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Opinion: States use tax incentives to lure companies. Bipartisan support is growing to stop it.

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Opinion by James M. Hohman

July 19, 2021|Updated today at 9:05 a.m. EDT


James M. Hohman is the director of fiscal policy at the Mackinac Center for Public Policy.
President Biden and Democrats in Congress have kicked off a national debate about raising corporate taxes. Yet an arguably more important conversation is happening outside Washington, D.C.: how to slash the nearly $95 billion in tax incentives that states and cities give to businesses every year. And unlike the discussion about the corporate tax rate, the movement to cut corporate welfare has attracted notable support on both sides of the political aisle.

Legislators in 15 states have introduced bills that would block their governments from doling out tax incentives and subsidies through so-called economic development programs. Every state has used these programs, trying to convince corporations from Hollywood producers to sports teams to brand-name manufacturers to set up shop or stay within their borders.


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State and local governments spend nearly twice as much on corporate welfare as they do on fire protection. It’s done through a combination of both direct payments and company-specific tax breaks: In Michigan, where I live, most incentives are cash payments. The same is true for the biggest giveaway programs in most states, such as Florida, where companies can get $3,000 “refunds” for each job they create. At least 35 states have handed out more than a billion dollars each, though many fail to report the true total.
Subsidies for Hollywood productions are among the most popular, with Michigan alone spending half a billion dollars between 2008 and 2015. National Football League teams worth billions of dollars each routinely get hundreds of millions of dollars in subsidies to build stadiums. Each state tends to reward its biggest corporate citizens: In Michigan, Ford, GM and Stellantis get the most; in Massachusetts, General Electric; in Louisiana, oil companies; and in Washington state, Boeing received the biggest tax break in history, worth $8.7 billion.
And, of course, states pull out all the stops to lure big-name businesses. Wisconsin courted the chipmaker Foxconn with $2.9 billion in state tax credits in 2017, while New York and Virginia dangled a combined $3.75 billion in incentives to win Amazon’s second headquarters.



Such deals have deservedly spurred a massive public outcry. The Foxconn debacle played a major role in the 2018 gubernatorial race in Wisconsin, and the subsidy was subsequently cut by more than two-thirds. Widespread opposition even led Amazon to cancel its New York plans. (Amazon founder Jeff Bezos owns The Post.)
State lawmakers, representing various political bases, increasingly oppose these blatant handouts. No one has done more to draw attention to the issue than Dan Johnson, a progressive lobbyist in Illinois. In Michigan, the Senate Democratic leader and a key House Republican are leading the legislative charge. In Alabama and Utah, Republicans are in the vanguard. In Rhode Island, the Senate sponsor of the anti-subsidy bill is a Democrat, while the House sponsor is a Republican.
Despite their disagreements on other issues, these lawmakers share the view that states should compete on business climate and quality-of-life issues, not corporate welfare. They also have the facts on their side, as studies show that such subsidies can harm, not help, economic growth and almost always fail to drive the promised job creation.



Yet no state is willing to end its incentive program unless others do the same, fearing that unilateral disarmament would damage their economy. That’s unlikely: One study found that up to 98 percent of companies would make the same investment and expansion decisions without any tax breaks. Even so, state leaders aren’t willing to take the risk. Fortunately, the legislation under consideration in those 15 states is designed to overcome this hurdle.
Whether it’s Hawaii, Florida, Massachusetts, Pennsylvania or elsewhere, no bill currently under consideration would take effect on its own. If enacted, it would go live only after at least one other state passed the same measure. The goal is for many more states to enact the legislation simultaneously. It would then be illegal for all those states to reduce taxes or provide subsidies to entice specific companies to stay or relocate within their borders. Existing corporate welfare handouts would wind down until they disappear entirely. In short, the legislation creates an interstate compact to ban corporate welfare.
This concept is new, arising only in 2019. Yet the mounting interest from lawmakers across the country shows that momentum is building. Although no state has enacted anything yet, Utah is closest, with the interstate compact bill passing the House of Representatives in 2020. With each state legislative cycle, more lawmakers in more states introduce this policy. No wonder: Ending taxpayer giveaways to corporations has broad and bipartisan appeal.



This issue deserves at least as much attention as corporate tax rates. It’s a matter of respecting taxpayers and companies who pay their fair share. That’s a conversation America needs to have, and states are not only doing so, they’re moving toward the right decision.

 
Of course we wouldn’t want to incentivize opening a business anywhere, and we wouldn’t want states and localities competing for companies that bring jobs and revenue into their community. Can’t have any of that.
That moron AOC cost NY 25,000 jobs and $28 billion in tax revenue because of $2.8 billion in tax breaks. Good move, Economics major.
 
The author loses credibility by making overbroad and misleading use of the terms 'corporate welfare' and 'subsidies'.

If this is really an issue, it should be handled at the state level, not the federal level.
 
The author loses credibility by making overbroad and misleading use of the terms 'corporate welfare' and 'subsidies'.

If this is really an issue, it should be handled at the state level, not the federal level.

The problem is that states feel they need to do this in order to compete with other states. If a state wants to say that they will no longer hand out tax breaks for companies to open up in their state, other state's might take their jobs because they are willing to hand out tax breaks.
 
The problem is that states feel they need to do this in order to compete with other states. If a state wants to say that they will no longer hand out tax breaks for companies to open up in their state, other state's might take their jobs because they are willing to hand out tax breaks.
IMO, competition isn't a problem.
 
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IMO, competition isn't a problem.

It depends how you are competing.

If a state is competing to show it has a qualified workforce, good access to infrastructure etc. That's fine.

But when the competition is who can give a already rich corporation the biggest sweetheart tax deal, than I think that's bad.

And some it' sounds like go even further than that and basically offer to give the company money from state coffers.

It's all basically just a competition as to who can come up with the biggest bribe.
 
Giving people work and jobs is the number 1 most important thing a state can help with. If that means giving tax incentives then I am all of it but I do agree it should be a state and local deal.
 
Giving people work and jobs is the number 1 most important thing a state can help with. If that means giving tax incentives then I am all of it but I do agree it should be a state and local deal.

So basically it's this massive war over who can give the biggest bribe to an already rich corporation and you are ok with that?

Explain to me how this is not a bribe under a different name? Because it goes to a corporation instead of a person? Or because it means they get exempted from things like taxes that a smaller less wealthy company is required to pay?
 
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All governments do this. They have determined that it is beneficial to the economy. All of them can't be wrong.
 
So basically it's this massive war over who can give the biggest bribe to an already rich corporation and you are ok with that?

Explain to me how this is not a bribe under a different name? Because it goes to a corporation instead of a person? Or because it means they get exempted from things like taxes that a smaller less wealthy company is required to pay?
In theory aren’t all incentives bribes? And yes I am for a state or local government to make decisions on what they think is best for their people.

Take a place like Waterloo for example, do you think a place would come here if it weren’t for some really good tax incentives? Tyson received tax credits and incentives but they have been great for the minority and non educated community in the area. Minorities have been able to make a good living in the cedar valley due to this. Are you really against people having jobs if it means that a corporation or business gets tax incentives? Giving people jobs is far more important compared to the bottom line of tax revenue for a government.
 
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So basically it's this massive war over who can give the biggest bribe to an already rich corporation and you are ok with that?

Explain to me how this is not a bribe under a different name? Because it goes to a corporation instead of a person? Or because it means they get exempted from things like taxes that a smaller less wealthy company is required to pay?

You can call it a bribe. But others, like me, will call it an incentive based on "volume".

If I go to Home Depot and buy a board, I pay $X. If a contractor building apartment buildings buys their lumber from Home Depot, they pay less. Did Home Depot bribe them? Did I get screwed?

A large business bringing 1,000 new jobs to the State is going to get a better deal than a small business creating 10 new jobs. They get bigger incentives because the economic impact is bigger.

I don't know whether it's fair or not, but I do understand why they do it.
 
All governments do this. They have determined that it is beneficial to the economy. All of them can't be wrong.

They are doing this because all the other governments are going to do it. Since everyone gives out bribes the only way for you to succeed is to also bribe.

You can call it a bribe. But others, like me, will call it an incentive based on "volume".

If I go to Home Depot and buy a board, I pay $X. If a contractor building apartment buildings buys their lumber from Home Depot, they pay less. Did Home Depot bribe them? Did I get screwed?

A large business bringing 1,000 new jobs to the State is going to get a better deal than a small business creating 10 new jobs. They get bigger incentives because the economic impact is bigger.

I don't know whether it's fair or not, but I do understand why they do it.

I understand why they do it. They do it because everyone else will do it.

And what you are talking about you neglect to notice the difference between a private company and the government. Sweet heart deals allow the government to pick winners and losers.
 
Giving people work and jobs is the number 1 most important thing a state can help with. If that means giving tax incentives then I am all of it but I do agree it should be a state and local deal.
I understand the concept and usually wouldn't have a problem with it, but it has become ridiculous with that and subsidies for NFL teams. So at this point Ii am all for getting rid of it and let the business select the location based on the location not what city/state can bribe them with the most subsidies that they really don't need.
 
I understand the concept and usually wouldn't have a problem with it, but it has become ridiculous with that and subsidies for NFL teams. So at this point Ii am all for getting rid of it and let the business select the location based on the location not what city/state can bribe them with the most subsidies that they really don't need.

Exactly it's the same freaking thing for an NFL team.

The team tells the state/city that if they don't drop a billion dollars on a shiny new stadium every 20 years or so than they will move. And if they move that pisses off all the sports fans who in their anger seem unable to see that there might be a few things the government could spend a billion dollars on that are more important than football.

Most teams do this. Only a few notable ones like the Packers don't.
 
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I understand the concept and usually wouldn't have a problem with it, but it has become ridiculous with that and subsidies for NFL teams. So at this point Ii am all for getting rid of it and let the business select the location based on the location not what city/state can bribe them with the most subsidies that they really don't need.
The amount of tourism and business something like an NFL brings to a city is enough for me and I’m sure all businesses in said area would agree. Not only the economic activity but the free PR a city gets from a sports team is massive. I don’t think it is necessary or right to say what a local or state government can due in regards to this.
 
They are doing this because all the other governments are going to do it. Since everyone gives out bribes the only way for you to succeed is to also bribe.



I understand why they do it. They do it because everyone else will do it.

And what you are talking about you neglect to notice the difference between a private company and the government. Sweet heart deals allow the government to pick winners and losers.

So, you believe they are doing it unfairly? Or, in other words, not objectively?

Yeah, that can happen I suppose.
 
The amount of tourism and business something like an NFL brings to a city is enough for me and I’m sure all businesses in said area would agree. Not only the economic activity but the free PR a city gets from a sports team is massive. I don’t think it is necessary or right to say what a local or state government can due in regards to this.
The shit gets passed down to the property owners and local sales tax. It's a bunch of BS.
 
It depends how you are competing.

If a state is competing to show it has a qualified workforce, good access to infrastructure etc. That's fine.

But when the competition is who can give a already rich corporation the biggest sweetheart tax deal, than I think that's bad.

And some it' sounds like go even further than that and basically offer to give the company money from state coffers.

It's all basically just a competition as to who can come up with the biggest bribe.
Yup. That's what it is. States should regulate that if they decide localities can't handle it. They usually do an economic analysis to determine if there's a net benefit and the payback period.

If a company pays less in state taxes, in theory they will be more profitable and pay more federal tax. In theory.
 
I'm cool with different states being able to have different corporate income tax rates, etc.
I think that kind of competition between states is healthy.
I don't like when they arrange subsidies for individuals companies. I want competition to dictate the winners on the market, not the legislature.
 
The amount of tourism and business something like an NFL brings to a city is enough for me and I’m sure all businesses in said area would agree. Not only the economic activity but the free PR a city gets from a sports team is massive. I don’t think it is necessary or right to say what a local or state government can due in regards to this.

Multiple studies have shown that reasoning is bunk.


So, you believe they are doing it unfairly? Or, in other words, not objectively?

Yeah, that can happen I suppose.

It's not just that it could be unfair. It's that it's just a flat out bribe. States should compete without bribing companies.
 
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Multiple studies have shown that reasoning is bunk.




It's not just that it could be unfair. It's that it's just a flat out bribe.
I liken it to Welfare for someone that doesn't need it. Like you mentioned in a previous post. Entice them with infrastructure investments like roads and transportation efficiency in and out of their site. Show that your city has residents with the needed skillset and is attractive and welcoming to others with the desired skills and invest money accordingly. But stop the BS tax breaks and contributing the land and/or building that the business is more than capable of paying for themselves and still will make plenty of money while still employing a portion of the community.
 
Multiple studies have shown that reasoning is bunk.




It's not just that it could be unfair. It's that it's just a flat out bribe. States should compete without bribing companies.
Interesting study from 1997, I would like to see how it all compares now. I didn’t think of it this way but the stadiums can be seen as a a public good as many within the community would love to have a pro sports team compared to bitching about tax subsidies.

So let say they give these subsidies out to a NFL team to build a stadium guess what happens? Tons of jobs get created instantly which is like I said, so much more important compared to the government getting it’s fair share. The Pride of the city gets a boost due to a pro team and creating their own type of identity and culture for this team. Old and new hospitality/restaurant businesses gain wealth and again, hire more workers. Even if the tax investment is barely a net positive or a little net negative, the impact of actual jobs created are life changing for a lot of people. With all that being said, look at the impact Lebron had on the Cleveland downtown economy:



You can apply the Lebron effect to any city that has a good pro sports team or famous player. Maybe not as high but you should get the overall point of the economic impact and jobs!
 
Interesting study from 1997, I would like to see how it all compares now. I didn’t think of it this way but the stadiums can be seen as a a public good as many within the community would love to have a pro sports team compared to bitching about tax subsidies.

So let say they give these subsidies out to a NFL team to build a stadium guess what happens? Tons of jobs get created instantly which is like I said, so much more important compared to the government getting it’s fair share. The Pride of the city gets a boost due to a pro team and creating their own type of identity and culture for this team. Old and new hospitality/restaurant businesses gain wealth and again, hire more workers. Even if the tax investment is barely a net positive or a little net negative, the impact of actual jobs created are life changing for a lot of people. With all that being said, look at the impact Lebron had on the Cleveland downtown economy:



You can apply the Lebron effect to any city that has a good pro sports team or famous player. Maybe not as high but you should get the overall point of the economic impact and jobs!
What would happen if no city offered them these absurd subsidies/tax breaks? Would the businesses and sports teams just fold? Of course not.

So, then they would choose the city and all the jobs and benefits you listed would still occur. The business and/or sports team would still make plenty of money and all without needing to get subsidies on taxpayers backs.
 
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This will never be stopped. Corporations will make sure that laws to stop the extortion will never be passed. The same way they prevent other laws that have overwhelming support from happening.
 
What would happen if no city offered them these absurd subsidies/tax breaks? Would the businesses and sports teams just fold? Of course not.

So, then they would choose the city and all the jobs and benefits you listed would still occur. The business and/or sports team would still make plenty of money and all without needing to get subsidies on taxpayers backs.
So if that’s the case would you be in favor of the federal government making a law to prevent state and local governments to choose how to run they government as they see fit?
 
So if that’s the case would you be in favor of the federal government making a law to prevent state and local governments to choose how to run they government as they see fit?
That is a pretty broad generalization to try to solve the problem. I wouldn't have a problem with something much more targeted to prevent this type of corporate welfare that is not needed by many of these corporations and teams.
 
That is a pretty broad generalization to try to solve the problem. I wouldn't have a problem with something much more targeted to prevent this type of corporate welfare that is not needed by many of these corporations and teams.
Yah it just would never happen any way because of the 10th amendment. This is a nature of the beast type of thing in America.
 
Sweet heart deals allow the government to pick winners and losers.

That is what government does, pick winners and losers. It happens at the federal, state and local levels. If the Feds don't want states or localities to pick winners and losers, then perhaps they should look in the mirror first and fix the problems at the federal level.
 
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