Columns » Max Brantley

But is it legal?

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But is it legal? I’ve groused for years about the wisdom of corporate welfare, using public tax money to subsidize profitable private enterprises. So I was more than pleased to open the Dec. 13 New Yorker and find James Surowiecki’s article on such incentives. It contains information that is probably news to many people in these parts. If the folks in the governor’s office and Arkansas Department of Economic Development know about it, they’re keeping it quiet. The news: The U.S. Court of Appeals for the Sixth Circuit has ruled that giving companies big financial incentives to locate in one state instead of another is unconstitutional because it interferes with interstate commerce. The case arose in Toledo. Ohio gave DaimlerChrysler jillions in tax incentives and direct aid to build a Jeep plant in Toledo. Local taxpayers, including some small businesses that create jobs in their own small, meaningful way, sued. Why should a Jeep plant be favored and not them? It is a question Arkansans should ask. State leaders are itching to unlimber new bonding authority by which the state legislature can pour $200 million or so into an industrial plant, preferably a car maker. No payback or job guarantee required. A promise of job creation is enough to get the loot. Surowiecki concedes that job creation has some merit as an argument for such handouts. He cites an academic study that shows that cities (our emphasis) that won competition for new plants generally experienced higher tax revenues and property values. Those are mostly local benefits, of course. The whole state will pay off the top of general revenues (schools will lose most) for the corporate welfare. It’s even less of a deal for an auto plant in East Arkansas, where much of the benefit likely will be enjoyed by Tennessee residents and the Tennessee businesses they patronize. More to the point, Surowiecki continues, “The problem is that though the city with the new plant may be better off, collectively we are all worse off, because the tax money spent on corporate welfare could otherwise go to more productive uses, such as education and infrastructure. For the American economy, it doesn’t matter whether Daimler builds Jeeps in Toledo or Kalamazoo; [or Toyota in Marion, Ark., or Milwaukee] whatever one city spends to outdo the other is money thrown away.” It’s unfair, Surowiecki says, for government to capriciously decide which sort of businesses to favor. Also, the bets sometimes fail. Surowiecki mentioned, as I have before, United Airlines’ recent closure of an Indiana maintenance facility that had enjoyed huge public subsidies. Manufacturing operations are even more risky, because of the competition from cheap overseas labor. Surowiecki concedes that governments have little choice but to compete in the corporate welfare sweepstakes even though tax breaks alone are rarely deal makers. He cites Irvine, Calif., which apparently has attracted many auto industries without offering any handouts at all. Surowiecki concludes that the Ohio court case, which will require lengthy appeals, could be the only hope to stop the mutually assured destruction. Meanwhile, Arkansas leaders are determined to give away the store — and soon. Taxpayers can only hope that legislators will close some of the biggest holes in the tragically leaky corporate welfare bonanza that voters wrote into the Constitution in November.

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