Don’t get me wrong — I love non-partisan fact checking sites like PolitiFact and FactCheck (even when I don’t entirely agree with their findings). But PolitiFact hit one of my hot buttons the other day when they perpetuated what I think is one of the biggest propaganda bamboozles of modern times.
The story that hit my hot button was PolitiFact checking a statement made by Donna Brazile, saying that the governor of Wisconsin had “proposed tax giveaways to corporations”. They found that governor Walker had not just proposed tax cuts for corporations, but had already signed bills that actually cut taxes for corporations. For example,
Walker signed a law on Jan. 31 that says that companies that relocate to Wisconsin will not have to pay corporate taxes for two years.
In other words, if anything her statement was conservative and truthful. And yet, they didn’t rate her statement as fully “True”. Why?
It’s debatable whether these could fairly be considered “giveaways,” since they are intended to reward companies for creating jobs.
Ever since the days of “trickle down” (“voodoo”) economics, I’m suspicious of politicians who use the jobs excuse as the reason for the most outrageous boondoggles, but this example is particularly annoying to me.
Relocating a company from one place to another does not “create” jobs — at best it simply rearranges them. And at worst, it weakens the local tax base, causing reduced funding for libraries, roads, job training, and other programs, resulting in an area that is less likely to create new small local businesses. And it is small businesses that create the majority of jobs (even PolitiFact agrees with that).
And yet, state and local governments are falling all over each other to hand out huge tax breaks for corporations in the name of jobs. If that isn’t a giveaway, I don’t know what is.
You can’t blame corporations for going after these big tax breaks. Walmart alone has received more than a billion dollars from cash strapped local governments, including “free or reduced-price land, infrastructure assistance, tax increment financing (TIF), property tax abatements or discounts, state corporate income tax credits, sales tax rebates, enterprise zone tax breaks, job training funds and low-interest tax-exempt loans”. What makes this worse is that these subsidies are not actually necessary. A study in 2004 found that even in cases where Wal-mart had sought subsidies and didn’t receive them, they still built new stores.
So local governments give tax breaks to corporations that are not even necessary, using the excuse that they create jobs, which they don’t. Again, if that isn’t a giveaway, I don’t know what is. And then the politicians claim they have to cut back teacher salaries and other programs that actually do help our economy. I can’t understand why people put up with this crap.
21 Comments
IK – I think it’s not quite that simple. I agree with you that incentivizing a business to relocate only moves jobs from one place to another. I disagree, however, that incentives are all bad – you use the example of Wal-Mart, and in that situation they usually aren’t moving the jobs from one place to another, they are opening new stores and the incentives help them decide where to put the new store – and the new store definitely creates jobs.
The same thing is true when a business is expanding, or adding a second location – incentives help decide where they go, and expansion creates jobs. You know that, you’re an entrepreneur. Repressive regulations and higher taxes definitely will cause companies to move (or start) elsewhere, and so the reverse is also true and incentives can be a good thing.
All that said, I can’t agree with you MORE that there is more “voodoo” economics here than real economics. When a market category has many companies “rushing to the bottom” on price most of the companies die off and only the ones with the best economies of scale and capability survive – and once they have locked down the category, prices start climbing up again. We can’t use this model for local government because we really don’t want them to “die off”. And robbing the citizens you’re supposed to be serving to give unnecessary money to businesses is a violation of the local government’s real mission. Government is there to SERVE the people that pay taxes, not the other way around, and maybe it’s time for new management 🙂 Especially in Wisconsin.
Jason, I don’t totally disagree with your first point, but you picked a particularly bad example. In most cases, when Wal-mart opens up a store in an area, other businesses lose jobs (or even go out of business). So even a new store doesn’t necessarily create new jobs.
And you get a double whammy if the stores that went out of business were paying taxes that the Wal-mart was able to avoid.
And I have to say (as an entrepreneur) that low taxes are not the prime reason why businesses pick places to locate. If that were true, then nobody would open a business in New York City or the San Francisco bay area. And yet they do.
Also, be sure to read this (short) article about Norway, which has very high taxes, and yet has more entrepreneurs per capita and higher rates of start-up creation. The issue isn’t just taxes, it is what you get for your taxes. In exchange for their high taxes, people in Norway “get free health insurance, a government pension, free education through graduate school, generous disability insurance and generous parental leave paid by the government. They also have very low rates of unemployment and poverty.”
IK, I really have nothing to add. You’ve made a very cogent and compelling argument.
As to Wal-Mart creating (not stealing) jobs – show me the studies. My experience in more than one small town parallels IK’s expression of what actually occurs. Local businesses have to cut back and many ultimately fail. I refer you to the following: http://pubadvocate.nyc.gov/news/2011-01-11/new-study-wal-mart-means-fewer-jobs-less-small-businesses-more-burden-taxpayers
IK I can understand why state politicians would desire to attract large companies with tax incentives, because it brings jobs to the state. Now I understand your point on Walmart that where you add 1 you sometimes subtract 1. In my state, which is close to DC, they compete for and get a lot of tech and defense industry businesses and jobs. They know that after the honeymoon, (first years of tax breaks), they’ll get increased revenue from these businesses as well. I believe that is the primary reason, not just trying to help the super rich corporations.
Just some highlights from the link I posted above. Here’s the link to the full study: http://advocate.nyc.gov/files/Walmart.pdf
• Wal-Mart’s average annual pay of $20,774 is below the Federal Poverty Level for a family of four.
• Wal-Mart store openings kill three local jobs for every two they create by reducing retail employment by an average of 2.7 percent in every county they enter.
• Wal-Mart’s entry into a new market does not increase overall retail activity or employment opportunities. Research from Chicago shows retail employment did not increase in Wal-Mart’s zip code, and fell significantly in those adjacent.
• The value of Wal-Mart to the economy will likely be less than the value of the jobs and businesses it replaces. A study looking at the estimating the future impact of Wal-Mart on the grocery industry in California found that, “the full economic impact of those lost wages and benefits throughout southern California could approach $2.8 billion per year.”
Visit my hometown and you find a very quaint, historic downtown with virtually all businesses struggling to survive as Wal-Mart pulls large amounts of the retail business to the far south end of town. Now, there are reasons other than Wal-Mart, but I believe the largest drain on downtown businesses in WM. And they’re about to turn it into a super Wal-Mart.
Even with Tech and Defense jobs, it’s not always so clear cut. I lived in Chicago back when Boeing moved their corporate headquarters there, and the city gave away huge breaks to Boeing. Boeing did a wonderful job playing hard to get, and every time it looked like the deal might fall through, the city threw in more incentives. But Boeing was never even discussing moving or setting up any manufacturing facilities in Illinois. In the end, the city and state gave so much away to get something like 100 office jobs. But as small as that number is already, the actual number of jobs created in the city was practically zero. Most of the jobs that came to Chicago as part of the move were high level executive positions, whose former occupants moved with the company.
Let me make it clear. I’m not against Wal-mart (even though some people are). I’m against ALL tax incentives that are given away in order to entice large companies to relocate (or preferentially locate) to an area. I think it should be unconstitutional, or at least illegal.
PatriotSgt, I think you have drunk the kool-aid. If areas had to compete based on important stuff, like an educated work force, good place to live, good infrastructure, etc. rather than based on throwing tax incentives at big companies, then everyone would be better off.
The real reason that state (and other local) politicians like to attract large companies with tax incentives is because they get big campaign donations from those companies. Quid Pro Quo. These tax breaks will never go to small companies for that same reason.
If you believe in free markets, then companies should compete on a level playing field, not one that is tilted strongly toward the big companies who make big campaign donations.
Agreed IK -the KA was goood brother, LOL. Our state does also compete on the basis of an educated workforce,etc. Our little state has ranked 1st in median household income since 2004 and 49th in people below the poverty level, which are 2 very good statistics. (http://www.census.gov/compendia/statab/rankings.html)
It’s also a very blue state, but we have talented neighbors who also vigorously compete and have similarly motivated workforces, so to keep the competitive edges they have to offer some incentives. Many of our tech and defense businesses are small to medium shops that have various specialties.
As to Quid Pro Quo we are a very blue state (1 rep. gov in last 60 years), so it’s not the repubs in bed with business here, it’s dem liberals, dang it.
Gov Scott Walker got pranked
http://hosted.ap.org/dynamic/stories/U/US_WISCONSIN_BUDGET_UNIONS?SITE=AP&SECTION=HOME&TEMPLATE=DEFAULT&CTIME=2011-02-23-15-11-55
I used to work for Big Blue in VT. There was a plant outside of Burlington, and there was another in Fishkill, NY. Whenever the company wanted to expand (such as build a new 300mm fab), they basically pitted the two states against each other in a bidding war. In the ’80s, VT won. About 10 years ago, NY did.
What made this especially nasty is that they would, in essence, move employees’ jobs between the two plants. So when VT won, people were let go from NY, and vice versa. Those let go were then encouraged to apply for a position at the other site, doing pretty much exactly what they were doing before. That wouldn’t be too bad…if the company had actually paid full moving expenses. Nope. The employees would get a small package, maybe about $2000. But that simply doesn’t come anywhere near covering all expenses.
Because the jobs were classified differently, the company was able to get away with it. This stuff really should have been illegal, but it’s not. And if Congress did suddenly decide to pass a law banning this practice, the reigning judicial philosophy that interprets the Commerce Clause VERY broadly would strike it down.
Thank you Iron Knee! Europe has it right. Here in Iowa we not only give tax breaks but actual… I gotta call them bribes, (Iowa value fund)to out of state, or even country, companies to come in, plus they have the regent schools at their disposal for research. That was a Vilsack invention, but instead of getting rid of it Branstad has decided that school funding needs to be cut. Oh well, we didn’t need a middle class anyway.
I wish I had this handy but it’s late and my classroom management system just blew up (which is why I am even able to look at this today).
But I wanted to add that in addition to the plain sense logic offered by IK, the economic research has found that these tax breaks are quite harmful, particularly to local economies. Moreover, the policy research has found that, on the whole, the companies never produce the promised jobs. Corporations are the worst offenders. Small business owners also usually don’t produce but that may have more to do with the inherent risk in small businesses than the intent to milk as much as possible from state and local governments.
This is the only article I could easily find in my database on the subject that doesn’t require paid subscription.
http://www.nytimes.com/2004/10/20/national/20taxes.html
PSGT, I live across the river from you and you can see your state’s counties a few notches down this chart 😉
http://en.wikipedia.org/wiki/Highest-income_counties_in_the_United_States
However, let’s be realistic. Sure there are smart, talented people here, but there is also giant money spending machine with no one to answer to: the Federal Government. The suburbs around DC have probably the second-most overinflated salaries next to Wall Street. You can’t spit without hitting a government (usually federal) worker or contractor.
It’s hard to call it a competition when everybody wins…
BTN – you are correct. I don’t know how that happened to the counties, doesn’t seem logical. I guess all the counties maintain a more consistant avg, vs the neighbors who might have a bit more disparity between theirs.
Your also correct on the fed workforce which has grown quite substantially and continues to be be one of (if not the largest) hiring employers in the nation. Of course they borrow the money to hire, but its only debt. We are fortunate to be so close.
Here’s what I’ll say about it BTN: Don’t hate the player, hate the game! Or in the words of a ficticious great american, “If you ain’t first, your last” (Ricky Bobby, Talledega Nights) 🙂
Don’t fall for the “small business create jobs” lie. GROWING businesses are responsible for jobs creation (and that is obviously only true if they don’t destroy other jobs by doing so).
If you notice in your link to http://www.sba.gov/advocacy/7495/8420, small business make up 99.7% of all employers but ONLY created 64% of new jobs over the past 15 years. That means that the remaining 0.3% (which is NOT “small business”) have created 36% of the new jobs. 0.3% creating 36% of new jobs is a MUCH better ratio then 99.7% creating 64%.
The rest of your article is indeed correct, moving a company from location a to location b isn’t making jobs, its moving them.
Not mentioned is the housing prices in the Washington area.
We are county number 36 in New York. Three bedroom, one bath, beautiful view for $60K (needs new roof)Heat with wood or furnace.
Our costs are so much lower in Binghamton/Elimra area.
Josh, that’s an abuse of statistics. Obviously, *small* businesses are smaller than big businesses, which means they have fewer employees, and yet they still create the majority of new jobs. Many of those 99.7% of all businesses have exactly one employee — the owner!
Ebdoug – you are very correct on housing prices. While the avg home prices plummeted by as much as 25% around the country avg price only dropped 5% here. Our extra income is eaten up by higher housing. Just like in Manhatten and other such places that have outrageous salaries they also have equally outrageous housing costs.
Hey Josh and IK would either of you know the % of jobs against the whole that represents our fed gov’t job increases in the last 2 years?
PSGT, I’m in the game… Concerning jobs,
Josh, Re-read the comments and consider this scenario:
Smallsville has 20 small businesses employing 100 people.
Big Box moves in, and 5 of those businesses shut down due to competition, letting go of 20 people. Big box hires 18 of them. In your opinion, is the town better or worse off overall?
PSGT,
The data you seek is here: http://www.bls.gov/data/#employment
The summary (Jan 2009-Jan 2011):
Federal government
2772k -> 2833k -> +2.20%
State and local gov
19699k -> 19260k -> -2.23%
Private
109084k -> 106071k -> -2.76%
Of course, these are only DIRECT government jobs and don’t count in direct jobs (contact and temp workers) or fully dependant industries such as Defense.
Thanks BTN,
I had heard/read somewhere that the fed may have been the #1 hiring employer last couple years. I’m not an economist, but when your earning less it doesn’t seem to make sense to be hiring more. It really doesn’t make sense to put those 100,000 jobs added on your credit card either. The fed gov’t is already the countries largest employer. What would happen if everyone worked for the fed, who would pay the taxes sonce the fed uses taxes to pay the fed workers taxes.