|
In an attempt to lure businesses to move within their borders,
states offer everything from piles of cash to tax-free land and
low-interest loans to state tax credits — all in the name of
economic development. In theory, the free giveaways will pay for
themselves because of increased employment and other economic
benefits that come from landing a major industry.
|
STACKS OF CASH: Whether given in the form of grants, subsidies, tax
breaks or low-interest loans, states spend about $80 billion
annually on economic incentives. |
But in reality, the economics of such largesse rarely make sense.
States rarely review their economic development programs to
determine whether reality matches the promise but, when they do,
many have found the programs fail to even break even.
"The best economic incentive is not to need one," said Matt
Mitchell, a senior research fellow at the Mercatus Center, a free
market think tank based at George Mason University. "What you're
basically saying is that your situation is not good and you have to suspend the
rules for certain places and for certain people in order to get them to move
somewhere."
In his studies of state and local tax incentive programs, Mitchell
has found a remarkable correlation: rather than increasing economic
activity and growth, as they are supposed to do, handouts and tax
breaks for companies actually correlate with slower growth.
That's because the benefits given to certain privileged companies
have to be paid for by everyone else, he says.
Yet, they continue.
|
BIG BUSINESS: Since 1997, Boeing has received more than $13 billion
in grants, subsidies, low-interest loans and tax breaks from 10
different states |
The mad scramble over the new Boeing headquarters is the latest
example of states playing a game that no one will win — no one, that
is, except Boeing. After union members voted down a contract that would have kept the
giant airline manufacturer in Washington state, Boeing began looking
for a new location to build its brand new 777X commercial jetliner.
In a hurried special session called by Gov. Jay Nixon, the Missouri
Legislature approved an incentive-laden $1.7 billion plan to attract
Boeing to the Show-Me State.
If the project lands in the state, Boeing could reap $150 million in
tax credits annually by creating around 8,000 jobs over the lifespan
of the incentives. The proposed manufacturing site is on the edge of
Lambert International Airport in St. Louis. As recently as November, Nixon called for a moratorium on economic
incentives that simply move jobs across state lines. He said such
economic competition between Missouri and neighboring Kansas was bad
for taxpayers, the states budgets and the economy.
Less than a month later, he was signing the incentive package to
lure Boeing to Missouri.
Other states, including Alabama, Pennsylvania and South Carolina,
are considering similar deals in an attempt to woo Boeing.
In Washington state, where Boeing is headquartered, lawmakers last
month approved nearly $9 billion in tax incentives for the company,
the largest tax incentive package in U.S. history.
"Whatever money we don't collect from Boeing we have to collect from
someone else," state Rep. Liz Pike, R-Camas, told Northwest
Watchdog. "I was fearful that, you know, this may be just a
bargaining chip to take to other states."
When it comes to new manufacturing facility, the estimated 8,000
jobs that would come with the new manufacturing plant would barely
make a dent in most states' unemployment rates.
The real incentive here is a political one. Governors and lawmakers
would get to show up for the ribbon-cutting, and campaign for
re-election with shiny pictures of the new factory and tales about
how they improved the state's economy. Corporations have learned to
use that incentive to play states against one another in search of
the best deal.
[to top of second column] |
A New York Times investigation last year found that states, cities
and other local governments hand out more than $80 billion in
economic incentives annually. Boeing is no stranger to corporate
welfare.
Since 1997 it has received more than $13 billion in grants,
subsidies, low-interest loans and tax breaks from 10 states,
according to Good Jobs First, a group that tracks economic
incentives to promote transparency and accountability for such
handouts.
But as the Times reported, a full accounting of taxpayer-funded
economic development programs is not really possible. The financial
deals are often so murky that it is impossible to determine the
actual economic value of the incentives, or the full cost to
taxpayers. In part because of that murkiness, and in part because of the
political incentives, state economic development programs are rarely
reviewed for their effectiveness, despite academic data that
suggests they don't work.
|
NO GOOD: Rather than driving
economic growth, states with higher per capita economic incentive
programs generally have lower per capita growth |
A recent study by the Pew Center on the States found only 13 states
have effective review processes for economic incentives, while more
than half the states have no review process at all.
"This knowledge gap is particularly worrisome at a time of tight
budgets and sluggish economic growth," wrote Susan Urahn, managing
director for Pew. "If policymakers do not base their decisions about
tax incentives on good information, they could be spending scare resources
unwisely."
The few states that do review their tax incentives frequently find
the reality did not live up to the expectations, according to Pew.
Wisconsin lawmakers recently limited their state's tax credit for
film production after a study found that it ineffective.
In Louisiana, a review of one incentive program found that it
created only one-third as many jobs as it had promised.
The Pew study suggests states should also look at the trade-offs
created by their economic development programs.
"Lawmakers must recognize that choosing to give these tax breaks
will reduce valuable revenue needed for other investments," said
Remy Trupin, executive director of the Washington State Budget and
Policy Center, a progressive think tank.
Mitchell, of the conservative Mercatus Center, agrees.
Even though the cost to taxpayers outweighs the benefits of the
economic incentives that Boeing and other corporations pursue, the
privileged companies are so few and those who bear the cost are so
many that taxpayers don't really notice it.
"The benefits, you can point to them. You can point to a physical
plant and show up on opening day to cut the ribbon," Mitchell said.
"The costs are unseen — that doesn't mean that they aren't there."
___
Eric Boehm is a reporter for
Watchdog.org and can be reached at
EBoehm@watchdog.org. Follow him on Twitter at
@EricBoehm87.
[This
article courtesy of
Illinois Watchdog.]
|
