Corporate Welfare Binge Burdens State Budgets
by

The Stanley Cup isn’t likely to go on display in living rooms across Pennsylvania, but state taxpayers deserve a piece of the trophy. After all, they subsidized this year’s final.

The NHL champion Pittsburgh Penguins had faced the San Jose Sharks inside the Consol Energy Center — an arena financed by the Keystone State to the tune of $7.5 million annually, not including millions kicked in by local economic development authorities.

Sadly, Pittsburgh isn’t unique: Since 2000, states across the nation have taken more than $12 billion from taxpayers to pay for sports facilities. These handouts are just one example of corporate welfare — tax incentives, grants, and loans used to subsidize privately-owned ventures as varied as film-making, horse racing, and car manufacturing.

Politicians of both parties cheer these programs, claiming government intervention will stimulate economic growth. Economist F.A. Hayek labeled this notion the “fatal conceit,” or the belief that man has sufficient knowledge to shape the world according to his wishes.

The most glaring federal example may be the Export-Import Bank, which purportedly encourages exports by granting loans to foreign customers to purchase U.S. products. Critics call it the “Bank of Boeing” because the world’s biggest aerospace corporation receives 40 percent of the bank’s assistance.

Others claim the agency is indispensable, though it plays a relatively insignificant role in the economy. More than 98 percent of exports are handled without financing from the Export-Import Bank, according to economist Veronique de Rugy. In truth, the bank is a special privilege for the politically connected.

As government directs loans to favored businesses, less capital is available to other businesses looking to expand. The same dynamic exists at the state level, to the detriment of economic growth.

Since 2007, my own state of Pennsylvania has led the country in corporate welfare spending, which will reach nearly $800 million this year. Topping the list is $250 million for the state’s horse racing industry, which is shrinking nonetheless. Other highlights include tens of millions of dollars for a soccer stadium that has failed to revitalize one of the state’s poorest cities and $60 million in film tax credits that boost profits for filmmakers but return less than 30 cents for every dollar to taxpayers.

Pennsylvania could cut its projected budget deficit almost in half by ending these programs. Instead, Gov. Tom Wolf has called for more such spending.

Elsewhere, California heavily subsidizes Tesla Motors with tax credit and rebate programs, artificially boosting the company’s bottom line. Ohio, which ranks second among the 50 states in corporate welfare spending, is shelling out nearly $2.5 million to promote wine grapes, according to a Buckeye Institute report.

The results from years of government picking winners and losers are dismal. Despite outspending any other state on corporate handouts — nearly $6 billion since 2007 — Pennsylvania ranks in the bottom third of job, income, and population growth over the last decade. Across the country, states spending the most on corporate welfare saw slower economic growth than states spending the least.

In fact, when Mercatus economist Matt Mitchell reviewed 26 papers on the effects of economic development spending, he found a positive relationship between the level of spending and the health of the economy in just 4 percent of studies.

The truth is, public officials aren’t better at investing money than the people who earn it — though cutting a ribbon at a new stadium does have its perks come re-election time.

In the private sector, entrepreneurs make decisions based on the real or perceived preferences of consumers. In the public sector, decisions are too often driven by politics — a recipe for disaster.

A thriving economy will never come from government pulling the strings of economic power. As both Washington, D.C., and states like Pennsylvania face continued fiscal crises, now is the time to end government subsidies that benefit a few at the expense of many.

Sign Up to receive Our Latest Updates! Register

Be a Free Market Loving Patriot. Subscribe Today!