Corporate Subsidies: Wherein I sort of agree with a FlashReport article

NYT: Per Capita Subsidies photo PerCapitaSubsidies_zps70a56d6b.jpgCorporate subsidies ignite a race to the bottom

by Brian Leubitz

It is not often that I read something on the FlashReport that I can agree with in the general substance. But, while the article was intended to be a slap at Jerry Brown, the Reason Foundation’s (a right-wing libertarian group) Adrian Moore, PhD, takes on corporate subsidies.

Proponents argue that while cases such as Solyndra are unfortunate, they are a necessary evil that must be tolerated since the benefits of governmental “investing” in certain technologies or industries will, in their view, someday outweigh the costs. I’d point out that the government rarely knows what is both certainly beneficial and inadequately funded by the market, but even worse is a lousy investor, giving to well connected companies, not those with the best business plan, and not caring if the investments pay off or not, only the newsbite when the check is written.

The Reason/Howard Jarvis study looks at specific corporation tax and sales and use tax credits, deductions and exemptions in order to evaluate whether they serve their purpose. The argument offered in support of such tax breaks is that they will improve the lives or livelihoods of certain classes of individuals, businesses or industries. But their costs are frequently ignored. While they may encourage business activity in a certain sector of the economy, this comes at an unseen cost, which is the business activity that would otherwise have taken place in other sectors of the economy. (FR)

These all fairly reasonable points here. Perhaps California does spend too much on corporate subsidies to lure jobs. Perhaps we should be asking ourselves whether the government should be subsidizing corporations at all.

But this should be part of a larger conversation that we should be having at every level of government. The most visible examples of these subsidies come in the context of sports, where teams are lured with free land, tax credits, and sometimes a brand new stadium with a pretty bow on top. But it isn’t just sports where we see this. In a great series in the New York Times, Louise Story investigates the troubling growth in tax subsidies that are going to specific corporations, and how an entire cottage industry has grown up to game the system. (She also gave a very interesting interview to Terry Gross on NPR’s Fresh Air.)

The fact of the matter is that yes, California does spend a fair chunk of change on corporate subsidies. The Times quotes a figure of $4.17 billion, or $112 per Californian. But if you look to the right, you’ll see that our $112 per capita pails in comparison to other states. Especially some very heavily Republican states. Alaska spends nearly a thousand dollars per person! And Rick Perry has spurred the people of Texas to spend over $750 per person. This turns out to be real money:

The math on the new deal angers former Amazon workers, especially those who are still unemployed. For Texas to give up more than $250 million in tax revenues in exchange for 2,500 jobs amounts to about $100,000 per job. Most distribution workers are paid $20,000 to $30,000 a year. The rest benefits the company’s bottom line, which generally increases executive bonuses and shareholder returns.(NYT)

This is the new math of corporate subsidies and job creation. And, unfortunately, California carries a special burden in this area. Film subsidies have been some of the hottest growth areas, garnering a full story in the Times. States and cities find it attractive to get a movie shot in their area, and so spread the cash around. Michigan, Louisiana, and pretty much every other state have tried to lure Hollywood away from, well, Hollywood. (Canada has also been aggressive in this area as well.)

The article is on FlashReport, so of course, it is rather unnecessarily partisan. It calls out Gov. Brown, and name checks Solyndra, and the film tax credit. Solyndra, of course, being the big cause celebre of conservatives for collapsing under the weight of cheap solar panels being dumped on US shores after having received federal loan guarantees. And this being California, conservatives like Dr. Moore get to blame the evil liberals in the legislature for all these ills.

But Dr. Moore is probably right that we shouldn’t be spending so heavily providing cash to corporations. He and I clearly disagree about what should come of that money, lowering the corporate tax rate would fall significantly behind investing in education and other priorities, but that’s a topic for another time. Unfortunately, we live in a competitive world, and our governments are competitive as well. In many ways, it is something of a mutual self-injury pact. Local governments compete against one another, and the individual citizen gets lost in the shuffle.

Clearly, we, as a nation, need to do a better job of monitoring this process. And we need to have a conversation about whether it is in our best interest for states and municipalities to compete in this manner. Dr. Moore (and the NYT’s Louise Story) do us a favor by raising this issue. It deserves serious consideration, perhaps with a touch less of the absurdly misplaced partisan rancor, about how we government goes about the task of “job creation.”  

5 thoughts on “Corporate Subsidies: Wherein I sort of agree with a FlashReport article”

  1. We should make some distinctions between subsidies used to lure companies from one city or state to another vs. loan guarantees and other subsidies to promote things that the market is underproviding because of various other market distortions (i.e. unpriced externalities or other tax code subsidies such as with fossil fuels).  i have deep problems with the former, which don’t attempt to raise overall national economic output but simply shift locations touching off that race to the bottom you mention.  i’m much more accepting of the latter, especially if they’re accompanied by performance standards and such.

  2. A great article and I think it gets to the heart of most of the disagreements on political philosophy.  Keynes was not a socialist and argued that private enterprise spent money more effectively than the government, but also believed that the rich and powerful would always use government to benefit themselves and to stay on top and that was just human nature.  For that reason, it was necessary for the government to provide a safety net for the poor with basic services like food, shelter, medical care and a quality education, because without the ability to rise up in the world, those at the bottom would naturally turn to violence and destruction to get their fair share.  To me the best example of why Keynes was right was during the bailout after the market crash.  If you take libertarian or even conservative philosophy, the market’s should have been allowed to crash and those that would have taken risen up in the general depression would have been smarter than those they were replacing and society would have been more careful in the future about how they extended credit.  But of course that is not what happened and I don’t think it ever would happen that way.  Society is not willing to pay that kind of a price to have a “fair” economic system and so we need to do something to help the poor also.  I wish we would do something about the more egregious giveaways to the rich which is what you are talking about, but I don’t want to miss the point that what Fleishman is hoping for will never happen, but it is the intellectual excuse conservatives give for their views and some even believe it.  If you go back to the great depression, you can find a great speech by Andrew Mellon, Hoover’s Treasury Secretary where he said that he thought the great depression could wind up being a good thing, because in our competitive economic system, African American’s would now have a chance to advance through business and the states which practiced segregation would fall further behind.  Not the way it worked out.

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