Some call it extortion: Tax breaks to woo corporations

By Ed Muir

Recently, a federal court ruled that Ohio had interfered unduly in interstate commerce by providing a large corporate tax break to Daimler-Chrysler in the hope of convincing the company to build a plant in Ohio. The decision bars states from giving companies specific corporate income tax breaks for the purpose of luring jobs away from another state. This ruling is known as the Cuno decision, after Charlotte Cuno, one of the Ohio taxpayers who sued Daimler-Chrysler and several Ohio government agencies, including the Toledo school district, over the tax breaks. The ruling has its limitations—for example, it specifically does not cover such giveaways as property tax abatements-—and the U.S. Congress is likely to step in on the side of corporate fat cats and pass legislation that will effectively overturn the ruling. However, the Cuno decision shines light on a real problem.

Each year, state governments give away an estimated $50 billion in subsidies to corporations, aiming to spur economic development or prevent a company from moving jobs either overseas or to other states. These subsidies take the form of tax breaks, grants and spending on public services, all designed to provide benefits especially for the firm. Corporations have been known to woo officials in other states simply to convince their hometown legislators that a tax break is needed or else the company will move. Other companies create “studies” that show the ripple effects throughout the economy that will occur once a plant is relocated. And companies play this game not only with the location of manufacturing plants. Retailers like Wal-Mart get major tax breaks based on where they open distribution plants and stores. Professional sports teams have turned this game into an art form, threatening to leave town if they don’t get a new stadium at the taxpayers’ expense.

One of the ironies of this competition is that it does little to create jobs. For example, when Ohio gives tax breaks to lure a plant that would otherwise go to Michigan, not one new American job is created. Moreover, companies often make promises they find hard to keep. In too many cases, the company fails to create the jobs it said it would when it had its hand out. Other times, the jobs created are of poor quality. Sometimes a company receives tax breaks or other incentives and then closes its plant anyway.

There are elected officials who oppose these giveaways, and some of them even do it with a touch of humor. Some years ago, ConAgra, a major agricultural company, threatened to move from Nebraska to Kentucky if it did not receive major tax breaks, including a property tax exemption for corporate jets. One Nebraska legislator, fed up with the breadth and depth of ConAgra’s greed, introduced an amendment to have the company’s logo “tastefully added” to the state flag. Less symbolic responses have included requirements that set standards for the types of jobs created, and clawback provisions. Under a clawback, if a company does not keep its promises as far as economic development, the public can take back the subsidy.

If you’re interested in learning more about how tax dollars for public services are being diverted to corporations in ill-considered development deals, there is an important new book, The Great American Jobs Scam: Corporate Tax Dodging and the Myth of Job Creation, by Greg LeRoy. LeRoy runs an organization called Good Jobs First, which advocates for accountability in corporate giveaways. He has spent years tracking these giveaways and figuring out ways to protect public services. He has worked with the AFT and its affiliates to see that tax dollars go to provide real economic development that creates good jobs, not corporate welfare.