The left and right agree to end taxpayer-funded job wars in Midwest
The states of Missouri and Kansas recently made history by agreeing to no longer pay companies to hop back and forth across the state line in the Kansas City metropolitan area. It’s the first such legally binding deal between two states in U.S. history. It also strikes at a left-right consensus that could save tens of billions of dollars for vital public services. This idea should be adopted more widely.
Since 2010, the Show-Me and Sunflower states have wasted $335 million paying companies in the K.C. metropolitan area to merely change their employees’ commuting routes. Worse than zero-sum, this is a net-loss game: One state loses its tax base, the other state abates its tax base, and every other local employer gets stuck with higher taxes and less money for schools, infrastructure and other public services.
At the heart of this is what Good Jobs First — a Washington, D.C.-based corporate welfare watchdog — calls “interstate job fraud.” That’s when the state to which a company hops mislabels existing jobs as “new jobs” so it can qualify for tax breaks. The flip side is “job blackmail.” This occurs when corporations make threats to leave a state lest they receive subsidies for “retention.”
Nobody knows for sure what share of the estimated $70 billion a year states and localities spend on economic development is wasted in such episodes. We know that New York City has paid out dozens of eight-figure “retention” packages. We also know that states have enacted entirely new giveaway programs simply because they feel the need to defend themselves against a bordering state’s new tax break. Indeed, the big money that Kansas and Missouri will save from their deal is the workers’ state personal income taxes: Employees literally have been paying taxes to their bosses, not the public treasury.
The Kansas-Missouri solution gets taxpayer money out of these schemes. Of course, a few companies occasionally may still choose to relocate, but not at public expense. (Most corporate relocations are very short-distance, enabling employers to retain their workforces.)
The same problem the Kansas City area suffered has plagued many metro areas that straddle state lines, including New York City, Memphis, Charlotte, Cincinnati and Boston. Governors in those states should follow the Missouri-Kansas lead. Indeed, New Jersey officials are reportedly studying how the precedent could be used to cool off their state’s job wars with New York, Connecticut and Pennsylvania.
Compacts to end economic wars between the states need not be limited to border localities. There are statewide compact initiatives, too. One was introduced in the New York assembly last February and it has sparked interest elsewhere in the country.
The value of these compacts should be clear. They allow elected officials to work together on a strategic policy and to a shared advantage. All too often, both Republicans and Democrats fear that eliminating incentives unilaterally would put their state or locality at a competitive disadvantage with those that have not. Compacts, then, are multilateral disarmament agreements that would help suffocate poor fiscal policy choices among competing states.
Research performed recently by the Mackinac Center, using a census of American businesses, found that less than 1 percent of all net new jobs from 1990 through 2015 were from companies moving into the state of Michigan. Even then, only a tiny fraction of those were actually subsidized. Smaller still was the number of employers that were truly induced to move. A study published by the Upjohn Institute for Employment Research in 2018 found that between 75 and 98 percent of corporate relocations, expansions or retentions probably would have happened without incentives.
Defunding interstate job raids is a commonsense reform on which groups from the right and left can agree. Indeed, the groups for whom we work have histories of critiquing economic development incentives from very different — progressive and free-market — perspectives.
But on this we can all agree: When a small number of companies can game the system of state economic development programs, only those corporations benefit while everyone else pays. That’s not economic development; it’s just bad public policy.
In an era of heightened public debate about U.S. jobs and foreign competition, shouldn’t the states all be on the same side and stop wasting taxpayer dollars fighting each other with sweetheart deals?
Michael LaFaive is senior director of fiscal policy for the Mackinac Center for Public Policy, a public policy research and educational institute located in Midland, Mich. Follow him on Twitter @lafaive.