Relevant and even prescient commentary on news, politics and the economy.

New study finds state subsidies go overwhelmingly to large companies

Good Jobs First has just issued a new report analyzing state investment incentive programs open to small and large businesses alike. With the financial support of the Surdna Foundation and the Ewing Marion Kauffman Foundation, Shortchanging Small Business: How Big Businesses Dominate State Economic Development Incentives finds that 70% of the awards and 90% of the money goes to large companies. This is a big deal: The justification for many major incentive programs is that they benefit small business. This study is the first in a planned series of reports which show that this claim does not stand up.

If subsidy programs disproportionately benefit large businesses, they reduce market competition and thereby make the economy less efficient. As I discussed in Competing for Capital, subsidies to capital exacerbate income inequality (post-tax, post-subsidy). This effect will be magnified if the incentives are flowing primarily to large firms rather than smaller ones, as this new study suggests to be the case. The report’s findings are relevant to the European Commission’s ruling last week on Starbucks and Fiat, that subsidies created by tax havens harm the ability of small- and medium-sized enterprises (SMEs) to compete.

Shortchanging Small Business looks at 15 incentive programs in 13 states that are well-documented in Good Jobs First’s Subsidy Tracker database, plus one Missouri program that is highly transparent online (and will soon be included in Subsidy Tracker), for a total of 16 programs in 14 states. Overall, these programs account for 4228 individual awards allocating over $3.2 billion.

Note that these are not one-off deals for a large company: For example, as I showed in my special report on North Carolina incentive packages, the deal Google received from the state in 2007 was worth $140.6 million at present value to the company. This dwarfs the $26.4 million over six years given by the One NC Fund, included in this Good Jobs First report, and is only one of a number of megadeals in North Carolina.

Moreover, neither are they apparently open programs with criteria that in fact rule out small companies through the use of large job creation or investment requirements. No, the 16 programs considered in this report are all genuinely available to large and small firms alike; that is what makes this such an important study. This report excludes programs directed solely to small businesses, but Good Jobs First has promised a separate analysis of those generally poorly funded measures.

What, then, is a small company? For the purposes of this study, it has to have fewer than 100 employees, it has to be an independently owned local firm, and it must have fewer than 10 establishments. If a company does not meet all three criteria, it is classified as a large company. Note that this cutoff is considerably below that of the U.S. Small Business Administration, which for most industries is 500 employees. On the other hand it is larger than the European Union definition of a small enterprise (50 workers) but smaller than the EU definition of a medium-sized enterprise (250 workers).

Despite the fact that small companies are theoretically eligible for the 16 programs analyzed, they receive only 30% of the awards and 10% of the money available through them. As I pointed out earlier, combined with one-off megadeals, programs that only appear to be open to small firms, and tiny programs specifically for small business, this adds up to a large bias in favor of big business, with all the consequences noted above.

What should be done? The report notes that many small businesses cannot benefit from the tax credit or tax abatement involved in the programs analyzed and, in a separate survey, many small business leaders said they would benefit more from public goods like job training, education, and transportation. Therefore, Good Jobs First proposes a reduction in incentive spending going to large companies, to be effected by using hard caps on each program’s spending, on cost per job, and on the total amount any one company can receive under a given subsidy policy. While such caps are unusual in the United States, they are the main basis for the European Union’s successful control over incentive spending there, elaborated further to have higher caps in poorer regions and a cap of 0 in the richest EU regions. In addition, the caps proposed by Good Jobs First could be augmented by using an EU metric known as aid intensity, which is simply the subsidy divided by the investment. While a cost per job cap is useful at resisting excessive capital intensity, an aid intensity cap is a valuable metric when substantial jobs are created but the government is paying for virtually the entire cost of the project (for example, Electrolux in Memphis).

I’m looking forward to further extensions of this research, and you should, too.

Cross-posted from Middle Class Political Economist.

Further proof that the U.S. uses incentives more than the EU

As if any more proof were needed, I recently came across yet more evidence that U.S. state and local governments give far more in location incentives than EU Member States do. A paper given this spring at the annual meeting of the Association des Économistes Québécois (Association of Quebecois Economists) includes a summary of project-by-project subsidy reporting by the consulting firm ICA Incentives.

ICA Incentives, which has on several occasions provided me data on $100+ million incentives in Europe and the United States, reports on the announcements of large investment projects. Thus, the data summarized in the paper will omit the thousands of smaller projects in the United States that are subsidized by state and local governments. My guess (I have not seen the underlying data) is that the coverage of EU projects is more complete, since EU rules require pre-notification of subsidies to the European Commission and the Commission posts all state aid decisions on its website.

From page 10 of the paper, the total of incentive packages in 2011 through 2013 inclusive, is as follows:

United State: $37.2 billion

European Union: $6.6 billion

Canada: $2.2 billion

South America: $8.4 billion (more than the EU, which has a GDP over 3 times as large)

Asia: $1 billion (I would guess this is an underestimate)

We can see that the United States gave more than 5 1/2 times as much as the European Union did over the three years analyzed. Given that these economies are approximately the same size, that is a gigantic disparity, and it shows, as I have argued on numerous occasions, that the EU state aid controls work to reduce location incentives. The result for South America also suggests this.

Moreover, the consequences of giving such large state and local incentives are enormous. As I have reported before, the value of state and local subsidies ($70 billion per year) substantially exceeds the cost of the state and local government jobs that were cut in the wake of the Great Recession. This is a huge opportunity cost for these governments as well as representing efficiency and equity losses as a result of the subsidies. With this additional evidence, the need for incentive reform is stronger than ever.

Cross-posted from Middle Class Political Economist.

Time to comment on the GASB standards!

As I reported last month, the Government Accounting Standards Board (GASB) has proposed new rules that would require state and local governments to disclose subsidies in their financial reports. The proposal is now open for public comment from now until January 15, 2015.

Good Jobs First, which has long advocated for this change in accounting rules, has produced a detailed analysis and critique of the proposal. While any improvement in transparency is welcome, for governments’ Comprehensive Annual Financial Reports (CAFRs, as they are called) to provide useful information to citizens and investors alike, they need to truly be comprehensive. The problem, as Good Jobs First points out, is that the way GASB has defined “tax abatements” (its rather odd choice for the broad category of economic development tax incentives — odd because tax abatements per se make up only a subset of such incentives) leaves open the possibility that major categories of subsidies could be omitted altogether.

As Good Jobs First points out, GASB’s specification that a “tax abatement” includes a government forgoing tax revenue means that tax increment financing (TIF) may not fall under the definition. The reason, as I have analyzed for the Sierra Club, is that a TIF recipient is legally deemed to have paid its property taxes in full, even though it individually benefits from the diversion of the incremental taxes. If someone has “paid” all her/his taxes, then how does one say that government has foregone the tax due? GASB has to make clear that it won’t be blinded by the legalese here, but will instead be guided by what actually happens. One possibility would be to use phrasing seen in the WTO Agreement on Subsidies and Countervailing Measures, that the government promises to abate taxes “in law or in fact.” Using this phrase has the advantage that the Agreement has been adopted verbatim into U.S. law, that being the way that the United States “signed” the Uruguay Round agreements, rather than ratify them as a treaty.

Tax increment financing is a high value subsidy in the United States. TIF in California was generating $8 billion per year in tax increment by 2010. Even in Missouri, local governments adopt TIFs worth hundreds of millions of dollars every year. It would be very problematic if GASB allowed its revised Generally Accepted Accounting Principles (GAAP) to ignore tax increment financing.

Other types of potentially excluded subsidies identified by Good Jobs First include diversion of employees’ withheld income taxes (because the source for the subsidy is not the company’s own taxes) and and sales tax diversions, such as Missouri’s Transportation Development Districts (again because the source of the subsidy is not the company’s own taxes). The latter total hundreds of millions of dollars in Missouri annually. Furthermore, Good Jobs First flags highly ambiguous provisions which could lead to excluding performance-based subsidies (because the subsidy occurs after the investment or hiring, not before) and Payments in Lieu of Taxes or PILOTs (which in some state identify actual payments made by a recipient, but in Tennessee and perhaps others is simply the phrase used to describe property tax abatements).

I would suggest further that GASB require governments to cross-reference cash subsidies paid to companies in the “tax abatement” notes so the notes reflect all subsidies given to companies in one place. Cash subsidies already appear in CAFRs because they are on-budget, but grouping them with the more numerous off-budget tax-based subsidies will simplify research by bond analysts, academics, or anyone else, putting total subsidies in one convenient place within the CAFR.

In addition, Good Jobs First notes other deficiencies on the issue of transparency. There is no requirement for company-specific disclosure, which is especially important for large incentive packages but is best when universal. Furthermore, there is no requirement for governments to disclose their future commitments under multi-year tax agreements. This should be at least as troubling to bond analysts as it is to advocates for good subsidy policy, if not more so. It is impossible to tell the true fiscal position of a state or local government if it is allowed to hide large future liabilities.

Good Jobs First gives detailed instructions for commenting: The easiest way is to email your comments to Director of Research and Technical Activities, Project No. 19-20E, at What are you waiting for? It’s time to comment!

Cross-posted from Middle Class Political Economist.

New government accounting standards to require subsidy disclosure

In a move with potentially enormous implications, Good Jobs First reports that the Government Accounting Standards Board (GASB) will soon issue new draft rules for Generally Accepted Accounting Principles (GAAP) for governments. Don’t fall asleep; this could be awesome!

As regular readers know, one of the things bedeviling subsidy debates is the lack of transparency in what governments actually give to businesses, and on whether incentive recipients actually deliver on their promised jobs and investment. We have just seen how Boeing is moving 2000 jobs out of Washington state despite receiving huge subsidies  there. And since the stakes nationally are $70 billion a year, by my estimates, better transparency is a must if we are to have any kind of democratic debate and accountability.

As Good Jobs First reports, the GASB proposal would require governments to publish detailed information on “tax abatements” (an oddly narrow term it applies to the wider concept of tax incentives; but what about cash grants or free infrastructure?) in order to comply with Generally Accepted Accounting Principles. State and local governments will have no choice but to comply with whatever is adopted, as it is impossible to issue bonds or carry out other basic financial operations unless they meet GAAP standards. This is why Good Jobs First has long campaigned for a change by GASB. The centrality of GAAP means that we have to pay attention to the draft rules and comment on them in the three-month comment period starting in November.

It turns out that taxpayers aren’t the only people who want to know about tax incentives. Bond analysts want to know about present and committed tax subsidies to help them assess whether bond issuers can really pay them back. Good Jobs First cited the example of Memphis, where tax breaks consume about one-seventh of potential property tax revenue.

What we have now is a complete patchwork where some states (and proportionately fewer cities) have good disclosure and others don’t. This requires the constant monitoring and central aggregating of subsidy costs that Good Jobs First does so well (250,000 subsidies and counting). It also necessitates the construction of estimates, like mine, of the overall costs of investment incentives and other subsidies to business. In a good world (not even a perfect one), these data would already be available in easy-to-analyze forms. Really strong GASB rules would get us a long way to reaching that point.

I’ll let you know when the comment period starts.

Cross-posted from Middle Class Political Economist.

Another day, another bad incentive deal

No sooner had I finished my mini-series on evaluating proposed location subsidies then @varnergreg sends me this story about a new copper tubing manufacturing facility opening in one of the nation’s poorest counties, Wilcox County, Alabama. This is clearly the sort of place where I think we should consider using investment incentives, but the sheer size of the subsidy relative to the investment (known as “aid intensity”) makes this just another bad deal. Indeed, the subsidy to Golden Dragon Copper is potentially worse than Electrolux in Memphis, where state and local governments essentially gave the company a free plant.

The package includes:

$20 million in state economic development discretionary incentives; $8.5 million in property tax abatements; $5.1 million in sales and use tax abatements; $5.7 million for an industrial road and bridge to support the plant; $1.8 million in worker training services; and site purchase, prep and water and sewer improvements worth about $1 million.

But those are just the small bits. Do you have your calculator out? That comes to $42.1 million so far, a little less on a present value basis because the property tax abatement will be paid over time (unspecified how long in the article).

The biggest part of the subsidy is comprised of “capital income credits worth up to $160 million over 20 years.” But, as reporter Dawn Kent Azok goes on to note, “Generally, companies don’t realize the full amount because they are tied to income tax liability.” Fair enough, but that leaves us with a lot of uncertainty in analyzing the subsidy. If we start at the midpoint and call it $80 million, here is what we come up with.

Obviously it’s not a retail project, we know who the investor is, and it is a new facility. However, as countrycat points out, there is an existing copper tubing manufacturer in Alabama, Wolverine. Therefore, the subsidized increase in supply is a definite threat to create unemployment elsewhere in the same state.

For creating our main cost metrics, we’ll note that the plant will have 300 workers at full capacity, and the investment is $100 million. You can see where this is a problem: using the $80 million midpoint, we are talking about $122.1 million in subsidies, which comes to $407,000 per job and 122.1% of the investment. Are these large figures? As we can see by consulting the Megadeals database, and as I have discussed more concretely regarding Electrolux (link above), these are extremely large figures. An automobile assembly plant will cost about $150,000 per job with an aid intensity of about 33%. So Golden Dragon will get more than 2 1/2 times as much per job, and 4 times the aid intensity of an auto assembly plant, without requiring the extensive supplier network you’d see with the auto plant.

Moreover, it doesn’t pay as well as an auto plant, starting at $15 per hour. No information was given on benefits, so we can’t evaluate the project on that basis. There was also no information given on whether the project will benefit from eminent domain.

As noted above, Wilcox County is one of the poorest in the country. This is clearly the biggest positive aspect of the project. It is more than an hour away from Montgomery, according to Google Maps, so we are not contributing to sprawl and there is no public transportation system to link the plant to. I have no information on the company’s track record or whether it would have invested without the subsidy (have I mentioned information asymmetries lately?) I don’t know enough about Alabama to know how well it enforces subsidy agreements or what the government’s opportunity cost might be, but in any event I don’t consider them necessary to know to see that this is a bad deal.

The two factors I think are most important here are that it is located in a very poor area, but more decisive is the huge cost, whether measured per job ($407,000 vs. $158,500 for Airbus in Alabama) or relative to the investment. The poorest regions of Europe (think Bulgaria, with 2012 GDP per capita of $6977, vs. $10,903 for Wilcox County) cannot give more than 50% of the cost of the investment (2014 regional aid guidelines, point 172), and for an investment this large that maximum would be reduced by 50% for the amount over about $67.5 million (50 million euros; see point 20 (c) of the guidelines), so 122% (and potentially more) is simply off the charts.

What the Golden Dragon case highlights is that companies know how to extract rents from their location decisions, and that desperation is not conducive to getting a good bargain.

Note: This is one of the situations where conversion of other currencies should not use purchasing power parity adjustment, so Bulgaria’s per capita income is expressed in current U.S. dollars. The reason for this is that if a company were choosing between investing in the United States or Bulgaria, it would have to pay the actual wage rates prevailing in the two countries, not wages adjusted for purchasing power.

Cross-posted at Middle Class Political Economist.

Show me the (subsidy) spreadsheets!

Good Jobs First’s new report, Show Us the Subsidized Jobs, is its third assessment of state subsidy transparency, following up on reports published in 2007 and 2010. The good news is that transparency continues to spread: From 23 states in 2007 to 37 in 2010 to 47 plus the District of Columbia in 2014.* The bad news is that for most states, online transparency still has a long way to go.

Why is transparency important? As the reports says, without it, it

makes it impossible for the public to get at even the most basic return on investment, accountability or equity questions. Which companies received subsidies (and what kinds of companies)? Are they delivering on job creation? How good are the new jobs? Where will the jobs be located? Reasonable people cannot have an informed debate and policymakers cannot watch the store without good job-subsidy data.

Subsidy Megadeals Out of Control Since Great Recession

The recent Good Jobs First report Megadeals is the most detailed compilation to date of the largest economic development incentive packages ever given by state and local governments. Defined as incentive packages of $75 million or more in nominal value, these deals have multiplied in both number and value in recent years as governments compete for a smaller pool of large investments.

 Starting with Pennsylvania’s 1976 $100 million deal for Volkswagen, the report details 240 megadeals through May 2013. The total cumulative amount of the deals comes to $64 billion. The report uncovers many deals of which I had been unaware, including a new number one subsidy of $5.6 billion for Alcoa in 2007 consisting of discounted electricity from the New York Power Authority, a state agency.

 Consistent with reports I have made on several occasions, but with a better database of incentive packages, Megadeals finds more and bigger deals than before the Great Recession. To be exact, since 2008 the number of such deals has doubled from about 10 per year (in the previous 10 years) to about 20 per year, with the average total of such deals doubling to about $5 billion per year over the same period.

 As Good Jobs First reported earlier this year in The Job Creation Shell Game, the number of significant investment projects as reported by Conway Data (publisher of Site Selection magazine) has fallen from a 1999 peak of over 12,000 per year to less than 6,000 per year in every year since 2005. This means that states and local governments are desperate to land the few projects that are available and therefore they are willing to pay more for them. Note that Conway Data reports projects meeting any one of three criteria: fifty new jobs, $1 million in investment, or facility size of at least 20,000 square feet. In particular, $1 million in investment is a low threshold.

 One thing we should realize is that while megadeals generate the most press coverage for obvious reasons, they are only the tip of the iceberg of total state and local investment incentives. The reason, of course, is that there are so many more smaller deals that collectively account for large amounts of money. The smaller ones receive little or no media coverage, which makes it hard to track them.

My only real criticism of the report is that I believe it would be more accurate to calculate present values for the subsidies that are given, rather than reporting only nominal values. Companies themselves will calculate the present value of an incentive package, and the European Commission does so as well in its supervision of EU subsidy rules. It should be more widely done in reporting in this country. $3.2 billion over 20 years (Boeing in Washington state) is not the same thing as $3.2 billion in cash; by my calculations, it is about $1.98 billion, as I first published in Investment Incentives and the Global Competition for Capital. Similarly, the $5.6 billion nominal subsidy for Alcoa comes to $3.22 billion present value, by my calculations. This is still more than 50% bigger than the Boeing incentive package and easily the largest single subsidy in U.S. history.

 In addition, I think it is a tossup whether to count Nike’s 2012 deal with Oregon for 30 more years of single sales factor (SSF) as a subsidy. SSF is already law in Oregon; Nike’s bargain only guarantees that it will not change. Still, Nike obviously thought it was important enough to bargain for, and it is possible to estimate the company’s savings relative to the pre-SSF apportionment formula, so its inclusion is certainly justifiable.

 Besides the great report, you can download a spreadsheet with all the data and sources at the link above.

 Disclosure: Good Jobs First shared its megadeals database with me in conjunction with a paper I gave in May, and I exchanged notes with authors Phil Mattera and Kasia Tarczynska as I prepared the paper and they finalized the report.

Cross-posted at Middle Class Political Economist.

Mississippi sets a record for unreported subsidies

As I have written before, when states announce a major new investment, it is far more likely that the announced subsidy is an underestimate than an overestimate. A new Good Jobs First study commissioned by the United Auto Workers unearths a new example of this, which I believe is the largest underestimate ever: Nissan in Mississippi.

NYT Series Illuminates – And Confuses – State of the Subsidy Wars

Louise Story’s series in the New York Times this week has created a substantial buzz about the issue of economic development subsidies.This is a welcome development, because it’s an issue that doesn’t get nearly enough attention in the highest profile media. Story has, in addition, appeared on shows such as MSNBC’s “Morning Joe” and NPR’s “Fresh Air,” bringing subsidies to an even wider audience.

She crafted a number of stories that highlighted the big picture issues: imbalance in bargaining power between city governments and giant multinational corporations, the blatant conflicts of interest on display in Texas subsidy procurement, and a border war between Kansas and Missouri involving multimillion dollar incentives to move existing facilities across the state line, with no net benefit for the Kansas City metropolitan area, let alone for the U.S. as a whole.

The last few days have given me time to absorb the articles and the database Story created, as well as surveying the commentary on the web from well-known experts on subsidies. Several tentative conclusions seem in order.

First, as I pointed out in my last post, and backed up by Timothy Bartik’s detailed analysis of Michigan, 5/8 of the national total is in the form of sales tax breaks, and probably the overwhelming majority of those sales tax reductions should not be considered subsidies. Here is what Bartik says about Michigan:

For example, in my own state of Michigan, the New York Times database identifies $6.65 billion in annual state and local business incentives. Of this total, $4.83 billion is in “sales tax refund, exemptions, or other sales tax discounts”.  Of this $4.83 billion, almost all of these refunds come from two provisions of Michigan tax law. First, Michigan does not apply the sales tax to most services, including business services, which saves businesses $3.88 billion annually. Second, for manufacturing, Michigan does not apply the sales tax to goods used as inputs to the manufacturing process, which saves manufacturers about $0.92 billion in sales tax.

For those keeping score at home, that means that $4.80 billion of the $4.83 billion in sales tax breaks should not be considered subsidies, unless you consider manufacturing “specific” enough that this aid constitutes a subsidy, in which case only 80% of the sales tax breaks should be excluded from the subsidy tally.

Second, changes of this magnitude mean that the Times estimates are not sufficiently accurate to use in a statistical analysis, as Richard Florida attempts in The Atlantic Cities. Finding out if incentives affect outcomes like wages, employment, or poverty is precisely the type of analysis we would like to do, but the fragility of the data makes this premature. The good news is that since the data on these state programs are all in one place, it should be possible to get a better handle on state incentives by cutting out those programs which should not be considered subsidies. Different analysts will no doubt have different judgments about what should be counted as a subsidy, but since the database is so inclusive, it should be useful no matter what your definition of subsidy is.

Third, there are some smaller errors in the program database as well. The one I have identified so far is that it counts net operating loss (NOL) tax provisions as subsidies in Illinois and New Hampshire, but not in other states, even though all states with a corporate income tax will have an NOL provision. In any event, this should not be considered a subsidy at all, but a part of a state’s basic macroeconomic framework. In addition, Timothy Bartik pointed out to me in correspondence that the program database does not include single sales factor apportionment (only counting what percentage of a multi-state firm’s sales take place in a given state, rather than standard three-factor apportionment that uses percentages of payroll and property as well) as a subsidy, which it should.

Fourth, the program database does not distinguish between investment incentives (subsidies to affect the location of investment) and subsidies more generally, which may or may not require an investment to obtain them. This is an important distinction I have tried to make clear by providing separate estimates in Investment Incentives and the Global Competition for Capital: $46.8 billion in incentives, and $65 or $70 billion in subsidies, depending on whether or not you count non-specific accelerated depreciation as a subsidy.

Finally, as Phil Mattera at Good Jobs First points out, the deals database misses a number of large awards, leaving out Tennessee’s $450 million (present value) subsidy to Volkswagen and an even bigger package for ThyssenKrupp in Alabama. It also underestimates other awards, including Apple in North Carolina and Boeing in South Carolina. I also found that it underestimated subsidies to Dell and Google in North Carolina by omitting the local subsidy portion of the awards, a problem Ms. Story is aware of, as I noted in my last post.

The Times series has been great for the spotlight it has put on state and local subsidies and the sometimes vulgar politics surrounding the process of awarding them, and for compiling a great database of programs all in one place. However, its interpretation of the sales tax breaks, which are 5/8 of the national total but largely not subsidies, confuses the issue of total impact on state and local budgets and makes statistical analysis premature. This will require some work to fix, but it appears like most of the raw material is there to do it.

Cross-posted at Middle Class Political Economist.

Welfare Spending: Medicare vs Corporate/Business Subsidies (or does the GOP really support WalMart’s behavior in Bangladesh?)

by Linda Beale

Welfare Spending: Medicare vs Corporate/Business Subsidies (or does the GOP really support WalMart’s behavior in Bangladesh?)

As most readers know, the federal government is currently in what passes for negotiations between the President’s Democratic Party Senate and House members and the GOP members that control the House.
The Tea Party and its right-wing rhetoric has of course had a radicalizing impact on the GOP positions, with members not only beholden to Grover Norquist and his anti-tax pledge (all strongly supported by various right-wing propaganda tanks like the Tax Foundation, Heritage, American Enterprise, and other organizations) but also to the anti-social welfare corporatists like David and Charles Koch, the Wal-Mart heirs, and other oligarchic families that constitute the top 1% of US income and wealth.  As a result of these two strong influences, the GOP now stands for

  • tax-cuts-no-matter-what (and for tax cuts that benefit the wealthy most of all, as reflected in the rigid position in favor of the “carried interest” scam used by private equity profits partners and the extraordinarily preferential rate for capital gains and dividends included in the “net capital gain” definition under section 1(h)(11)); and
  • so-called “entitlement reforms”, by which GOPers generally mean reduction in benefits and/or privatization of social welfare programs including Social Security, Medicare and Medicaid.  (All of this is argued in terms of caring about “saving” the programs for the future, but the truth lies in the ways that the right proposes changes to the programs–not changes in costs related to profits taken out by Big Pharma and similar interests, but changes in benefits to ordinary Americans (such as raising the working age for eligibility even though those who work at the hardest labor need benefits earlier, not later, or lowering the cost-of-living-allowance adjustment to benefits for Medicare, even though seniors generally have a HIGHER cost of living because of their increased medical needs, including prescription drugs for diabetes, high blood pressure, and similar diseases particularly prevalent in the elderly population.)

The sum of those positions stands for a corporatist philosophy of benefitting the oligarchy and their business enterprises at the expense of everyday Americans who work for a living.

This is even more obvious when one looks at the same groups’ position on government subsidies for business.  The New York Times recently ran an article on this issue, noting that governments typically pay out a lot of money to support profits of companies and receive very little benefit in terms of tax revenues received and jobs created!  Louise Story, As companies seek tax deals, governments pay high price, New York Times (Dec. 1, 2012).

Over at MauledAgain, one of my fellow tax professors Jim Maule has, like me, long criticized the hypocrisy of supporting tax breaks for private enterprise and opposing earned benefits programs for ordinary citizens and has repeatedly pointed out that the economics of the tax breaks for business don’t work out for anybody but the owners and managers of the businesses.  They certainly don’t work for taxpayers of the jurisdiction providing them.  As Jim notes:

These tax breaks are nothing more than welfare payments to private enterprise. Opponents of social welfare spending defend these outlays with as much passion as they bring to their attempts to end government assistance for individuals in need of help.James Maule, The Hidden Government Spending Game, MauledAgain (Dec. 5, 2012).

Jim rebuts one of the sham arguments for corporate subsidies–that they are just “keeping what belongs to them.”  Those special subsidies to one private enterprise sector cause ripple effects throughout the economy–higher taxes to the other taxpayers to make up for the lost revenues, or cuts in important programs that can no longer be sustained without the revenues.  Prices and wages may change as well.  Id.
What I want to focus on is the hypocrisy of claiming an interest in ending “entitlements” but applying that philosophy only to programs that are intended to help ordinary citizens and not to those intended to beef up the profits of corporations or their managers and owners.  This is especially hypocritical for today’s right-wing, since they almost universally claim to ascribe to the view that competition is good and that businesses should fail when they cannot successfully compete.

Look at two cases involving WalMart, a multinational enterprise that fights unionization of its employees (and supports right-to-work laws that weaken worker rights) in every way imaginable.

1) In Champlain Illinois (personal experience), WalMart had a huge spralling complex on one side of the road.  It had gotten various tax support for the complex.  It decided to move across the road and down the block into another jurisdiction.  It got new tax subsidies there.  It abandonned the old building and left whatever environmental pollution there.  Who gained?  Mostly WalMart managers and owners.  Not the town and counties.  Not the employees.  Not even the consumers who shopped there, who had to deal with the blight of the abandonned building and the multiplication of vast expanses of ugly parking lots.

2) WalMart in Bangladesh.   WalMart delivers cheap goods because it outsources its clothing and other manufacturing needs to impoverished countries where workers can be paid almost nothing and get almost no protections.  In Bangladesh last month, a clothing factory burned, killing hundreds of workers.  It was a WalMart supplier. See  Natasha Leonard, WalMart’s Connection to Bangladesh Clothing Factory, (Nov. 26, 2012), where a critic noted that:

“Wal-Mart is supporting, is incentivizing, an industry strategy in Bangladesh: extreme low wages, non-existent regulation, brutal suppression of any attempt by workers to act collectively to improve wages and conditions.” Id.

This was a modern-day repeat of the Triangle Shirt Factory incident in the early nineteen hundreds in New York City:  workers unable to escape burned to death in factory rooms without fire exits and yet dangerously littered with lint and other debris that made their workplace a fire hazard.

WalMart, in fact, has led the fight against workers’ rights and spending on safety at that factory and others.  See Natasha Leonard,  WalMart wouldn’t pay for Bangladeshi factory safety improvements, (Dec. 6, 2012).

These things are all tied together: hostility to workers rights to bargain collectively for some fair share of the productivity gains that their labor brings about, hostility to workers rights to a safe working place; hostitlity to workers rights to decent health care; hostility to ordinary people’s rights to a sustainable lifestyle; and hostility to any effort to make the oligarchic uber-rich pay a fair share of the costs of the infrastructure to sustain an economy and a people.

Tax policy, spending policy, policy towards workers, policy towards the wealthy uber-rich–these are all closely intertwined and must be considered of a piece.  Tax policy needs to establish reasonable levels of contributions based on a progressive income tax that takes into account the marginal utility of the dollar.  Spending policy needs to set priorities based on something other than the lobbying by special corporate and oligarch interests for tax-and-spending provisions that privilege themselves.    Policy towards labor rights and workplace safety need to recognize that the worker is disemplowered within the workplace and needs some legal support to provide a reasonable share of productivity gains–minimum wage laws, unionization laws, workers safety laws need to protect workers rights against the all-powerful employer.

If the right succeeds in continuing to pass right-to-work laws (Michigan’s lame duck GOP is trying to do that right now), if the oligarchs succeed in capturing all the profits from workers’ labor–there will be social unrest on the scale of the Great Depression.  Everybody will suffer from that kind of austerity and class warfare policy.  Broad based economic growth that comes from workers sharing in the profits of their industry and those at the top not getting an unreasonable share of the productivity gains is better for all.

cross posted with ataxingmatter