Tesla Motors recently announced that it will build its new lithium battery factory in Nevada. The Nevada state legislature and governor offered Tesla an incentive package of up to $1.3 billion to build the factory in the state. As part of the package, Tesla will face no property or payroll taxes for 10 years and no sales or use taxes for 20 years. The package also includes discounted electricity and other tax incentives.
While Tesla’s factory may bring jobs to Nevada, the tax incentive package is corporate welfare. Company-specific tax incentives let politicians favor selected companies over others. When politicians have the discretion to treat companies or people differently under the law, cronyism becomes a problem.
Tax incentives can also backfire on a state. Politicians hope that companies will stay around once tax incentives expire, but many don’t. For example, politicians in California previously gave Tesla tax incentives to expand car production in the state. California also offered additional tax incentives for Tesla to build its new factory in California, but Tesla ultimately chose Nevada despite the prior tax incentives from California. States play a risky game when they offer companies tax incentives.
To read more about Tesla’s new factory, check out this story from the Associated Press.
The Cato blog remarks on an interesting phenomenon: jeans becoming more affordable over time. Marian Tupy writes:
Today marks 141 years since the U.S. government issued Levi Strauss & Co. a patent for the first blue jeans. Back in 1873, the jeans cost $13.10, which would be $251.18 in 2013 dollars.
Tupy goes on to note that today the original model jeans cost $68, “a 73 percent reduction in real price.”
Economist Mark Perry at the blog Carpe Diem makes an interesting point about steel tariffs.
For steel companies and their political accomplices to argue for higher steel tariffs is really an argument for allowing domestic steel producers to hijack the political process so that they can engage in the legalized theft and plunder of the American people. From the viewpoint of the consumer, tariffs are simply legalized theft on behalf of domestic producers, sanctioned and endorsed by their political enablers.
Mercatus’ Neighborhood Effects has an informative piece on the Export-Import Bank.
Consider, again, the bank’s assertion that 87 percent of its “transactions” benefit “small business” exporters. Why focus on transactions? Wouldn’t it be more transparent to focus on the size of these transactions? When you break it down this way, as Vero does in this piece, you see that 81 percent of the value of Ex-Im assistance goes to “big businesses” as the bank defines them.
And just how do they define big and small business? Answer: not in the same way others like the Small Business Administration do. Ex-Im’s definition of “small” manufacturers and wholesalers is three times larger (by number of employees) than the SBA’s definition and it includes firms with revenues as high as $21.5 million a year.
The Tax Foundation reports that businesses spend 175 hours a year complying with taxes. Using an eight hour schedule, that’s 21.9 work days!
One way of measuring the compliance costs associated with taxation for businesses is to measure the number of hours it takes a business to calculate and pay its taxes. Taking the time to just figure out what you owe, calculate it, then send it in, requires a business to give up a more productive activity: one hour of tax preparation is one fewer of research and development.
Pundits occasionally point out that America’s infrastructure is old and in need of repair. But is America’s infrastructure getting worse? Cato’s blog points out an oft-neglected dimension:
…[T[he share of U.S. bridges that are structurally deficient fell from 22 percent in 1992 to just 10 percent in 2013.
So although an all-to-high number of bridges are structurally deficient, the number is getting smaller over time.
The Cato blog mentions another layer of subsidies: the waiving of credit fees on loan guarantees. In this instance, the Department of Energy waived the credit fees on a loan guarantee to build a nuclear power facility.
This isn’t the first time that DOE has been criticized for the handling of its loan guarantee programs, and thus risking losses to taxpayers. In 2012, the Government Accountability Office said, “if DOE underestimates these costs [credit subsidies], taxpayers will ultimately bear the cost of default.” GAO said that DOE did not follow its own processes for handling applications “potentially increasing the taxpayer’s exposure to financial risk from an applicant’s default.”
Veronique de Rugy points out that when the Export-Import Bank’s costs and risks are properly calculated, the bank might lose more money than it makes.
As I noted previously, Jason Delisle and Christopher Papagianis provided more background on how these alleged profits in 2012 were almost surely an accounting illusion. “The government’s official accounting rules effectively force budget analysts to understate the cost of loan programs . . . by excluding, or not factoring in the cost for market risk,” they write at e21.
The whole piece is worth reading, and can be found here.
Jack Spencer, an affairs specialist for Michigan Capitol Confidential, details a mystery project that almost received $5.5 million from Michigan’s taxpayers, yet no one knows who would’ve owned the property. It’s a corporate welfare mystery:
What seems bizarre is the apparent secrecy surrounding the proposal,” said Jack McHugh, senior legislative analyst for the Mackinac Center for Public Policy. “In particular, who will become the proud new owner of a building used for the project for which taxpayers would have paid $5.5 million?
Dave Brunori at Forbes asks, “Where is the outrage?” regarding the Good Jobs First report that details the level of corporate welfare in the American economy. However, Mr. Brunori says it’s not the companies’ fault, they’re simply being rational:
I don’t blame the corporations. They act rationally. If someone gives you $1 billion, you take it. The blame lies with us.