SPONSORED:

Carrier deal part of growing trend of corporate tax giveaways

 
President-elect Donald Trump on Thursday traveled to Indiana to announce a deal to keep about 1,000 furnace manufacturing jobs in the state.
 
The deal would not have been possible without Vice President-elect Mike PenceMichael (Mike) Richard PenceTrump spokesman says defeating Cheney a top priority GOP is consumed by Trump conspiracy theories McConnell amid Trump criticism: 'I'm looking forward, not backward' MORE, the state’s outgoing governor, and it resolves just one skirmish in an increasingly heated war between states for jobs in a competitive industrial marketplace.
 
ADVERTISEMENT
Across the nation, state and local governments spend massive amounts of money every year trying to win over companies. Sometimes, experts say, states reach high-profile deals that cost governments more in the long run than they benefit.
 
In Indiana, officials agreed to hand $7 million in tax breaks to Carrier’s parent company, United Technologies, over the next 10 years in exchange for keeping a furnace plant open in Indianapolis. Company officials had planned to move about 800 jobs to Mexico. 
 
Another 300 jobs in the company’s research and headquarters arms, which were not scheduled to go to Mexico, will stay in Indianapolis, according to details of the plan first reported by The Wall Street Journal.
 
Such a giveaway is a drop in the bucket in the fierce competition for jobs. 
 
“In any other state, a $7 million incentives package is otherwise known as 'not news,' ” said Scott Drenkard, director of state projects at the Tax Foundation. “The state side of this is relatively small compared to some other deals that have gotten scrutiny.”
 
Among those other deals to attract new businesses, or to keep current jobs, states like Nevada, New York and Oregon have given billions in tax breaks and incentives to companies like Tesla, Alcoa and Nike. 
 
In 2013, Washington State extended a tax and transportation package valued at $8.7 billion — the largest such deal in the nation’s history — to entice Boeing to keep an assembly line building its 777X widebody aircraft in the Puget Sound area. Earlier this week, the World Trade Organization said a part of that deal violated international trade law.
 
States “attempt to retain employers by offering retention packages. That’s an ancient story,” said Greg LeRoy, head of Good Jobs First, which tracks such incentives and subsidies. 
 
LeRoy’s group has tracked more than $70 billion in mega-deals — incentive packages worth more than $75 million, ten times the size of the agreement reached with Carrier — over the last three decades.
 
Governors from across the nation, and across the political spectrum, openly woo companies in other states. 
 
Former Texas Gov. Rick Perry (R) angered Democratic governors in states like Connecticut, Delaware and Illinois by running radio advertisements touting Texas’s relatively lower tax rate. 
 
Former Virginia Gov. Bob McDonnell (R) spent his four years in office trying to poach businesses from higher-tax states like neighboring Maryland.
 
“Job incentives help open doors and close deals, ensuring that Texas gets executive-level attention from job creators and messages that businesses are welcome here,” said Ray Sullivan, Perry’s former chief of staff. 
 
“Gov. Perry felt competition among states drove better public policy and better job climates across the board, even if Texas didn’t always win the competition.”
 
But some analyses show incentive packages don’t always offer payoffs equal to the amount of money a state or local government gives up by offering the deal. While state and local taxes make up just a tiny fraction of a company’s overall costs, that revenue can amount to a huge proportion of a state or local government’s budget.
 
“The economic literature on tax incentives is not kind,” Drenkard said. “It almost universally shows that targeted tax incentives in terms of the broader economy either has an immeasurable impact or a negative impact.”
 
State and local governments spend upwards of $70 billion a year on economic development programs, including tax breaks and spending on specialized programs like education or transportation spending. Washington’s deal with Boeing included pledges to spend more on technical education, while Nevada’s deal to clinch a Tesla battery factory included money to extend rail and road access.
 
All told, the largest deals tend to cost a state thousands of dollars per job, according to the 2013 Good Jobs First study. 
 
The deal to keep Carrier in Indianapolis will cost less than the average mega-deal, about $8,750 per job. Jay Biggins, a lawyer who has negotiated incentives packages between companies and states, said Indiana used an existing program to keep Carrier in state at a lower cost.
 
“What we know about the Carrier transaction is much more of a mainstream application of core investment tools,” Biggins said. The $7 million total cost for the incentive package came from the Economic Development for a Growing Economy program, or EDGE, a program that weighs the incremental revenue for a state and shares that revenue with the company receiving the break.
 
Still, even that figure does not factor in what makes the Carrier deal different: its parent company, United Technologies.
 
United Technologies holds billions of dollars in government contracts through the Defense Department and other agencies, contracts over which President TrumpDonald TrumpThe Memo: The Obamas unbound, on race Iran says onus is on US to rejoin nuclear deal on third anniversary of withdrawal Assaults on Roe v Wade increasing MORE would have influence. A former Indiana lieutenant governor who sits on the board of the Indiana Economic Development Corporation said this week that the company was concerned about its access to Pentagon contracts.
 
“The president’s going to control defense contracts that are worth a lot more to the company than an air conditioning factory,” LeRoy said. “It’s a political payoff, using taxpayer dollars as a political favor. It’s a high-profile one-off to deliver on a campaign promise.”
 
In a statement Wednesday, Carrier made no mention of its parent company or the billions of dollars in federal contracts United Technology holds. Carrier said the incentives offered by Indiana were “an important consideration.”
 
Biggins said the deal, made with Pence’s help, is a proper use of existing tools. But it’s not clear whether the incoming Trump administration raised the prospect of United Technologies’ existing federal contracts.
 
“It raises, potentially, other questions about the proper role of government,” he said.