December 2nd, 2012

I, and others like Roldo Bartimole, have made the case that tax giveaways as incentives to businesses are gifts that have no promise, or even hope, of return to the tax payers who pay the bills.

This morning’s, above-the-fold, headline in the New York Times reads: The Empty Promise of Tax Incentives.

Writer Louise Story ledes with:

In the end, the money that towns across America gave General Motors did not matter.

When the automaker released a list of factories it was closing during bankruptcy three years ago, communities that had considered themselves G.M.’s business partners were among the targets.

For years, mayors and governors anxious about local jobs had agreed to G.M.’s demands for cash rewards, free buildings, worker training and lucrative tax breaks. As late as 2007, the company was telling local officials that these sorts of incentives would “further G.M.’s strong relationship” with them and be a “win/win situation,” according to town council notes from one Michigan community.

Yet at least 50 properties on the 2009 liquidation list were in towns and states that had awarded incentives, adding up to billions in taxpayer dollars, according to data compiled by The New York Times.

Some officials, desperate to keep G.M., offered more. Ohio was proposing a $56 million deal to save its Moraine plant, and Wisconsin, fighting for its Janesville factory, offered $153 million.

But their overtures were to no avail. G.M. walked away and, thanks to a federal bailout, is once again profitable. The towns have not been so fortunate, having spent scarce funds in exchange for thousands of jobs that no longer exist.

Here are a couple more telling points in the excellent story focusing on how corporations are literally moving deck chair around on the Titanic:

Soon after [1993], economists at Federal Reserve branches were questioning the use of incentives. One, in Minnesota, used mathematical proofs and game theory to show that competition between states did not increase overall economic value. Several other economists have since called the practice a zero-sum game.

One corporate executive, Donald J. Hall Jr. of Hallmark, thinks business subsidies are hurting his hometown, Kansas City, Mo., by diverting money from public education. “It’s really not creating new jobs,” Mr. Hall said. “It’s motivated by politicians who want to claim they have brought new jobs into their state.”

For Mr. Hall and others in Kansas City, the futility of free-flowing incentives has been underscored by a border war between Kansas and Missouri.

Ohio, of course is a major flunky in all of this with Cuyahoga County [enter Cuyahoga in the search box] taking more than its share in the shorts.

Corporations, by design, cannot give back, they can only take away. Only fools think differently as clearly shown by these bits:

At the top of G.M., executives reviewed the proposals from various locations and went where the numbers added up.

“I know people like to blame the industry for taking advantage of the incentives, but you go back to what your fiduciary responsibility is to the stockholders,” Ms. Nix said. “As long as you’ve got people that are willing to better the deals, the management owes it to their stockholders to try to get the best economic deal that they can.” [emphasis mine, JH]

For towns, it became a game of survival, even if the competition turned out to be a mirage.

Moraine, Ohio, was already home to a G.M. plant in 1997 when the company pushed hard for additional incentives. G.M. said it was looking for a place to accommodate more manufacturing.

Wayne Barfels, the city manager at the time, said a G.M. representative had told officials that Moraine was competing with Shreveport, La., and Linden, N.J. After the local school board approved property tax breaks, The Dayton Daily News reported that the other towns had not been in discussions with G.M.

Officials said part of the difficulty was that communities do not get much say in a company’s business strategy.

“We, as communities, stake our futures with these people who are supposed to know what they’re doing, and sometimes they don’t,” said Arthur Walker, a businessman in Shreveport and former chairman of the city’s chamber of commerce.

Perhaps President Ronald Reagan ought to have said:

The nine most terrifying words in the English language are, I’m from a corporation and I’m here to help.


  1. […] strictly speaking, this story I wrote this morning does not address Walmart, I feel that the narrative’s message is […]

  2. ryan says:

    the modern zitgeist of the publics reaction to the words “tax cuts” prevents them from analyzing tax incentives/exemptions/abatements seriously.

    the corporations have more marketing leverage in playing multiple states and municipalities against each other.

    a state can pass laws making it illegal for a county or municipality to offer corporations abatements/exemptions/incentives. but it would be somewhat toothless without Congress passing a law preventing states from offering multistate/multinational corporations abatements/exemptions/incentives.

  3. […] series on how states are giving massive amounts of money (mostly uselessly) to business [See TAX INCENTIVES FOR BUSINESSES ARE A SCAM… JH]. No secret to anyone reading these […]

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