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Quite the World, Isn't It?

The fine line between tax incentives and extortion

The New York Times is publishing some strong work diving deeply into a practice that I've long found bizarre, and corrosive to stable communities - the granting of tax incentives to companies to attract development, or to keep them from leaving.

I wrote about this, but not with much depth, in my Detroit: A Biography. Former Detroit mayor Coleman A. Young, even as he took part in the bidding, used to argue that communities competing against each other for corporate investments does nothing but reward corporations. He was right then, and the problem continues. Corporations play local governments against each other to gain the best tax-reduction deal they can, often just shifting the jobs from one site in a metro area to another. And when the commitment expires (or sometimes before, as the Times reports), the companies pull out anyway. Ultimately stockholders benefit, but the community the business abandons suffers; the community that wins the business suffers in increased infrastructure costs and reduced tax support; and that second community suffers again when the corporation's next move is overseas.

The practice ought to be banned, but good luck getting any such measure through Congress (and it would likely face a Constitutional problem over states' rights anyway). The practice is yet another example of governmental support for corporations and businesses ahead of communities. And yes, I know these deals create jobs, but as the Times analysis shows, the cost does not equal the benefit. From the story:
A portrait arises of mayors and governors who are desperate to create jobs, outmatched by multinational corporations and short on tools to fact-check what companies tell them. Many of the officials said they feared that companies would move jobs overseas if they did not get subsidies in the United States.

Over the years, corporations have increasingly exploited that fear, creating a high-stakes bazaar where they pit local officials against one another to get the most lucrative packages. States compete with other states, cities compete with surrounding suburbs, and even small towns have entered the race with the goal of defeating their neighbors.

While some jobs have certainly migrated overseas, many companies receiving incentives were not considering leaving the country, according to interviews and incentive data.
The Times also put together a searchable database of the concessions. It's a sobering overview of a misguided practice, and one that adds yet another layer of financial stress to communities reeling under the recent recession; balky hiring by companies hoarding cash instead of investing; unfunded state and federal mandates; and this bizarre expectation of voters that they shouldn't have to pay for basic services.

It's a mess, and one without easy solutions - and no discernible political will.
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