Asked to describe the notable political themes during the Trump presidency so far, the average American would likely mention political polarization, escalating tensions on the Korean peninsula, and debates over health care policy. One theme they likely would not mention would be the rise of corporate welfare. Wealthy corporations receiving unnecessary, targeted tax breaks is not a new phenomenon. Yet under President Trump, the practice of giving out tax breaks to corporations in the name of “jobs” has received the seal of approval of the Oval Office, and has begun to reach a fever pitch.
Trump set the tone early with the so-called “Carrier deal.” Carrier, an air-conditioning business planning to shift an Indianapolis manufacturing plant to Mexico, promised to retain over a thousand jobs in the United States in return for $7 million in grants from the state of Indiana. At the time, Trump touted the deal as proof he would keep jobs in the United States. Yet CNBC reported in June that only slightly over 700 of these jobs were ever going to be moved in the first place, and that Carrier planned to lay off over 600 employees at the plant despite the deal.
Since then, Trump has actively encouraged states to bid against each other with greater subsidies in order to receive a corporate presence. As Greg LeRoy, executive director of subsidy watchdog Good Jobs First, points out, “We have never had a president in the post-war period who has ever explicitly blessed the war among the states for jobs.” Well, now we do.
Though he has been a vocal critic of Amazon due to its CEO Jeff Bezos’s opposition to his administration, Trump has remained noticeably silent about Amazon’s recent solicitation of bids for its second headquarters. Perhaps this is because Amazon has fully embraced Trump’s willingness to let states bid off each other, being direct enough to announce that cities or states may need to pass “special incentive legislation” to entice Amazon to build there. Given that states already devote significant resources to special tax breaks as a matter of course, Amazon is clearly expecting a fairly unprecedented payday for the privilege of its presence.
Promising over 50,000 good-paying jobs, Amazon has good reason to believe that a huge tax break may be coming its way. The “HQ2 sweepstakes” have resulted in cities tripping over each other to woo Amazon to them. For now, cities are only embarrassing themselves (see the Phoenix official offering to change the city’s name to Phoenix, Amazona) or getting nastier, such as when the Pittsburgh Post-Gazette’s editorial board trashed competitors for their “abject poverty,” “racial strife,” and, in the case of post-Harvey Houston, being “under water.” But the end result will be a massive payday for an already-wealthy corporation in return for dubious benefits.
Amazon is hardly to blame for doing what is best for its bottom line. Neither is Amazon the only one to take advantage of this targeted tax break-friendly environment. Companies like Foxconn ($3 billion), Boeing ($8.7 billion), Aetna ($24 million), and Tesla ($1.25 billion) have all recently received sizable tax breaks for shifting locations. The fault lies with the cities and states that keep fueling this competition.
Cities and states often think that handing out these tax breaks is the only way to grow the economy, but they would be wrong. In fact, it may not be a way to grow the economy at all. As many as 90 percent of hiring decisions that occur with tax incentives in place would have happened without the presence of the incentives. With any targeted tax break, localities may be paying a business substantial amounts of money for something it may have done anyway.
The revenue that is used to pay for the tax break has to come from somewhere as well, either higher taxes or lower spending. In either case, money is simply being shifted around the economy. It is easy to see the benefits of a targeted tax break “bringing” jobs to a state, but it is far harder to connect layoffs that happen by similar businesses in the area that must compete without a tax break. Government shouldn’t be in the business of picking winners and losers among business enterprises.
At the encouragement of the President, the country is in danger of falling into an “age of corporate welfare” where localities compete against each other to offer progressively higher or more narrowly targeted tax breaks to businesses. Cities must find a way to reverse this troubling trend — wealthy corporations don’t need any more welfare.