Still More Reasons to Hate Corporate Incentives

Visitors to this web site know that Civitas has been outspoken in its opposition to the use of tax breaks and incentives to woo big companies to North Carolina.

Such practices constitute nothing less than corporate welfare and cronyism.  How does it work? The state doles out the perks for big business, the state picks the winners – and losers; and the state leaves taxpayers and the businesses on Main Street to pick up the tab.

If you think corporate incentives are only used to attract businesses, think again.

Earlier this week Governor Scott Walker of Wisconsin, called for legislators in that State to come up with a” FoxConn type” incentives package for Kimberly-Clark Corporation, a company with deep roots in Wisconsin but had recently announced it would be closing two plants in the state and laying off 600 employees.

Last fall, Walker and the state legislature offered FoxConn, a Chinese electronics manufacturer, $3 billion in tax breaks and credits to locate a large manufacturing plant in Southeast Wisconsin. FoxConn pledged $10 billion in investment and said it would bring 13,000 jobs, with an average salary of $54,000. By the time the negotiating stopped an additional $1.5 billion in infrastructure and local costs were included, raising the total value of the tax and incentives package to $4.5 billion. The numbers helped to make the FoxConn deal one of the biggest incentive packages ever promised to a company to locate in the United States.

While the numbers are boggling, the deal wasn’t a slam dunk. Significant opposition emerged in Wisconsin. Nevertheless, the deal was passed by the State Legislature – with a lot of kicking and screaming.  Opponents say it will take until 2043 for the state to recoup all the lost revenue.  Moreover, with Wisconsin’s unemployment rate at 3 percent, there is concern that there won’t be a large enough labor pool. To address those concerns Wisconsin is spending $7 million to attract workers to the state.

Of course, we could talk about the wisdom of that decision, but I simply ask: Where does it all end?

Some friends of mine say, “That’s Wisconsin, things like that don’t happen in North Carolina.”

Believe me they will -and doing so won’t require an economic downturn either.

General Electric recently moved its headquarters from Fairfield, Connecticut to Boston, Massachusetts. The jockeying among states to house a Fortune 500 corporate headquarters was fierce. Ultimately, GE chose Boston over other candidates.  After you review all the aid packages , you can easily see that the incentives Massachusetts offered were considerably less than those offered by other states.

So why did GE re-locate to a place locals refer to as “Taxachusetts”?   One word, millennials. Millennials want to live and work in large cities. They don’t want to commute. And they want to live and work in places where there is plenty to do. No amount of money would change the fact that Fairfield, CT is an affluent, sleepy little suburb 90 minutes from New York City.

Much as we like to think so, decisions to build or relocate companies don’t always turn on economic considerations.  Earlier this week it was announced that North Carolina lost out to Alabama as the site for a new Toyota assembly plant, even though the aid package Alabama offered Toyota was far less than what North Carolina had put together. Still it appears the decision came down to a number of things Alabama had that North Carolina did not: lower energy costs, proximity to auto suppliers and better access to a distribution network.

Citizens are constantly told about the importance of the aid package to lure companies like Toyota or Amazon to North Carolina.  Don’t listen to them. Such proposals amount to corporate welfare. They put local businesses at a severe disadvantage, ask local taxpayers to shoulder the costs for big business tax breaks and seldom if ever prove to be the most important factors for company’s choosing to relocate.

All compelling reasons why North Carolina should end this policy as soon as possible.