Corporate subsidies out of control
Last week, someone in Georgia won the Powerball lottery and became an overnight multi-millionaire.
The jackpot was more than $478 million, and the winner had two options for collecting the prize — a smaller (though still hefty) lump sum cash payment of $230 million immediately, or an annuitized prize for the full $478 million over almost 30 years.
For an individual, that is a once-in-a-lifetime gift, but big corporations across all 50 states are regularly winning the “lottery” and collecting on both payment options — the immediate large lump sum and the yearly long-term payments.
Taxpayers didn’t always pay big for-profit companies hundreds of millions of dollars whenever they opened a factory in their state. But something has changed over the past few years.
For the worse.
Consider these older examples:
Wisconsin lawmakers offered Foxconn $4.8 billion in tax breaks to open a factory in the state. Amazon opened bids for its second headquarters and the win went to Virginia for $800 million. And so on and so forth.
Look behind the headlines, and you’ll see that the companies didn’t get to collect one big check from taxpayers.
Foxconn got a deal with the state that will deliver cash over 15 years, plus other tax breaks and favors. Amazon receives trickles of checks and refundable tax credits — which also give it other people’s money — over 10 years.
It adds up to a lot over time, and headlines make it seem like the money changes hands all at once. But that isn’t the case, and delaying payments over decades keeps taxpayer costs down when companies fail to deliver.
It is similar to the lottery winner taking an annuitized prize after winning.
Here’s what has changed, though:
States are now also handing out hundreds of millions in taxpayer cash upfront — just like the lottery lump sum payment option.
Take these deals from 2022:
∫ General Motors got $666 million from Michigan.
∫ Nucor got $315 million from West Virginia.
∫ Intel got $600 million from Ohio.
The companies collect other assorted favors, too.
For instance, Intel received a big check but also gets smaller checks over the next 30 years. The companies still get to collect the old, smaller payments over a long period of years, plus the new big payments over the short term, too.
That would be like winning the lotto and getting to collect both prize options at the same time.
The reason for the unfortunate policy change goes to shifts in the Overton Window — policies within the window are those widely accepted throughout society. Previously, political favors for big corporations had been politically infeasible. But then corporate officials started asking for tax breaks and got elected officials to approve them on the promise of job creation in their communities. Then they started asking for small payments over time and got them. And, now, it is acceptable to give companies large subsidies.
Just like boiling a frog.
Illinois legislators gave Gov. J. B. Pritzker a $400 million fund to write big checks to companies that promise new jobs. Chinese battery manufacturer Gotion was its first beneficiary, receiving a $125 million payment, plus other favors over the next 30 years.
It wasn’t always that way.
State constitutions prohibit special treatment for private companies. Judicial doctrine ensured that public policy benefits the public, rather than someone’s private interest.
The prohibition on public support of private interests gradually gave way to Publishers Clearing House-style cash bonanzas.
First, state governments started letting some companies pay less in taxes. Then they started using tax policy to give companies other people’s money over lengthy periods of time. And, now, it also includes quick and large cash transfers of other people’s money.
Extra cash payments have made states more enticing to corporations.
However, states do not succeed when they write the biggest checks to the biggest companies. Selective subsidies fail to create jobs and are unfair to both the taxpayers who have to foot the bill and the businesses that must compete with subsidized companies.
Economists studying the economic effects of corporate welfare confirm that it just doesn’t work.
The economic ineffectiveness of corporate welfare doesn’t stand in the way of its political effectiveness. Politicians know that headlines about job creation are popular, regardless of whether subsidies deliver on the promised job growth.
Big business lobbyists know they have something politically valuable to offer when they open a new office or factory. The lobby for special benefits has succeeded at pushing states a little bit further over time — from offering abatements to handing out big cash payments.
Things have gone too far.
Enough is enough.
State lawmakers should start telling companies “no” when they ask for taxpayer money. Governors should get together to negotiate an interstate compact to agree with each other to stop competing over who can write the biggest checks.
Selective assistance has gone from letting some companies pay less in taxes to massive transfers of taxpayer cash.
The double-dipping lotto wins for big business are expensive and ineffective, and lawmakers should stop.
James M. Hohman is the director of fiscal policy at the Mackinac Center for Public Policy.