The Costs of Business Subsidies

by Ralph Scharnau

Today all levels of government—municipal, county, district, state, and federal—try to entice businesses to relocate, expand, or simply continue operations. The commonplace incentives to new or existing businesses include tax cuts/exemptions, rebates, monetary awards, and waiving/easing regulations.

All of these schemes bear price tags with the top 20% of “already haves” benefiting the
most. Meanwhile, the United States experiences economic and racial inequality. The wealth gap between whites and non-whites continues to grow.

Many large American corporations play the tax breaks and loopholes game. Their huge
tax savings have enriched executives, not workers. And when tax time rolls around, they receive preferential treatment. While millions of Americans file last minute income tax returns, some major corporations won’t pay a dime despite reaping record profits thanks, in part, to incentives.

Many cities and states desperately try to attract and retain jobs by playing the subsidies
game. We now have a “subsidy industrial complex” of site-location consultants, industry groups and industrial realtors and professionals who track, arrange and promote deals between companies and governments. The result often doesn’t create any new jobs, but merely moves existing jobs around while fostering economic war.

A number of states, moreover, face budget shortfalls, but this has not stopped Republican
governors and Republicans lawmakers from offering generous aid packages to businesses. Iowa, for example, offers tech giant Apple $213 million in tax inducements to build two new data centers in the state. Headlined as “Apple incentives not necessarily a sweet deal,” the Dubuque Telegraph Herald editorialized that the “deal . . . promises to create a mere 50 jobs. Is more than $4 million per job the kind of economic development for which the state should strive?”

This notion of job creation is at the center of the debate about business subsidies. It turns
out that often the promised employment increases are not realized. As a result there are layoffs and reduced job-related consumption and tax revenue. Some companies have also engaged in a form of job blackmail by threatening to leave and shaking down states and cities to stay.

To make up for failed economic development plans, governmental bodies cut employees
and social services while trying to meet their civic responsibilities. The tax-paying public, not corporations, support the children, elderly, poor, and disabled who make up the majority of the recipients of life-sustaining programs. The business world seeks to make profits and please shareholders. Governments look after the long-term needs of residents, including minimum wages, building infrastructure, and managing health-care.

The large corporations reap huge tax savings from public subsidies. Recent studies reveal
that AT&T enjoyed an effective tax rate of just 8 percent between 2008 and 2015, despite
recording record annual profits each year by exploiting tax breaks and loopholes. At the same time, the company reduced its total workforce by 80,000 jobs, accounting for acquisitions and spinoffs each involving more than 2,000 workers

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