving young people entrepreneurial solutions so they may feel part of the solution and makes older dying communities a draw to younger people. And although automation may keep the number of jobs that may be created, manufacturing creates real wealth for the community and by allowing the local community to own the Manufacturing Village companies: Local investment, local production, local profits. It's our future.
Tricia (California)
Corporate welfare is alive and prospering. The myth of trickle down is ridiculous. They know who they are benefitting.
Marie (Boston)
In Massachusetts there have been several high profile cases were companies don't meet their obligations after receiving tax benefits. The usual reply, "Don't complain, something is better than nothing." We also tried incentives for filming in Massachusetts. There have been some great movies but... https://www.boston.com/news/commentary/2015/03/06/whats-wrong-with-film-...
Kit (Ma)
These movie deals and starry eyed, political liaisons were a huge scam on the tax paying citizens of MA. We ended up picking up the tab for these Hollywood handshakes. What a boondoggle for the film makers and big studios.
rosa (ca)
One hundred years ago, fifty years ago, towns and cities vied for new businesses and factories so that they, the cities, would have someone to help share the tax load on plowing roads or putting in new water mains. The cities competed by touting how excellent their local schools were, how educated their populace was, their low crime rate, the beauty of their parks and close access to parks, nature and festivals. I just wanted to mention that because those born after the 1970's might not understand how this country once worked. Back then it wasn't ALWAYS about sticking it to the least-able to foot the bill.
Mgaudet (Louisiana )
In Louisiana we have the ITEP, Industrial Tax Exemption Program, which attempts to lure in new manufacturing plants by exempting the property tax for a number of years (8). The problem is that the property taxes are local and go to financing schools, so it has the effect of drawing down school budgets and hence education opportunities. Of course, one of the first things that an industrial organization looks for is qualified, educated workers. Can't have your cake and eat it.
JDSept (06029)
But the employees become tax paying citizens which boosts revenue to local communities hence schools.
Deus (Toronto)
Unfortunately, in far too many cases, history has continually shown after the incentives run out the industry in question comes back looking for more and if they don't get it, threaten to look elsewhere for a "better deal" and usually another constituency succumbs to their proposition. Companies have continually played one community off against the other to get the "best deal". Just look at the current Amazon H2 contest.
Jim S. (Cleveland)
One place to start: make H1-B visas geographically dependent. Rather than giving out more visas to fill up Palo Alto or Boston, give them out to employers in Pittsburgh or Dayton. There is little these people do that can't be done at a computer nearly anywhere in the country. And so long as H1-B workers are tied to one company, why not let that one company be somewhere it would help the heartland - and give those in the current high-tech meccas a break from complaining about congestion and unaffordable housing.
JDSept (06029)
If those companies needing H1-B visa employees are located in Boston or Palo Alto? If the skills brought by H1-B are not needed in communities like Pittsburgh and Dayton?
Jim S. (Cleveland)
This would provide incentive for tech companies to locate somewhere besides their usual handful of places. And a competitive advantage for those who do so. And those companies in Palo Alto and Boston will still have the option of paying enough to lure non-visa people to work there.
cls (MA)
The Research Triangle was successful. They invested in supporting education and research. They brought in cultural supports and invested in the arts. Sure it started in the late 50s, and the investment continued into the seventies, but it worked. And it would still be working were it not for their foray into bathroom legislation. And the investment there helped Charlotte and Greensboro.
tiddle (nyc)
Much of what's described in the article is well-known facts. Erstwhile industrial towns unable to transform. Cities make big-splash tax incentives to attract business. Big spending commitment, with uncertain outcomes that benefits the local economy. I do have a few issues and takeaway though: The article mentions that roughly 8 out of 10 jobs created would go to "outsiders." What are these "outsiders"? If the companies are setting up shop in the city, wouldn't these "outsiders" be moving in to the city for the jobs? Wouldn't these "outsiders" become locals, and pay taxes too? That would help boost the property prices too, wouldn't that now. And yes, these cities could (and definitely should) have made investments to boost the local infrastructure, public transport, better public education, all of which would attract younger crops of workers, the talents of which are what companies like amazon are after. If you're in charge, wouldn't you rather make the investment when you're sure that companies are definitely coming in? Surely the costs of which will go up, but at least you can be sure that the investments would not go to waste. BUT, this is far easier said than done, for cities that already have it to do upgrades (eg. Boston). That's why even amongst cities, they are fast dividing up into winners and losers, the haves and have-nots. Loser cities have to start somewhere. Fiscal incentives like taxes at least would not blast hole in budget, not rightaway anyways.
Charles Steindel (Glen Ridge, NJ)
I don't get the point of this. Yes, throwing money on incentives may generate a few "jobs" in the beneficiary area. But this comes at the cost of adding burdens to the rest of the area (state, county, etc.), unless somehow there is some spillover from the new jobs. Years, and year, and year, and billions, and billions, and billions, of dollars spent on these show we can't reliably predict which beneficiary will deliver the spillovers. Sustaining and improving government services in the affected areas (which could, of course, include financing by increased transfers from other regions), and review of potential regulatory barriers to business expansion (in many cases these are not trivial) are more sensible policies, but sadly they don't allow for glamorous ribbon-cutting, and it's hard to find anybody who will claim sure-fire near-term dramatic results.
Marie (Boston)
Corporate welfare. It's loved by those who hate to see other people get anything. Just look at Paul Ryan who would take the medicine from your mother's hands.
JDSept (06029)
And the over taking of tax dollars for mother's medicine from taxpayers? Medicare should be self sufficient. it was originally set up so that those working would be paying for those collecting at any one time. Now Medicare in revenue, takes in 50% of what it pays out. The rest comes from the general fund ot is borrowed.
Susan Arterian (New York)
There is so much going on in the regenerative economy in the US today but it is so rarely reported on by the mainstream press in a coherent way. Experiments with cooperative ownership, new ways of raising capital inside communities, regenerative agricultural experimenting by small farms working collaboratively, new ways of defining wealth beyond financial metrics and that get to the heart of what it means to be happy and healthy in community. So much of it is place based and unique to place but we are seeing a network of projects across the country sharing ideas and they are becoming a force that must be recognized. Lots to celebrate and study, if the policymakers would only pick up their heads and take a look!
JDSept (06029)
Those policymakers you decry are the ones making what you praise. Small farms? Check the number that disappear every year. "get to the heart of what it means to be happy and healthy in community" not being so is what brought us Trump. People are not happy which is why almost all public bureaucracies, public organizations such as businesses, employee etc are hated over all. Few like their very local government, larger government like state and country and even more so Federal.
Bill Hansen (Grand Marais, MN)
I don’t think it’s quite as hopeless as it sounds. State and local governments can invest in education, quality of life and initiatives that support a culture of entrepreneurship. Duluth, Minnesota and Charleston, West Virginia, among many others, have had some success with parts of this strategy. It’s important to honor and enhance regional arts and culture, playing to the strengths that already exist. The post-war strategy of attracting a huge paternal corporate employer is not only unrealistic, but works against establishing diverse, resilient and sustainable regional economies. This will be even more important as artificial intelligence, automation, expert systems, self driving vehicles, quantum computing and bio-tech emerge into the economic mainstream.
JDSept (06029)
Tell that to Southern and Western states whose regional economies improved taking businesses away from the Midwest. Dallas and Houston vs Detroit, YOU tell me whose regional econmies has done well with businesses moving?
Al (Idaho)
We've sent our manufacturing jobs overseas. We wholesale import impoverished uneducated people. We've neglected our education system and allowed our former manufacturing areas to decay. The tax system favors corporations and the rich and is often used to give state workers generous benefit packages that the tax payer is on the hook for long after the politician who gave them away is gone. We live in a world of a permanent over supply of people and cheap labor. I'm not sure how many levers the local leaders have left to pull. Look at California. It is reported to be the sixth largest economy on earth yet has 12% of the countries population and 34% of its welfare recipients and a crushing tax burden. There is nothing special about the California government, it's just a nice place to live ( at least so far, but with crowding, crime, congestion, taxes etc) but that may be changing. We have bred ourselves into a corner and are on a treadmill of ever more growth on a finite world that we can't get off of unless we change how we think. Our "leaders" are held hostage by a way of thinking that is incompatible with longterm sustainability, so they keep doubling down on outdated ideas.
Joe (Ohio)
The high poverty rate in California is due to the high cost of housing. The only way California can drive it down is by building affordable housing. I do not know why they can't do this. Steve Bezos apparently has enough money to build a house for every single homeless person in the country.
wg owen (Sea Ranch CA)
The tax burden is nowhere near crushing, actually a little lower here on the NorCal coast than it was when we lived out in the great plains. Our problems owe more to excess demand for resources and space by a population that has grown and continues to grow out of control. Same in most places with high quality of life. We're not Oakies now, but the dynamic has parallels.
JDSept (06029)
CA isn't close to the top as to population density over all. Density is dependent on what it can support. yeah SF and LA have huge populations but that is where the jobs are. It is expensive because people can afford to pay to live there to a large degree. CA is ruled by that old marketplace idea that prices are what the marketplace will pay and they are paying the high prices. CA isn't even in the top 10 as to poverty rates. https://www.usnews.com/news/best-states/slideshows/the-10-states-with-th... The top 10 are southern or lower western states that controlled by which party? CA has the most homeless because of huge population size like they have the most luxury cars. CA is 10th when measured at to population size with 1 in 309.2 people being homeless.https://247wallst.com/special-report/2017/03/02/states-with-the-most-uns... And that's with the most benefits for the homeless drawing them. Perhaps FL, GA and Mississippi all states with a higher homeless rates than CA will be wiped out by hurricanes, do YOU wish for that also?
Pat (Somewhere)
But “if I were a state government,” he said, “I would be trying like mad to attract Amazon.” And if I were a state taxpayer, I would be much more skeptical. Large-scale giveaways of public money to private enterprises always seem to follow the same pattern: extravagant claims of public benefits that never quite materialize, but lavish and immediate benefits at taxpayer expense to private businesses. You might almost think that a small group of insiders on both sides were profiting handsomely from the arrangement while over-selling the benefits to the public, safe in the knowledge that by the time people realize what happened those insiders will be long gone along with whatever they gained from the deal.
tiddle (nyc)
It's a virtuous cycle. For cities with vocal critics to tell amazon to "not come here," those are the same cities that are on upward trajectory. But those are also the cities that these companies most want to be in. (Well, hello, Boston.) Why? There are lots of colleges and research institutes, its citizenry is generally well-educated, its public transport is well-developed, its public education is decent, all of which are needed to beefed up substantially in the other loser/desperate cities. That's the chicken-and-egg problem, on how to get these desperate cities on at least the first step of the virtuous cycle/ladder? People are rightly skeptical about how much benefits these corporate welfare (in the form of huge tax incentives) will bring to the local economy. To me, if one big corporate relocation can jump-start the city to the first step, it would be a very good start. So, perhaps, we should give it some benefits of the doubt.
JDSept (06029)
YOU do know almost 50% of all Americans are directly influenced by Wall Street growth or decline not some small group of supposed insiders? How many own Amazon, Apple and Exxon? These stocks are own by many. Do I like all government giveaways as to private business? Not one bit but it is a competitive business. Better your state gets the jobs or that state down down the road does by taking your state's businesses away from your state? Ask Detroit who lost how many businesses and left a shell of a once great city. It isn't pretty or fair but it is reality.
Pat (Somewhere)
@tiddle: nobody is telling Amazon "not to come here." But neither should they be throwing taxpayer's money at a private business to influence their decision. The characteristics you mention in your first paragraph are the kinds of things on which cities should be spending taxpayer money, because they result in a better quality of life for the people paying those taxes. Companies will follow. The real challenge is it requires vision and the willingness to do things that pay off in the long run rather than a quick sugar high right now that will fizzle on someone else's watch.
Ken Savage (Wisconsin)
The Foxconn deal here in Wisconsin is Scott Walker's bid to be elected to a third term as governor. Economically, it's just stupid. Our state will be financially under water for many years to come as a result. One has to wonder how many pockets got lined as part of this deal. The rest of us? We're just the fools that have to pay for it...and our children and grandchildren.
senior citizen (Illinois)
How many pockets got lined? Well, one for sure. Paul Ryan will get a new job closer to his "family".
Wayne Doleski (Madison)
It is so obvious the investment in education is the primary need in creating economic success. Even here in WI, our pitiful Governor has finally indicated he wants to invest in education, after years of cutting budgets. It’s just insane that as a country we have reached the point where many college graduates are burdened with debt that will follow them for decades.
tiddle (nyc)
A lot can be said about what it means by "invest in education." For state/local/cities, their focus needs to be K-12. The college ed and student debt issues are rather a separate and follow-on issues. Unfortunately most states and cities can't even agree on investments in their K-12 funding, which is always in endless peril. That's the saddest part.
JDSept (06029)
YOU wish to take on the debt of those college kids be my guest. Me I prefer to help my own grand-kids pay for college. Investment in education OK to a certain level, but somewhere the individual takes over. Do a cheaper college. Not all charge the same to begin with. The ones who charge the most tend to be those that are the best and also have the largest endowments. Harvard gave 70% of their under grad class some financial aid this year. Yale the same. Meanwhile numerous way cheaper state schools in both Mass and CT.
See also