In a recent two-part series in the New York Times entitled "United States Of Subsidies," reporter Louise Story documents how taxpayers at the federal, state, and local levels are subsiding corporations to the tune of $80 billion a year, and getting nothing of value in return. Her first installment, "The Empty Promise of Tax Incentives," focused on Michigan and the machinations of General Motors, but GM was clearly not the only offender and Michigan towns not the only victim. "In the end," Story concluded, "the money that towns across America gave General Motors did not matter." For the last several years, as GM was imploding, mayors and governors anxious about 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 assuring those officials that these sorts of incentives would "further G.M.'s strong relationship" with them, and be a "win/win situation,' making the company and the municipality virtual "business partners." When G.M. declared bankruptcy in 2009, however, at least 50 properties on their liquidation list were in towns and states that had awarded incentives, adding up to billions in taxpayer dollars, according to a New York Times investigation. Moreover, Ohio had proposed a $56 million deal to save its Moraine plant, while Wisconsin, fighting to save its Janesville (home town of Paul Ryan) factory, offered $153 million. But, Story relates, "their overtures were to no avail," as "G.M.walked away and, and thanks to a federal bailout, is once again profitable." The towns in Michigan, Ohio, and Wisconsin, however, "have not been so fortunate, having spent scarce funds in exchange for thousands of jobs that no longer exist."
Ypsilanti Township, Michigan has already brought suit against G.M. for its extorsionist practices. The township's attorney has charged that you "can't just make these promises and throw them around like they're small change in the drawer." (Of course, they are merely "chump change" in G.M's gigantic stash, but an earth-shaking amount for a locale still reeling from the initial collapse of the auto industry.) Nevertheless, Story insists, manufacturing companies throughout the entire country, "have been doing just that. And the giveaways are adding up to a gigantic bill for taxpayers." The Times investigation has examined and tallied thousands of such local initiatives and discovered that states, counties, and cities are pledging $80 billion a year in just such "deals" to beneficiaries from virtually every corner of the corporate world, including oil and coal behemoths, high-tech and even entertainment purveyors, banks, and "big-box" retail chains. Actually, the total cost of these giveaways is far larger because they involve thousands of different "givers," many of whose officials do not know the sum total of their obligations, which are often spread out over several years. Moreover, most communities do not even attempt to track the "bang from their buck," and, even if they did, it is practically impossible to determine whether the jobs are a direct result of the subsidies, or the product of wholly extraneous forces. "How can you even talk about rationalizing," as a frustrated senior economist at the Upjohn Institute for Employment Research asks, "when you don't even realize what you are doing? " The Times study analyzed more than 150,000 "awards" and created a data base of incentive spending which is accessible on its Web site. It has supplemented that with more than 100 interviews of officials in government and business organizations, as well as corporate executives and consultants. The resulting picture that emerges is one of mayors and governors who are desperate to create jobs being outsmarted by multinational corporations, and short on the wherewithal to fact-check what companies tell them. A great many of these governmental officials confessed that they came away from corporate "pitch sessions" alarmed by the not-too-subtle threats to move jobs overseas or to another locale if they did not get the subsidies demanded.
Over the years, corporations have increasingly exploited that fear, and have crafted a high-stakes bazaar in which they pit state against state, cities against their suburbs and other cities, and small towns against larger communities in order to extract the most lucrative subsidies. It is a variation on the central theme of right-wing Republicans--divide and conquer. According to the Times,most of these companies have no intention of leaving the country. It is only a diabolical bluff to get a better deal Incredibly, the kabuki budget negotiations in Washington have totally ignored the issue of whether the extorted subsidies are worth the cost, even though 20 % of state and local funding comes from the federal government. That is not surprising considering that there is a consensus among the leaders of both parties to cut corporate taxes in order to complete internationally. If the scam works in one place, it can work even better on a larger stage.
The Times analysis shows that Texas holds the lead in extorted giveaways with more than $19 billion, while Alaska, West Virginia, and Nebraska surrender the most per capita. In the larger, more populous states, the skim is absorbed without serious damage to the overall budget, but in Oklahoma and West Virginia, they absorb nearly one-third of the budget, with no significant benefit in jobs or tax revenues, The only states relatively immune to this corporate extortion are states with little or no business taxes in the first place, and so no real incentive to seek tax credits. Easily the most incentives go to manufacturing corporations--$25.5 billion a year. Agriculture comes in second, while oil, gas, and mining industries combined siphon off the third largest amount. Somewhat surprisingly, the fourth most goes to the film industry, which will be the subject of my next post. Technology giants, such as Facebook and Twitter, come close behind, as are seen as a major component of "the world to come." Even giant retailers and hotels, whose business obviously roots them to a specific locale, bargain for subsidies as if they were about to pull up stakes.
Among manufacturers, GM leads the league with at least $1.7 billion over the past five years (in addition to the federal stimulus money that they have already received, supposedly to avoid bankruptcy.) Michigan, which gave GM $779 million in credits in 2009, just a month after it had received $50 billion in federal bailout money and decided to close seven plants in the state. Incredibly, GM can use those credits to offset its tax bill at any time in the next 20 years. According to an official at the state's economic development agency, "you don't know who will take a credit and when." So much for planning! Ford and Chrysler follow close behind in giveaways. (At least Ford ostentatiously refused stimulus money.) All three companies attribute their newly found prosperity strictly to their own initiative. ("We built it," as everyone chanted at the Republican national convention.) Of course, the automobile behemoths attribute the lust for incentives to their desire to "keep companies competitive and "retain or create jobs," Even when these automakers were "forced" to close plants in the last few years, according to GM spokesman James Cain, that doesn't mean that "companies and communities didn't benefit while the plants were open, which was often for generations." Besides, Cain added, GM "received less money per job than foreign automakers operating in the US," whatever that is supposed to prove. Of course, when pressed, corporations always fall back on their all-purpose justification: that their most important--indeed only-- responsibility is to make a handsome profit for their stockholder. If that is true, then, shouldn't all of the officials who so spectacularly failed in that sacred task be held accountable, financially and personally, to their superiors? Don't the subsidies and stimulus money entitle the American taxpayers (including employees, who are also taxpayers--at least when they are allowed to work)-- to a substantial vested interest? I think that this is called, at least in some circles, CAPITALISM!!!!
At least one corporate executive, the CEO of Hallmark, acknowledges that such rip-offs are hurting his home base of Kansas City, MO by diverting funds from public education. "It's really not creating new jobs," adding that the competition for graft has revived the long-dead border war between Kansas and Missouri, After Kansas recruited AMC Entertainment with a $36 million award, the state cut $104 million from its education budget. the company then moved just a few miles across the border from Missouri. Worker saw very little change, except minutes in commuting time and office decor. Just a few months later, Missouri retaliated by luring Applebee's headquarters across the state line. The vice-president of the Downtown Council of Kansas City admitted to Story that "it gives me a sick feeling in the pit of my stomach." Although he confided that it feels like he is talking himself out of a job, he said that "there ought to be a law against what I am doing."
Nationwide, according to the Times study, billions of dollars are being awarded as state governments face steep deficits. Last year, according to the Center on Budget and Policy Priorities, states collectively cut public services and raised taxes by $156 billion. The "incentives' come in the form of cash grants and loans, sales tax breaks, income tax credits and exemptions, free services, and property tax abatements. The income tax breaks alone add up to $18 billion and sales tax relief an incredible $52 billion, out of the total of $80 billion. Collecting data on property tax abatements is the most difficult task because very few states track the amounts given by cities and counties. In New York, businesses save an estimated $1.1 billion a year in property taxes. The American Insurance Group (AIG) continued to benefit from a $23.8 million abatement from New York City, at the same time it was being bailed out with $180 billion in federal funds.Since 2000, the New York Times itself has received more than $24 million from the city and state. Shell has been offered a tax credit of $1.6 billion over 25 years from Pennsylvania, which competed with West Virginia and Ohio for an energy production facility. Its "parent" company--Royal Dutch Shell--realized profits of $31 billion in 2011--about $3.5 million per hour--while its CEO made $13.1 million. Pennsylvania predicts that the plant will "create" thousands of long-term jobs, but it did not require them in exchange for the tax credit. Would any corporation make a deal like that with another business without receiving an absolute iron-clad guarantee of its quid pro quo? Caterpillar has received $196 million in local aid since 2007. It has recently been offered $44 million in incentives to build a new plant in Georgia, which is "more business friendly" than its home base of Illinois. Local counties in Georgia have chipped in with free land, $15 million in tax breaks, and $8.2 million in road, water, and sewer repairs. This at a time when Caterpillar recently placed a six-year freeze on wages in several plants and is making record high profits. San Francisco exempted Twitter from some $22 million in payroll taxes at the same time the company received a $300 million investment from a Saudi prince and $800 million from a private consortium.
I try to absorb these numbers while awaiting the surging property tax bill on my middle class home in Racine, Wisconsin.
How does this keep happening--and even escalate? Much of it has to do with clout of the companies versus that of local government officials. "They dictate the terms, and we are not really in a position to question their deal terms," says an overwhelmed county commissioner in Texas, who has just been bullied into submission by Apple and Hewlett-Packard. "We don't have the sophistication or the resources to negotiate with a company that has the wherewithal the size of a country," she laments. Even if they would like to do so, local and state officials seldom have the relevant data on how well or ill the corporation kept its pledge in other places and, even if they did, they have no way of knowing the exact role that "incentives" played in the outcome. "I don't know there is a way to know other than talking to the businesses and the businesses telling us that that was a factor in creating jobs," moans the city manager of one California municipality.WOW!!
Those pitiful laments from local officials speak volumes about who really has the power in our "United Corporations of America."