Alan Greenblatt writes for Governing that local governments spend three quarters of their economic development cash on tax breaks. How’s that working out?
A forthcoming study by economists at Columbia and Princeton found that the average firm-specific subsidy is $160 million, presented in hopes of creating 1,500 jobs. That’s $107,000 per job. And not all the promised jobs pan out.
To be fair, the study found that, on average, the companies that receive tax incentives do create the number of jobs specified in their deals. But that’s it. The study found that there’s generally no indirect benefit. That is to say, attracting specific companies does not give any significant boost to the broader local economy.
“It’s not exactly that there are never spillover effects, but on average we don’t see any,” says Cailin Slattery, a Columbia Business School economist and co-author of the study. “Sometimes there are deals that have broader economic effects, but there’s not the energy you expect to see.”
Plenty of other studies have found that tax incentives go to companies that would have created the jobs anyway, or are more likely to move for other reasons, such as a skilled local workforce, infrastructure or access to markets, than they are for a tax break [Alan Greenblatt, “Tax Incentives: The Losing Gamble That States and Cities Keep Making,” Governing, 2020.02.26].
$107,000 per job? You could invest half that in me to get me to stick around. And jeepers—we could spend the same amount to give students four years of free tuition at a South Dakota university and then pay a good chunk of a first-year teacher salary and get at least as lasting of an economic result.
Seems like the majority of corporate welfare doesn’t pay. On the other hand, helping people has big economic benefits. The GOP has minimal comprehension of how economics actually works.
The data indicate $107,000 per job created, but it doesn’t say how long those jobs last. Companies sometimes create the required number of jobs in order to make the statistics look good and get final OK for a tax break. Then they downsize. This is often true for businesses that move into an area for the first time.
HyVee is particularly good at this sort of scam. Cities in the Midwest seems to want a HyVee, so governments are loath not to hand them tax breaks. They staff up for the first year, then the staffing cuts come. When you give tax breaks to an outside business, you might be harming another business that has been employing people for years.
Of course other companies actually do keep those jobs around for 5, 10, 15 or more years. Generally, those are companies that are in your community already and want to expand. So, if you give them the tax break worth $107,000 per job created, over ten years that come down to $10,700 per year.
My follow up question is, What salaries are the workers given for these newly created jobs?
“Ukabam is a member of the first inaugural class of Tulsa Remote, an initiative launched in November 2019 that pushed people untethered by office jobs to pack up and move to Oklahoma. Those like Ukabam who work remotely and got through the competitive application process were promised $10,000 in installments over the course of a year, plus cheap housing and an upgraded social infrastructure.”
is.gd/iPhYUm
The article says people like the ease of driving and affordable housing best, but they also need community. Tulsa Remote works at that too.
Could SD do something similar in SD? It’s much cheaper than $107,000 per job to get residents.
Here’s what happens in a workplace when employees are treated decently and paid adequately. It’s outstanding! 😀
is.gd/24cuoi