Corporate Accountability and WorkPlace

Corporate Extortion: States Are Giving Billions to Corporations That Don’t Create Jobs

Bidding war for Boeing showcases upside-down priorities.

Photo Credit: Image by Shutterstock

As the nation turns its attention to the latest federal budget deal where curtailed spending and cuts are the defining principal, a dozen blue and red state governors are in a bidding war recklessly offering to spend billions for tax breaks and other public-paid subsidies to lure the corporate giant Boeing to build its next-generation aircraft factory.

Beyond the schizophrenic spectre of congressional negotiators saying no to spending as governors are offering mountains of cash is a maddening reality: these taxpayer subsidies do not create the promised jobs or investments, a series of striking academic studies have found. All they do is boost bottom lines by cutting corporate costs.

“Economic development officials value business tax incentives as tools needed to compete with other states,” a November report commissioned by New York State’s Tax Reform and Fairness Commission began, stating their presumptive selling point. “There is, however, no conclusive evidence from research studies conducted since the mid-1950s to show that business tax incentives have an impact on net economic gains to the states above and beyond the level that would have been attained absent the incentives.”

The 143-page study, produced by Marilyn M. Rubin of John Jay College and Donald J. Boyd, the former director of the Rockefeller Institute of Government State and Local Government Finance research group, was not alone in this conclusion.

“We estimate the impact of manufacturer business taxes on value added during the 1990s for 15 manufacturing sectors in 20 U.S. states,” began a National Science Foundation report published this past June. “When we isolate the value of industrial incentives from the basic tax system in our theoretically preferred marginal tax measure, we find… only 1.2 percent industrial growth, the latter elasticity not statistically different from zero.”

Zero. Think about that. Right now the federal government is curtailing spending on a vast array of needed initiatives—from social safety nets to next-generation weather satellites. And in state and local government, which is the frontline for services and will face the consequences of federal budget cuts, yet another corporate giant is seeking and being offered billions—even as experts say those subsidies are worthless for creating jobs.

“When combined with many previous reports, the Rubin and Boyd [New York State] study shows that state and local giveaways to corporations simply redistribute wealth upward without increasing jobs,” wrote David Cay Johnston, a former Pulitzer Prize winning New York Times taxation reporter for TaxAnalysts.com. “Their continued existence is a testament to the benefits of being politically connected.”

The national cost of “being politically connected” was estimated at $80 billion annually, the New York Times found last year after investigating the “incentives [that] are given by states, cities and counties to companies that often pit local officials against one another to get the most lucrative packages.” Kenneth Thomas, a University of Missouri-St. Louis political scientist, estimated that cost was $70 billion annually, Johnston noted.

Boeing’s bidding war is the latest high-profile example of this corporate extortion racket.

It threatened to leave Washington and build a new factory for its next-generation 777X jet—which has $95 billion in orders—after a key union, the International Association of Machinists and Aerospace Workers, refused to accept a freeze in members’ pensions.

That prompted Boeing executives—who moved their headquarters to Chicago a decade ago after another interstate bidding war—to say that it was looking for greener pastures. Washington’s legislature convened a special session and adopted a package of subsidies worth $8.7 billion through 2040. Missouri put together a package worth $1.7 billion.

The St. Louis Post Dispatch got a copy of Boeing’s wish list, which was supposed to be confidential. It included free land, free facilities, free worker training, access to roads, railways and special runways, and all possible tax breaks. “Entire applicable tax structure including corporate income tax, franchise tax, property tax, sales/use tax, business license/gross receipts tax and excise taxes to be significantly reduced,” it said.

The nation’s political elite doesn’t want to hear that coddling corporations is a ripoff—and the public’s money could and should be more wisely spent elsewhere. In Congress, supporting for legitimate public needs has become an unforgiveable sin in the eyes of rightwing Republicans in both chambers. Meanwhile, pro-corporate Democrats also support unneeded corporate largesse, as seen by the pathetic offers to companies like Boeing coordinated by governors such as Washington’s Jay Inslee, a Democrat.      

The corporate subsidies study commisioned by New York’s Democratic Gov. Andrew Cuomo was apparently not what the governor wanted to hear, Johnston reported. It was not merely shelved, but Cuomo’s response to the corporate subsidy report was to appoint a new tax reform commission, “and made no mention of eliminating the tax credits so thoroughly dissected by Rubin and Boyd,” he wrote. “The implication being that not having gotten what he wanted, Cuomo is trying again for a report made as instructed—although only time will tell.”

Meanwhile, across the country, there is little evidence that government is slowing the movement of taxpayer resources toward the top. The newest federal budget deal doesn’t raise taxes on the wealthiest people or institutions. Instead, it cuts services for the middle-class, poor and eats away at federal workforce pay and benefits, according to an early analysis by the Washington-based Center for Budget and Policy Priorities.

At the state level, GOP governors—some of whom have blocked Obamacare and denied access to proactive care for their poor by refusing federal funds to expand Medicaid, such Alabama and North Carolina—were “putting together bids [for Boeing]… bragging about their respective environments of can-do optimism,” The New York Times reported.         

This schism—Congress curtailing spending while states bend over backwards to offer the latest corporate giant everything it wants—shows the power and reach of government. If only that “can-do” attitude was put to work to cultivate economic security for millions of struggling American households, instead of for a wealthy corporation that’s evaded taxes and reported billions in profits for years.   

Steven Rosenfeld covers national political issues for AlterNet, including America's retirement crisis, democracy and voting rights, and campaigns and elections. He is the author of "Count My Vote: A Citizen's Guide to Voting" (AlterNet Books, 2008).