Tea-Publican economic theory holds that giving tax incentives to businesses to relocate to your state will increase economic activity and create jobs. A new study finds that the results of such tax incentives are negligible, and often costly.
Nathan Jensen and Jason Wiens report at the Washington Monthly, States’ Job Creation Shell Game:
State and local governments dole out billions of dollars annually in taxpayer-financed deals to businesses in the name of economic development.
Earlier this year, the State of Massachusetts and the City of Boston offered property tax breaks and grants totaling $145 million to General Electric in exchange for the company moving its headquarters to Boston from Connecticut.
In 2014, the State of Nevada outbid Arizona, California, New Mexico and Texas with an offer of free land, tax cuts, electricity discounts and other perks to lure the auto manufacturer Tesla to build a battery production facility in the state. The factory and its 6,500 jobs were estimated to cost Nevada more than $1.2 billion.
Many states, including Texas, New York and Louisiana, fund “war chests” specifically aimed at bringing companies and jobs to their state, often poaching these firms from other states. All told, estimates indicate this game of tug-of-war among states costs taxpayers $70 billion a year – while creating very few, if any, new jobs and lining the pockets of the companies taking advantage of these incentives.
Supporters claim programs like these bring new business activity and employment opportunities to residents of the state. Yet, research has found that rather than paying for new jobs and growth, taxpayers are funding business activity that would have likely occurred anyway. In other words, a small subset of businesses (usually large ones) profit at taxpayers’ expense for hiring or expansions the businesses already had planned.
Studies funded by the Ewing Marion Kauffman Foundation took an in-depth look at the flagship business incentive programs in two states: Kansas and Missouri. The findings were striking.
In Kansas, the almost $1 billion spent from 2006 to 2011 on the state’s incentive program had no impact on job creation. Businesses that received an incentive were no more likely to create new jobs than those firms that did not receive an incentive. Moreover, in a survey of 24 recipients of incentives, two-thirds of firms indicated they would have invested even if they hadn’t received an incentive.
Across the state line, companies in Missouri created between one and two jobs per incentive. While this may seem like good news, it amounts to an incredibly costly job creation strategy, with each of these jobs costing Missouri taxpayers $1 million. Over $700 million in incentives were spent to create a few hundred jobs.
These findings reveal a fundamental flaw in incentive programs: they are redundant. But they are also expensive, encourage states to allocate resources away from other critical needs (such as education), create potential for corruption, and promote a job creation shell game in which businesses move a few miles across state borders to qualify as “new jobs” without creating new job opportunities.
In response to critiques like these, some states have implemented “clawback” provisions that allow the state to recoup some or all of the taxpayers’ money when a company fails to keep its job creation promises.
But other states are starting to just say no. In Florida, the legislature recently rejected a request from the Governor for $250 million to fund the Quick Action Closing Fund, which Florida uses to lure companies to relocate to the state. More states should do the same.
In a time of extreme polarization of American politics, there are few policy areas where both sides can agree. Call it “corporate welfare” or “big government picking winners and losers,” but the labels are less important than the policy implications. Incentive programs provide a transfer from taxpayers to companies for little societal benefit.
In related economic news, Neil Irwin writes at The Upshot at the New York Times, We’re in a Low-Growth World. How Did We Get Here?:
One central fact about the global economy lurks just beneath the year’s remarkable headlines: Economic growth in advanced nations has been weaker for longer than it has been in the lifetime of most people on earth.
The United States is adding jobs at a healthy clip, as a new report showed Friday, and the unemployment rate is relatively low. But that is happening despite a long-term trend of much lower growth, both in the United States and other advanced nations, than was evident for most of the post-World War II era.
This trend helps explain why incomes have risen so slowly since the turn of the century, especially for those who are not top earners. It is behind the cheap gasoline you put in the car and the ultralow interest rates you earn on your savings.
This slow growth is not some new phenomenon, but rather the way it has been for 15 years and counting. In the United States, per-person gross domestic product rose by an average of 2.2 percent a year from 1947 through 2000 — but starting in 2001 has averaged only 0.9 percent. The economies of Western Europe and Japan have done worse than that.
Over long periods, that shift implies a radically slower improvement in living standards. In the year 2000, per-person G.D.P. — which generally tracks with the average American’s income — was about $45,000. But if growth in the second half of the 20th century had been as weak as it has been since then, that number would have been only about $20,000.
To make matters worse, fewer and fewer people are seeing the spoils of what growth there is. According to a new analysis by the McKinsey Global Institute, 81 percent of the United States population is in an income bracket with flat or declining income over the last decade. That number was 97 percent in Italy, 70 percent in Britain, and 63 percent in France.
Like most things in economics, the slowdown boils down to supply and demand: the ability of the global economy to produce goods and services, and the desire of consumers and businesses to buy them. What’s worrisome is that weakness in global supply and demand seems to be pushing each other in a vicious circle.
It increasingly looks as if something fundamental is broken in the global growth machine — and that the usual menu of policies, like interest rate cuts and modest fiscal stimulus, aren’t up to the task of fixing it (though some well-devised policies could help).
The underlying reality of low growth will haunt whoever wins the White House in November, as well as leaders in Europe and Japan. An entire way of thinking about the future — that children will inevitably live in a much richer country than their parents — is thrown into question the longer this lasts.
* * *
As a matter of arithmetic, the slowdown in growth has two potential components: people working fewer hours, and less economic output being generated for each hour of labor. Both have contributed to the economy’s underperformance.
* **
The forecasters thought the average output for an hour of labor would rise 29 percent from 2005 to 2014. Instead it was 15 percent.
But it’s not just that each hour of work is producing less than projected. Fewer people are working fewer hours than seemed likely not long ago.
The unemployment rate is actually lower than the C.B.O. projected it to be a decade ago (it saw it as stable at 5.2 percent; it was 4.9 percent in July). But the unemployment rate counts only those actively seeking a job. There were five million fewer Americans in the labor force — neither working nor looking — in 2015 than projected.
An analysis by the White House Council of Economic Advisers last year estimated that about half of the decline in labor force participation since 2009 was caused by aging of the population (which was anticipated in the projection), and about 14 percent from the economic cycle. About a third of the decline was a mysterious “residual”: younger people leaving the work force, perhaps because they saw little opportunity or viewed the potential wages they could earn as inadequate.
Weak productivity and fewer workers are hits to the “supply” side of the economy. But there is evidence that a shortage of demand is a major part of the problem, too.
Think of the economy as a car; if you try to accelerate far beyond the speed it’s capable of, a car won’t go any faster but the engine will overheat. Similarly, if the voluntarily exit of people from the labor force and lower-than-expected gains from technological advances were the entire story behind the growth slowdown, there should be evidence the economy is overheating, resulting in inflation.
That’s not what’s happening. Rather, global central banks are keeping their feet on the economic accelerator, and that is not resulting in any overheating at all.
The distinction is important if there is to be any hope of solving the low-growth problem. If the issue is a shortage of demand, then some more stimulus should help. If it is entirely on the supply side, then government stimulus is not much use, and policy makers should focus on trying to make companies more innovative and coax people back into the work force.
But what if it’s both?
Larry Summers, the Harvard economist and a former top official in the Obama and Clinton administrations, watched as growth stayed low and inflation invisible after the 2008 crisis, despite extraordinary stimulus from central banks. Even before the crisis, economic growth had been relatively tepid despite a housing bubble, war spending and low interest rates.
In November 2013, he combined those observations into a much-discussed speech at an I.M.F. conference arguing that the global economy had, just maybe, settled into a state of “secular stagnation” in which there was insufficient demand, and resulting slow growth, low inflation and low interest rates.
While the theory is anything but settled, the case has become stronger in the last three years.
But it may not be as simple as supply versus demand. Perhaps people have dropped out of the labor force because their skills and connections have atrophied. Perhaps the productivity slump is caused in part by businesses not making capital investments because they don’t think there will be demand for their products.
Mr. Summers, in an interview, frames it as an inversion of “Say’s Law,” the notion that supply creates its own demand: that economywide, people doing the work to create goods and services results in their having the income to then buy those goods and services.
In this case, rather, as he has often put it: “Lack of demand creates lack of supply.”
* * *
In other words, there’s a lot we don’t know about the economic future. What we do know is that if something doesn’t change from the recent trend, the 21st century will be a gloomy one.
herr huppenthal. the working class knows whats going on. they are losing good paying jobs that are leaving the country and having to fight for low paying jobs. the economic recovery is helping the rich and corporations far more then the working class. that is where trump is getting his support. also bernie was addressing this but liberal elitists were not enough along with white trash democrats like me ( I am part native american but its the thought that counts) only when the black voters went to obama after Iowa did the president over come hillarys lead. they never came over for bernie.
Your post is a complete lie, a total fabrication, the perpetuation of an elaborate fraud.
You measure economic growth with Gross Domestic Product, Household consumption or jobs – not GDP per capita.
In 1980, at the start of the Reagan tax cuts, the European Union had GDP 30% higher than the United States. Today, the United States has GDP 20% higher than the European Union.
The only European Union country to defeat the United States is Ireland with more than double our growth. They had a corporate income tax of 12.5%, the lowest in the industrialized world while ours at 35% was and is the highest.
Picketty’s France actually produces 3 billion hours per year less work for the working man and woman than they did in 1980. The United States produces 80 billion hours more work, the difference being the equivalent of 50 million full time jobs.
Conservatives don’t support buying jobs. Lobbyists do. Nitwit liberals are just as likely to be in the job buying business when they have power. Look at our large cities.
The same principles apply to states. If you take the consistently low tax burden states over the last 40 years, they’ve grown 100%. The consistently high tax burden states have only grown 20%. (top ten versus bottom ten).
Kansas is not a low tax state. Not now, never been. However, they did rank 2nd in the nation in GDP growth in the last quarterly rankings.
You are perpetuating a cruel fraud.
Let’s see, we have academic research from actual economists, and then we have the ravings of a disgraced corrupt former politician who trolls blogs and who never links to sources to support his ravings.
Ooo… drew some blood did we?
These are my sources:
1. World bank, same place your data came from, easy for you to look up European Union, Ireland, EU and France. Just be honest and look up GDP not GDP per capita. Any time an economist writes the words GDP per Capita, they are almost always attempting a deception.
http://data.worldbank.org/indicator/NY.GDP.MKTP.CD?locations=EU
2. Federal Reserve, their FRED system, easy to look up employment to population ratios.
https://fred.stlouisfed.org/series/EMRATIO
https://alfred.stlouisfed.org/series?seid=GBREPRNA
3. OECD.stat carries all of the hours per year per employed worker for OECD nations. Easy to see France’s collapse.
4. Employment, easy to see France’s enormous lag behind the united states:
http://www.economagic.com/em-cgi/data.exe/fedstl/lfemttttfra647n
https://fred.stlouisfed.org/series/PAYEMS
5. States:
Low Tax States
State and Local Tax Burden Total Jobs Change
1970 2015
Nevada 8.7% 203 1,258 519%
New Hampshire 8.6 259 656 154
Texas 8.2 3,625 11,838 227
Wyoming 8.2 108 290 168
Louisiana 8.1 1,034 1,989 93
Tennessee 7.8 1,328 2,892 118
South Dakota 7.7 180 438 144
Total,
Low Tax states 8.2 6,736 19,894 103%
High tax states
State and Local Tax Burden Total Jobs Change
1970 2010
New York 12.4% 7,157 9,247 29%
Wisconsin 11.5 1,530 2,889 89
New Jersey 11.4 2,606 4,022 54
Maryland 11.0 1,349 2,659 97
Rhode Island 10.9 344 485 41
Total,
High Tax States 11.8 12,986 19,301 49%
http://taxfoundation.org/article/state-and-local-tax-burdens-1977-2012
https://fred.stlouisfed.org/series/PAYEMS
You are seriously suggesting that we are supposed to just believe “economics researchers” when it is so easy to look up the data and see that they are clearly wrong.
Funny how some of your numbers stop in 2010, others in 2012, and some in 2015.
This is typical of conservatives trying desperately to make their numbers work.
Just keep the cherries you like!
I can’t blame you, cherries are delicious!
If you are going to accuse me of cherry picking, give me an real example. You are just throwing mud against the wall with not a shred of evidence.
No matter how you cut it, in the decades after Reagan cut the personal income tax rate from 72% down to 28% from 1980 to 1986, the US scorched scorched the high tax European countries.
In comparing the US with Europe, we still live in Reagan’s world.
Jobs, Hours of work, Economic Growth, Personal Income, Household consumption, taxes revenue raised (yes lower taxes raised much more revenue than Europe’s higher tax rates).
Blue’s entire column is a liberal fantasy.
This is not mud against the wall, this is critical thinking. You are not presenting a coherent argument. You are mixing your data intentionally to mislead.
I cannot give you any evidence to refute your claims, because you have NOT presented a logical case based on facts as of yet.
Your dates all start and stop at different times. What happened in 2010, 2012, and 2015 are all different things.
This is like me saying “Hey officer, I was only doing ten miles and hour five minutes ago, why are you writing me up for ninety-five?”
No one here is that stupid, Falcon9, and you are not that clever.
Keep spewing. You don’t have to cherry pick when the evidence is an overwhelming niagra falls.
France has lost, I repeat **lost** work over the last **36 years**. Down 3 billion hours of work while the US is up 87 billion hours of work – the difference being the equivalent of 50 million full time jobs. Makes your 180,000 jobs a month look like a drop in the ocean.
France is the liberals wet dream, everything they want America to look like. The whole toxic stew: tax rates, social welfare system and regulatory environment.
If you are a young adult, beware, as bad as things are, they can get much worse. During the Great Depression, GDP fell 50%.
Blue’s “economists” are morons. Gross Domestic Product per Capita is a meaningless and deceptive metric when you are comparing a dynamic and growing economy with a stagnant and moribund economy.
Your numbers stop in 2010, others in 2012, and some in 2015.
This is the definition of cherry picking, and is a clear sign of a liar trying to con people.
The USA is not France. Peddle your garbage over at seeingredaz, those folks are easier to fool.
“Truthiness” helps Johnny explain everything.
Oh mighty Master of Sockpuppets, you once again bring cherries, lots of very specific cherries, but are incapable of producing a coherent pie.
Kansas proves your trickle down is exactly what David Stockman admitted to in 1981. Get over it.
Next, tell us again how Obama caused the recession and FDR caused the Great Depression.
I don’t know if you know this, Falcon9, but you say crazy stuff, and while I am not a psychiatrist by training, I suspect you’re nuts.
Signed,
A Nitwit Liberal
This is exactly why HB 2666 (establishing the Governor’s Economic Opportunity Office) is a real-time engine of economic destruction. It encourages and facilitates a race to the bottom in regards to our tax base. It will provide ammunition to those who want to continue sacrificing AZ’s public sector to tax-breaks and tax-cuts that merely shuffle around economic growth at the expense of other states, without creating any new net growth.
It will also further entrench crony capitalism in our economy – encouraging those who can afford lobbyists and bribes to raid the public treasury to further their schemes. The economic development funds controlled by the Governor’s office will be far too vulnerable to exploitation for political ends by the Governor. It would be far better for the state’s economy if this sort of public finance of private enterprise were handled by a state bank funded by government deposits (see http://www.publicbankinginstitute.org/ and Pam Powers posts on the topic, for more details), with an independent Board whose financial obligation is clearly to the fiscal health of the public bank itself and the betterment of the economy using established banking regulations, standards, and fiduciary duties.
This bill is the furthest thing possible from real economic development policy. The passage of this bill belies the GOP’s empty rhetoric about less government and never allowing government to pick winners and losers in the economy. The bill’s real purpose is to create a constant stream of political bribes in exchange for economic favors, and to drive our tax rates to the bottom in order to attract marginal and short-term job growth numbers and press releases about “investments” that politicians can bruit about in their bids for re-election.
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