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.
Michigan’s Capitol Confidential reports on a few subsidies for a food cooperative in Michigan:
The Marquette Food Cooperative will get $615,000 for an expansion from the Michigan Economic Development Program and a $115,000 tax abatement from the city of Marquette.
For more stories from Michigan, click here.
In a story first reported by the Daily Caller and noted by Tim Carney:
For instance, in 2012, OPIC approved a $20 million loan to help an American businessman build a luxury car dealership in Ukraine…
The car dealer, John Hynanksy, happens to be a good friend of Vice President Joe Biden and a donor to President Obama and Biden. When Biden spoke in Ukraine in 2009, he called out “my very good friend, John Hynanksy, a very prominent businessman.” In that same speech, Biden said “Democracy and free markets work best when they deliver what people most want.”
Even subsidized companies don’t stay in business forever. Fisker Automotive, a company that borrowed $192 million through the Advanced Technology Vehicles Manufacturing Program, lost $35,000 on each vehicle sold. The company went bankrupt, and so far only $50 million has been recovered. From Cato’s blog:
The car was a flop from the beginning. It was recalled, and it received poor performance ratings. Fisker lost an estimated $35,000 on each vehicle sold. A year after issuing the loan, DOE halted Fisker’s borrowing authority after the company had already borrowed $192 million. Fisker filed for bankruptcy shortly thereafter. Only $50 million of the $192 million has been recovered for taxpayers.
Michigan’s Capital Confidential reprinted commentary by Anita Folsom that includes an interesting claim:
From 2000-2012, the U.S. spent $3,000 a second every second of that 12-year period on government subsidies — most of which, like Solyndra, were a huge waste.
That comes out to $94.6 billion/year, and fits nicely with analysis by Chris Edwards and Tad DeHaven. They estimated that the 2002 federal budget included $92.6 billion for corporate welfare. Tad DeHave did a similar analysis again in 2012 and estimated that corporate welfare spending was $97.6 billion.
Subsidies are expensive.
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.
David Cay Johnston at Aljazeera America writes about the numbers behind corporate welfare in America:
State and local governments have awarded at least $110 billion in taxpayer subsidies to business, with 3 of every 4 dollars going to fewer than 1,000 big corporations, the most thorough analysis to date of corporate welfare revealed today.
Boeing ranks first, with 137 subsidies totaling $13.2 billion, followed by Alcoa at $5.6 billion, Intel at $3.9 billion, General Motors at $3.5 billion and Ford Motor at $2.5 billion, the new report by the nonprofit research organization Good Jobs First shows.
In this article for The Blaze, Casey Givens makes the argument that, despite good intentions, a minimum wage hike will cost some employees their jobs. Conservatives, while critical of the size of the welfare state, should remain cautious about buying into the argument of low-wage jobs forcing people into welfare:
Rather than the Cold War conservatives that originated the phrase, the tale of the welfare queen is now being trumped by liberals to describe corporations like McDonald’s that pay minimum wage and rely on government aid like food stamps to pick up the tab for their employees’ remaining living expenses.
Michigan awarded millions toward various business this year, including $4.5 toward a manufacturing plant, $2 million toward a new airplane hangar, and $500,000 toward an online brokerage firm – funding that raises the question: why is the state giving money to businesses? Cars are built, airplanes fly, and brokerage firms are established without the aid of government on a regular basis. Why is tax payer money expended on these ventures?
The state now focuses on offering grants, loans and other economic assistance to companies that make investments or create jobs in Michigan. Companies must meet certain investment or job creation milestones in order to receive the incentives.
Every four or five years the US reconsiders it’s farm subsidy programs. Cato reports that this year some subsides came very close (but not all the way) toward being eliminated:
Another program that could have been fixed by the farm bill was a bizarrely redundant and purely unnecessary catfish inspection regime. The new system would cost an estimated $14 million per year to administer and (by the USDA’s own admission) do nothing to improve the safety of catfish. However, the new institutional requirements imposed on catfish farmers to comply with the new regime would all but eliminate Vietnamese competitors from the market. The U.S. catfish industry and their allies in Congress are all for it.