What an annoying click bait title. But the article is good (if short). I guess I wonder why something like this is even legal. It seems corruptive of the marketplace to just hand billions of dollars to some companies and not others and it seems there's no good way to stop it as long as this is a tool that municipalities are allowed to use in competition with one another. Has it always been this way or did we have a fix in the past?
Likely happened in the past but at a different scale. Improvements in communications technologies and logistics have made physical location less important than it once was. It's much easier for most entities to pick up and relocate than it was when most economic activity was tied to local resources. There are of course many exceptions but for the tech industry, the main thing holding anyone in place seems to be the local talent pool. Perhaps improvements in remote work technology and universal broadband access will even diminish that as a nucleation point.
It would be helpful to distinguish between actual cash outlays and tax credits that kick in only when the company is producing and supposed to pay taxes.
It's not unreasonable then to forego $0.5 million tax revenue for a long term, high tech manufacturing or engineering job that might generate another 5 jobs down the line. Not to mention the value of an environment that attracts other similar companies in the future without other incentives.
Even actual cash outlays for things like free infrastructure are not something the company can take with them, they remain in place for decades for other investors or urban expansion.
As far as I can tell there are no generally accepted practices for analyzing the economics of such deals. All too often you end up with both the company and the local government sitting on the same side of the negotiating table while the public has no one representing them much less sitting on the other side of the table. As a result, all kinds of dodgy economic impact statements are made with very little quality analysis performed to assess their likely accuracy. A set of standards for these projects would make it easier for the public to compare them to the deals others have made and make it less easy for the powerful to deceive the masses.
I live in Wisconsin. We already have "tax increment financing," where a city can provide money that is offset by the expectation of increased property tax revenue when a site is developed.
The state already has negligible corporate taxes, so there's nothing left to give away, and the corporations still want more.
As part of the Foxconn deal, they will be exempt from a variety of environmental regulations, and from what I've read, flat panel display production is a dirty industry. They also have practically free reign on eminent domain, for instance by declaring someone's farm to be a slum so it can be seized on behalf of Foxconn.
The thing that always annoys me about these articles is that they frame these "costs" as money the government would otherwise have, if they hadn't given it to these greedy companies.
It depends on exactly how the deals are structured, but when these are structured with nonrefundable tax credits tied to jobs numbers or as lower rates, then these deals start to look far better for governments.
Journalists should stop writing these lazy articles and start digging into the details of these deals so that people know what the right questions they should be asking are, rather than staking out partisan positions.
The "tech bro" angle is just clickbait. I am pretty sure that Foxconn, Tesla's Gigafactory, and a datacenter are not what is usually meant by "tech bro".
Second, if cities believe that these tax breaks are good investments then there is little relationship between making those investments and putting money into other programs. Cities should have access to cheap-ish capital and future tax breaks seem like fairly favorable conditions. If anything, that cities need money is an argument for investing in business (if you accept that doing so makes money).
The article doesn't much of an argument that these investments are bad. It just kind of waves in the direction of some dots and suggests you imagine some connections. If you look at the linked article about Missouri budget shortfalls you won't find "Cerner" anywhere - for all we know that was a great investment but other bad bets were made.
If individuals and small companies can also negotiate their own tax rates, you might be correct. Since they cannot, it is a subsidy. There is no difference between collecting X and giving Y back than collecting X - Y.
Let's say that a regional government has $100 million in tax revenue, and that they have a balanced budget. Some company is considering relocating to the region, which would turn a piece of property currently contributing $100,000 revenue, or close to that, into a piece of property plus corporate tax and personal income taxes contributing $1.2 million, but with an increase in required spending of another $100,000, for a gain in net revenue of $1 million.
Offering a tax break less than $1 million costs nothing today, but still means an increase for the regional government, just a smaller one.
Offering a subsidy means dipping into a currently-balanced budget today, and making it up, probably, a year from now.
If all projections work out as expected, then several years from now there's probably no difference. But this, there could be a cash flow difference immediately.
Also, it's pretty easy to tell existing companies: tax breaks are for new development that increase value, and the break is essentially an 80% (or whatever) discount on the new taxes. It's hard to tell existing companies: we give subsidies to new companies but we'll continue to take you for granted.
At least that's how I suspect existing companies in a region tend to hear "subsidies."
Once again journalists willfully misleading the public by ignoring the difference between tax credits and actual cash outlay. They must know the difference, but clever tricks get more clicks than the truth ever does.
But surely, in a 'closed system', they have to make up the difference between tax credits and actual cash outlay somewhere? Bargaining on tax seems inherently unfair, but inevitable when there is no harmonization between states. (This is one reason the European Union has laws on state aid.)
Of all the criticisms one can make of this article, this is one of the weakest. If I agree to a $10k pay cut from my employer, that's functionally equivalent to me giving my employer $10k.
(and in the US at least, 'credits' are usually applied at the very end of the tax process, so have a real 1:1 value with dollars owed, as opposed to deductions which can have varying value)
That would be true if in case you refuse the cut, you continue to be employed at the same salary.
If the alternative is not to get anything (or severance), you would weigh it against future scenarios and calculate your scenarios based on some assumptions eg how many years you planned to stay employed and what is the expected time it will take you to find a new job and what are the costs of switching (house sale and moving costs) etc.
Those are other criticisms of the analysis, not the simple fact that credits are worth 1:1 in real dollars, which is what the original poster was objecting to.
While most people would argue that tax breaks and other subsidies can have outsized rewards in the long run, I think the disparity between these corporate handouts and the public service needs is striking. Cities are giving away hundreds of millions to companies which might not even deliver on their promises, while local programs with proven value are asking for funds in the range of half a million to several million and being denied. Resource allocation has never been our strong-suit as a society, but this is just depressing. Surely we can do better to balance the needs and desires of corporations with those of normal flesh-and-blood human beings?
On the surface it seems ridiculous to give that much incentive for a data center but Apple has continued to invest in that location in Maiden. It employs a lot more than 50 people now, kind of wonder how much time the Guardian spent researching this piece.
I've heard descriptions ranging all the way from stereotypical frat bro to any immigrant to the bay area that doesn't understand all the social conformity that's expected of them.
As far as I can tell, it's anyone on the wrong side of a culture that's very hostile to outsiders.
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[ 3.5 ms ] story [ 75.8 ms ] threadIt's not unreasonable then to forego $0.5 million tax revenue for a long term, high tech manufacturing or engineering job that might generate another 5 jobs down the line. Not to mention the value of an environment that attracts other similar companies in the future without other incentives.
Even actual cash outlays for things like free infrastructure are not something the company can take with them, they remain in place for decades for other investors or urban expansion.
The state already has negligible corporate taxes, so there's nothing left to give away, and the corporations still want more.
As part of the Foxconn deal, they will be exempt from a variety of environmental regulations, and from what I've read, flat panel display production is a dirty industry. They also have practically free reign on eminent domain, for instance by declaring someone's farm to be a slum so it can be seized on behalf of Foxconn.
So the freebies go beyond mere cash.
It depends on exactly how the deals are structured, but when these are structured with nonrefundable tax credits tied to jobs numbers or as lower rates, then these deals start to look far better for governments.
Journalists should stop writing these lazy articles and start digging into the details of these deals so that people know what the right questions they should be asking are, rather than staking out partisan positions.
Second, if cities believe that these tax breaks are good investments then there is little relationship between making those investments and putting money into other programs. Cities should have access to cheap-ish capital and future tax breaks seem like fairly favorable conditions. If anything, that cities need money is an argument for investing in business (if you accept that doing so makes money).
The article doesn't much of an argument that these investments are bad. It just kind of waves in the direction of some dots and suggests you imagine some connections. If you look at the linked article about Missouri budget shortfalls you won't find "Cerner" anywhere - for all we know that was a great investment but other bad bets were made.
Not charging you a fee is not the same thing as handing over cash.
Tax breaks are valuable, for sure, but I can't buy a bunch of F-35s with tax breaks.
Let's say that a regional government has $100 million in tax revenue, and that they have a balanced budget. Some company is considering relocating to the region, which would turn a piece of property currently contributing $100,000 revenue, or close to that, into a piece of property plus corporate tax and personal income taxes contributing $1.2 million, but with an increase in required spending of another $100,000, for a gain in net revenue of $1 million.
Offering a tax break less than $1 million costs nothing today, but still means an increase for the regional government, just a smaller one.
Offering a subsidy means dipping into a currently-balanced budget today, and making it up, probably, a year from now.
If all projections work out as expected, then several years from now there's probably no difference. But this, there could be a cash flow difference immediately.
Also, it's pretty easy to tell existing companies: tax breaks are for new development that increase value, and the break is essentially an 80% (or whatever) discount on the new taxes. It's hard to tell existing companies: we give subsidies to new companies but we'll continue to take you for granted.
At least that's how I suspect existing companies in a region tend to hear "subsidies."
(and in the US at least, 'credits' are usually applied at the very end of the tax process, so have a real 1:1 value with dollars owed, as opposed to deductions which can have varying value)
If the alternative is not to get anything (or severance), you would weigh it against future scenarios and calculate your scenarios based on some assumptions eg how many years you planned to stay employed and what is the expected time it will take you to find a new job and what are the costs of switching (house sale and moving costs) etc.
https://www.bizjournals.com/charlotte/news/2017/01/18/new-ap...
I've heard descriptions ranging all the way from stereotypical frat bro to any immigrant to the bay area that doesn't understand all the social conformity that's expected of them.
As far as I can tell, it's anyone on the wrong side of a culture that's very hostile to outsiders.