Tax cuts for jobs. NOT! Another tax cut that is not paying out
First a qualification. I am basing the following on info I found on the net. If the info is wrong, then I stand corrected as to who is or is not paying but not as to what happens when a large entity does not pay. The specific city and company are used purely for example purpose because of familiarity. What follows could be any municipality with a similar size company calling it home.
Lately in the city of my flower shop the big talk is a $10 million deficit in the school department. It’s a funny story. See, the department hired a couple people and these people, along with the help of the city council and the school committee the budget numbers became not real. They budgeted $59 million but have spent $66.6 million. The total $10 million is a 2 year deficit. The funny part…we had a surplus. Though, where the surplus went to no one knows. The school committee insists there was no funny business and even voted down an investigation. So, if there was no funny business, then who gained and what did they gain by covering up a deficit? What benefit is there about lying about a deficit?
Of course, this is also a state funding issue. You see, the city has the typical city size problems that the surrounding town do not have. This article notes:
“The committee chair pointed out that Lincoln has a budget of $48 million to educate half the students Woonsocket teaches with a mere $59 million.“And they don’t have the special needs we have. They don’t even have a quarter of the IEPs we deal with,” she said.”
On top of this, we’re one of those states that has been passing ALEX type legislation. In particular we passed the one that thinks it is smart of a state to set a cap on how much a municipality can raise taxes in any given year. The city notes that default is an option, but is currently begging the state legislature to allow a supplemental tax bill.
I posted sometime ago on just how dubious the ideas involving tax policy can be. It’s not as simple as not raising taxes or adding development. I have also posted on tax breaks and how much it takes in job creation to make up for them. It’s basically impossible for job creation to cover the breaks never mind actually producing income greater than the tax break. This brings us to my flower shop’s city. It all comes together in real life for Woonsocket, RI.
Woonsocket has what should be considered a huge resource: CVS/Caremark. CVS began in Woonsocket. They love Woonsocket. It’s their home. It was (WAS) a wonderful company if you talk to those who worked there sometime before 1990 or so when the founder turned the company over to more professional management as CVS decided to get big. I’m certain there are many other towns and cities which have a resource such as CVS/Caremark. They are assumed to be a benefit to the municipality. . I’m also certain these municipalities have experienced the negatives of having such a resource, namely the threat of demise of the municipality if certain privileges are not granted. These privileges that are “requested” are often in the form of money that will not be paid: tax relief. After all, an entity such as CVS/Caremark is not considered a resource because it generates money. It is because they give the people of the municipality something to do to earn money that entities like CVS/Caremark are a “resource”. The threat is that the resource is ‘A’ major or ‘the’ major employer of the region.
Some would say the results of tax exemptions are simply good negotiations. They are contracts. Are you aware of the phrase: Contracts of Adhesion?
A type of contract, a legally binding agreement between two parties to do a certain thing, in which one side has all the bargaining power and uses it to write the contract primarily to his or her advantage.
Keep the phrase in mind as you continue reading. Also keep in mind that good contracts have a performance clause.
This brings us to the issue of Woonsocket’s deficit. Some have asked why does CVS not just write a check? Not a gift, but a check and then offer up it’s best minds to help prevent this from happening again. After all, why would a company like CVS want to be in a place that is struggling so much? Do they not want their environment to reflect their self image? There is a meme circulating that only 10,000 people pay taxes in Woonsocket. Some have said it is only 10% of the city’s population that is paying.. Either way, if that is all that is paying in a municipality of 43,000 people, well then that is the total number of property owners. Though Woonsocket has a lot of people renting from those 10,000 property owners. Who is paying the taxes?
This got me wondering. How much does CVS/Caremark pay in property taxes to the city. The data which follows was sent to my local newspaper editor. I received no response.
I found a web site that allows you to look up any tax account in any participating municipality. RI is here. I typed in CVS first and came up with accounts related to tangible assets. A lot of exemptions for those. We are talking property taxes. So I looked up 1 CVS Drive and got the account that appears to list the actual real estate related to CVS/Caremark corporate operations. Account number R00-0132-87.
The total assessment for 2011 tax year is $1,149,108.12. 2010 was $1,081,809.76. For 2009 it was $953,050.27. The three year total is $3,183,968.15. This is a lot of money. And all of it was exempted. The tax bills show $0.00 as total due. The individual bills state: Adjustment type: 07, tax exempt property. Based on this data, for the past 3 years, CVS/Caremark or who ever owns the land they sit on has paid nothing. To make matters worse, using their highest valued property, the assessment was only 2.5%. My flower shop, as commercial property has an assessment of 3.17%!
Ok, so they get a break. Usually these breaks are in exchange for jobs based on supposedly creating a greater overall income benefit for the tax gifting municipality.
I did some simple calculations as to how many people need to be employed to make up the $1,149,108.12 per year. Using City-data.com and the 2009 census for Woonsocket, the median household income was $39,964, the median family income was $48,680, median non-family income was $20,609, the per capita median was $20,627. For these income ranges, the state’s income tax rate is 3.75%. Again, doing some simple math (you know I like simple) produced a range of income tax collected of $1825.50 (median family income) to $772.84 (per capita).
Using income tax is appropriate because if the City is not collecting property taxes in exchange for jobs, then the state income tax is where the money will come from. This means that the City needs from CVS 630 more family job equivalents than employed in 2011 to make up for the property tax not paid or 1487 more job equivalents median income per capita. The State of RI has to earmark the income tax it collects from 630 to 1487 jobs at CVS/Caremark for Woonsocket just to make up for their exemption. Of course, there is no way a state is going to cut up it’s collections that way. I mean, can you imagine what all the other municipalities would do? Also, we’re talking job equivalents. A handful of people being paid enough, at 3.75% could do what 1487 jobs do. Say, a CEO who was paid $29.2 million in compensation for 2010. Of course, only $1.5 million was “salary”. The rest was pension and stocks transactions such that by the time the total was rung up the CEO had $125 million “…for his final 14 months or so on the job…”
3.75% of $1.5 million is only $56,250. Not much, unless you are earning Woonsockets median income. Though 3.75% of $123.5 million is $4,631,250. To bad it’s payment via stocks. I doubt the stock value is treated the same as salary or wages. Woonsocket and the state lose.
It’s to bad because those who are paid via wages and thus paying the income tax which has to make up for the property tax not paid by CVS/Caremark means those workers are in actuality giving back part of their earnings to CVS/Caremark. It’s their wages that are paying what CVS/Caremark would have paid if not for the exemptions. What a racket. Of course, there is no specific earmarking to Woonsocket of the income taxes collected via CVS/Caremark jobs. In fact, the state has changed the formula for distributing money to the towns thus Woonsocket is getting less than it used to get for giving CVS/Caremark property tax exemptions. That means, those property owners and renters in Woonsocket are primarily carrying the load for CVS/Caremark share.
Tax breaks of any type in exchange for jobs is a fools deal. It is a devils bargain. It traps the host municipalities (local or state) and creates a kind of contract of adhesion. The trap is the “going Galt” threat. The use of such taxation activity to improve a local economy only leads to the demise of the municipality over time. There is just no way for one large entity (CVS like entity) to off load it’s share of the costs of living onto a smaller entity (43,000 people of a municipality) such that both grow in multiples that produce a greater outcome than had both paid equally based on their income, wealth, use of the commons, etc.
This is especially critical to understand during the current past decades where wages have been declining relative to inflation. A decline by the way that entities like CVS have promoted. It is not like the majority of municipalities are full of only 1%’ers. When the tax base is declining do to an inability to pay the assessments (this is the true tax base identity not the property values), giving tax breaks as a means to grow to those who’s incomes have risen as a result of fostering declining overall income to the masses just seems stupid. Here, let me pay for that knife you are going to stick in me. Again, what a racket!
Think about it. How can an entity that generates $7.944 billion (RI 2013 proposed budget) support an entity that generates a net revenue of $96.4 billion (CVS 2010) via give backs to the larger entity such that the smaller entity will grow?
Lastly, why do we continue to set policy based on an idea that a company can exist without employees? Why do we insist on ignoring the obvious, both are needed for a company to live. Neither one is more important or stands independently. Of course, the answer is because we let companies threaten and sometime go Galt by pitting one group of citizens against another. On a larger scale it’s called outsourcing.
what you describe is not uncommon; here’s from last week:
Corporate Tax Kickbacks: Busting Our Budgets, State By State -Alabama and Louisiana, two of the poorest states in the nation, recently battled to host a new ThyssenKrupp steel mill. Alabama “won,” but getting the mill cost the state $734 million in tax breaks — or $272,000 for each of the 2,700 jobs the steelmaker will create.
Federal tax giveaways to industries ranging from energy to agriculture have received much criticism, but the relocation incentives offered by states for corporations to move their facilities from one to another may be the most counterproductive of all corporate subsidies.
Companies know that states are willing to award generous packages for minor job additions and pit the governments against each other in bidding wars that essentially amount to blackmail. One political scientist estimates these state and local giveaways to corporations at $70 billion or more. Consider these recent deals companies bartered for their business:
Sears (SHLD) recently broached the idea of relocating its Illinois headquarters and 6,000 jobs with it. A company rep said about one-third of the states had sent in proposals to entice the retailer, including Ohio, which offered $400 million in incentives, leading Illinois to counter with $371 million to stay put. Those expenditures work out to more than $60,000 per job.After considering offers from a number of states, manufacturing giant Caterpillar (CAT) recently won $45 million from Georgia — and $75 million from others sources in the state — to relocate a Japanese plant to the Peach State, bringing with it an estimated 1,400 jobs.One of the biggest offenders in the corporate giveaway bonanza may be New Jersey Gov. Chris Christie. In just two short years, Christie has given away more than $1.5 billion to recipients including Panasonic (PC), Goya Foods, Campbell Soup (CPB), and Prudential Financial (PRU). The rewarded companies have promised to add just 2,364 jobs over the next decade, equivalent to a cost of $387,537 per job.
Bernie Sanders has proposed taking away federal aid for any state that uses it’s tax policy to credit companies into moving. I think that is fair and should be done. After all, if the state has so much money it can give it away, then they certainly do not need the help from the Feds.
while im at it, one from this week:
Taxed by the boss – Across the United States more than 2,700 companies are collecting state income taxes from hundreds of thousands of workers – and are keeping the money with the states’ approval, says an eye-opening report published on Thursday. The report from Good Jobs First, a nonprofit taxpayer watchdog organization funded by Ford, Surdna and other major foundations, identifies 16 states that let companies divert some or all of the state income taxes deducted from workers’ paychecks. None of the states requires notifying the workers, whose withholdings are treated as taxes they paid. General Electric, Goldman Sachs, Procter & Gamble, Chrysler, Ford, General Motors and AMC Theatres enjoy deals to keep state taxes deducted from their workers’ paychecks, the report shows. Foreign companies also enjoy such arrangements, including Electrolux, Nissan, Toyota and a host of Canadian, Japanese and European banks, Good Jobs First says. Why do state governments do this? Public records show that large companies often pay little or no state income tax in states where they have large operations, as this column has documented. Some companies get discounts on property, sales and other taxes. So how to provide even more subsidies without writing a check? Simple. Let corporations keep the state income taxes deducted from their workers’ paychecks for up to 25 years.
Banana Republic. It’s not just a store anymore.