, , , , , , , , , , , , , , , , ,

At the New York Times, Louise Story can, from time to time, crank out a devastating investigating piece on some aspect of our economy, and Saturday’s edition was no exception. “As Companies Seek Tax Deals, Governments Pay High Price,” Story investigates the high price being paid by local governments for providing tax abatements to companies, damn the long-term costs.

Here in my home state of Indiana, the story resonates. Local officials will provide tax abatements of such extended periods to small- to mid-cap companies with shaky financials, only to find the abatement period outlasts the company. For large companies, local officials will acts like dogs, trying to outdo the dog in the next county in their barking contests, and placing school budgets and property-tax rates at risk. In all cases, abatements are often provided in return for present and future job growth, only the job growth promised rarely materializes and, to add to the pathetic, neither local nor state officials hold the corporate recipients of the tax abatements responsible. If the promised job growth does not materialize, the rescission of the tax abatement should follow.

This has become a major pipeline of corporate welfare in the U.S.:

A Times investigation has examined and tallied thousands of local incentives granted nationwide and has found that states, counties and cities are giving up more than $80 billion each year to companies. The beneficiaries come from virtually every corner of the corporate world, encompassing oil and coal conglomerates, technology and entertainment companies, banks and big-box retail chains.”

The implications are major, as property tax abatements for corporations must be made up in property-tax increases for local homeowners. School budgets also take a major hit, as do infrastructure budgets for water, sewage, parks, public transportation and roadways, all those variables that directly affect quality-of-life measurements.

They dictate their terms, and we’re not really in a position to question their deal terms,” Sarah Eckhardt, a commissioner in Travis County, Tex., said of companies she has dealt with recently, including Apple and Hewlett-Packard. “We don’t have the sophistication or the resources to negotiate with a company that has the wherewithal the size of a country. We are just no match in negotiating with that.”

Some cities, like Youngstown, Ohio, found that tax abatements costs so dearly, they could no longer afford to offer them as an enticement for companies. Youngstown has, as the only alternative, pursued an active demolition of buildings, all but hanging up the “Closed” sign at the city gates.

One of the boldest decisions (DaimlerChrysler Corp. v. Cuno) ever to attack the Constitution was handed down by the Supreme Court, the background for which can be found in this passage:

A group of taxpayers in Michigan and Ohio went as far as suing DaimlerChrysler after Ohio and the City of Toledo awarded the automaker $280 million in the late 1990s. The suit argued that it was unfair for one taxpayer to be given a break at the expense of all others.

“The suit made its way to the Supreme Court, and G.M. and Ford signed on to briefs supporting Daimler, as did local governments. The National Governors Association warned the court that prohibiting incentives could lead to jobs moving overseas. ‘This is the economic reality,’ the association said in a brief.

“The governors offered no hard evidence of the effectiveness of tax credits, but the Supreme Court did not consider whether they worked anyway. In 2006, the court concluded that the taxpayers did not have the legal standing to challenge Ohio’s tax actions in federal court.”

Um, wasn’t that taxpayer revenues being given away? The unconstitutional audacity of the decision ranks right up there with Kelo v. City of New London and Citizens United v. Federal Election Commission.

Favorite quote:

“We’re their own private ATM. When they need money, they come begging, but when they don’t want oversight, they say ‘get out of the way.’” 

Doug Winters, attorney for Ypsilanti Township, Mich.


2017 Addendum

In mid 2017, the State of Wisconsin announced the mother of all tax abatements, a $3 billion eye-popper for the locating of a new Foxconn manufacturing facility into Wisconsin… at a cost of $500,000 to $1 million per worker. It will be “the largest-ever subsidy provided by a state to a foreign company.”