Matt Singer is the communications director of the Progressive States Network, a non-profit dedicated to passing progressive policy in the states.
Earlier this year, Georgia Governor Sonny Perdue offered an astounding $400 million in incentives to Kia, the Korean automaker, to develop a plan that would employ 2,500 Georgians. Each of those jobs came with a $160,000 price tag. But it was nothing compared with what Mississippi was reportedly willing to offer the Korean car company: $1 billion in incentives, or roughly $400,000 per new job created.
In Perdue’s defense, Georgia had recently lost two American auto plants. Even cosmetic economic development probably looked better than doing nothing.
But what is truly unfortunate is that Perdue is not alone. When states across the country eye strategies for economic development, too many of them turn to an old idea: tax breaks for big companies who bring in a couple hundred jobs.
These companies literally receive billions of dollars in taxpayer money. Who are the targets of this largesse? As a Good Jobs First study noted recently, one of the biggest recipients is Wal-Mart—the company famous for its ability to undercut wages and local businesses has received well over $1 billion in financial assistance.
And while the corporate corruption of the federal government is well-known, the implications of the growing set of corporate tax loopholes at the state level is less commonly addressed.
The implications of these shifts are clear.Citizens for Tax Justice reports that corporations manage to shield as much as two-thirds of their profits from state corporate income taxes. The result: money that could be spent on real economic development opportunities flows instead into the pockets of executives and the bill gets passed along to small taxpayers—local businesses and workers.
These types of tax breaks are often described as “tax expenditures” because they more closely resemble government programs than true tax reform. Yet, unlike most government programs, tax expenditures often operate as implicit entitlement programs—there is no limit on how high the costs can go, no annual appropriations system and generally little legislative oversight. Even worse, there is no accountability of results. The companies file a tax return, claim the credit and never need defend the benefits produced by the tax provisions.
Fortunately, some states are choosing to take the road less traveled and actually address this largesse. Illinois now has a public website where any member of the public can track which companies are receiving tax breaks, what promises were made in return and whether the firm is delivering on its end of the bargain. This accountability has had a huge impact. One of the discoveries: 60 percent of the jobs created with public money pay too little for families to live on.
Oversight is obviously a good place to start. Connecticut recently passed a comprehensive bill establishing a commission to review tax expenditures, measure the effects and audit individual companies to prevent abuse. Other states are considering sunset measures that would require regular reconsideration of tax expenditures to ensure that these hidden costs are fully considered regularly by policymakers.
The Democratic minority in Ohio recently put forth a proposal to immediately sunset all tax expenditures, worth $6.3 billion annually. Future tax breaks would be reviewed every five years to prevent abuses and make sure the money was being spent wisely. There, as elsewhere, the response from corporate lobbyists has been to complain about the pending “tax increase” and for corrupt lawmakers to ignore the proposal.
This rhetorical trick is common enough. We actually see it at the federal level—letting tax breaks sunset suddenly becomes, in the corporate conservative lexicon, a “tax increase.” But reviewing these costs to ensure that they are meeting their goals rather than simply starving the treasury isn’t increasing taxes, it is making sure the rest of us are getting our money’s worth.
But even sunset measures fail to go far enough. Idaho and Virginia have recently passed measures requiring that recipients of public money meet minimum wage standards. Many other states also require some level of wage standard, but many of these standards are insufficient.
One of the best things states can do is simply stop handing out public money to the companies that do not deserve it—using the money instead for programs that will actually further the goal of economic development.