Rethinking Corporate Welfare

Cost_chicaneryOn Saturday, New York Times columnist Joe Nocera took a look at the troubling issue of tax abatements, from the $1.25 billion package that Nevada offered to electric car maker Tesla to the scrutiny that Apple is receiving from the European Union for tax breaks it allegedly received from Ireland.

Nocera points out that the EU prohibits member countries from offering tax subsidies to companies if it gives them an advantage over rivals in the same country.

Here then is one difference between what transpires in the U.S. and what transpires in Europe: The E.U. has rules intended to prevent nations from giving unjustified tax breaks to companies.

. . . In truth, most tax subsidies don’t make much sense — not for countries and certainly not for states.

In most cases, states vastly overpay for the jobs that are created through such corporate giveaways, Nocera concludes.

Nowhere is the business of corporate welfare more shameless than Texas, where for a decade Gov. Rick Perry has doled out some $222 million at his discretion to any companies that asked — or in some cases didn’t ask.

During my time as a business columnist at the Houston Chronicle, I wrote a lot about the lack of oversight, transparency and accountability at the Texas Enterprise Fund and its sister, the Emerging Technology Fund. In an op/ed in Sunday’s paper, I followed up on a state audit that has finally been done. The results showed, not surprisingly, a lack of oversight, transparency and accountability since the fund’s inception in 2003.

The problem with this expensive economic development game is that no city or state is going to stop it. Politicians love to crow about the potential jobs that will be created by giving away tax money to corporations, and rarely are they held accountable if those promises don’t come true.

Companies, for their part, aren’t going to turn down the money, but few businesses are able to accurately predict their hiring needs years into the future. In the end, it amounts to a bizarre game in which, more often than not, the state pays a bribe to extract a lie from a company that promises to move in.

I’ve talked to economic development officials about this for years. Most hate the game, but feel compelled to play it because everyone else does. Perhaps it’s time to borrow a page from the EU. Only by prohibiting such giveaways across the board can we ever hope that state and local governments will stop wasting tax dollars on corporate welfare.


About lorensteffy

Loren Steffy is a writer, speaker and consultant. He is the author of Drowning in Oil: BP and the Reckless Pursuit of Profit published by McGraw-Hill in 2010 and The Man Who Thought Like a Ship, published by Texas A&M University Press in April 2012. A journalist for more than 25 years, he was most recently the business columnist for the Houston Chronicle.
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