States Need to Stop Giving Subsidies to Corporations

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By Roger Bybee, December 9, 2012

Corporations are playing states for fools. Across the nation, states are now pouring more than $80 billion in subsidies and tax breaks annually to corporations in a futile and counter-productive effort to retain and attract corporate investments in the name of job creation, as outlined in the outstanding series by Louise Story in the New York Times. This flow of subsidies is failing to generate family-supporting jobs and badly distorting the role of state government in a democracy.
First, the subsidies are superfluous. Corporate decisions are rarely based on subsidies, as Greg LeRoy shows in The Great Jobs Scam. But corporations have learned that there is no reason to pass up special “incentives,” as subsidies can invariably be easily extorted if they just pit the states against each other in a bidding war.
Second, the ever-growing flood of subsidies is failing to generate jobs, especially those paying family-sustaining wages, with almost 60% of new jobs paying under $13.83% an hour. From 2000 to 2010, major US corporations increased employment by 2.4 million jobs in their overseas subsidiaries, even as they wiped out 2.9 million jobs in America, as the Wall Street Journal reported.
Third, the interstate competition for jobs, by reducing the tax revenues coming from corporations, drains every state of funds needed to make higher education affordable for all, provide good K-12 education, make quality health care available, and hold down taxes for working families.
The outcome is a profound reshaping of state governments’ role: instead of improving the lives of all their citizens, states are now re-dedicated first and foremost to the task of using public resources to enlarge the profits of private corporations.
Wisconsin is a classic case of rewarding major corporations with piles of cash that they do not need. Among the corporate giants receiving multi-million dollar incentives are Kohl’s Department Stores, Harley-Davidson, Waste Management, Mercury Marine, the Oshkosh Corp., Kraft Foods, and the Eaton Corp. Kohl’s, which manages to pay its CEO Keith Mansell $9.4 million, nonetheless justifies taking $62.5 million in taxpayer dollars. “Wisconsin spends at least $1.53 billion per year on incentive programs including tax rebates, according to the most recent data available,” the New York Times reported. That amounts to a full 10% of the state budget.

But these figures include only special incentive packages, not the broad changes in Wisconsin taxation that have resulted in 62% of corporations with $100 million or more paying zero in state corporate income taxes, according to Jack Norman, the research director of the Institute for Wisconsin’s Future.

The future only figures to get worse as long as Scott Walker remains governor. Some of the corporate tax breaks will be snowballing: Walker’s plan for the elimination of corporate income taxes on all Wisconsin manufacturing and agricultural processing over the next five years will be “extraordinary in its impact,” noted Norman. Since Walker took office in January, the state's GOP-dominated legislature has approved $1.6 billion in corporate tax breaks over the next 10 years, including: $874 million for manufacturing and agricultural companies; $366 million specifically targeted to multi-state corporations; and $334 million for a new-hires write-off.
Looking at the big picture, State Rep. Fred Clark drew a conclusion that too many public officials have been unwilling to confront: “That's not a jobs plan; that's a corporate profit plan.”
In 1974, the state enacted a property tax exemption for manufacturers’ machinery and equipment. But despite hundreds of millions dollars going to Milwaukee firms in these property-tax exemptions over the lasts four decades, the number of industrial jobs plummeted by a stunning 80%. Even as the stream of exemptions continued, Milwaukee slid from a once-affluent working-class city to the fourth poorest major cities in the nation.
But despite such dismal results from massive expenditures of taxpayer dollars aimed at bribing corporations to create jobs, the subsidy game persists and the “incentives” to corporations even escalate.
Prof. Robert McChesney, writing in Monthly Review, suggests that the time is ripe for a fundamental change. McChesney argues that states would be far better off in re-allocating money now wasted on subsidies, spending the money instead on public-sector programs that would directly produce jobs through paying for teachers, police, librarians, firefighters, and other public employees who have been laid off, along with rebuilding the state's infrastructure.
An activist government job-creation program for Wisconsin would both generate jobs with certainty and help to end the public's sense that its economic survival depends on a slavish reliance on corporations, which have shown precious little concern for either the taxpayers or for job creation.
With Walker and his cronies in control, though, that won’t happen any time soon.
Roger Bybee is a Milwaukee-based journalist whose work has appeared in, among others, The Progressive, Z Magazine, Progressive Populist, Extra!, American Prospect, Isthmus, and In These Times, for whom he blogs twice a week on labor issues at workinginthesetimes.com. Bybee edited the weekly Racine Labor for fourteen years.

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