As of December 2012, Texas was giving out more financial
incentives—mainly in the form of tax breaks and subsidies—to business than was
any other American state. The government was handing out around $19 billion annually,
while at least $80 million was being spent in the U.S. overall, according to
the New York Times. Although at the time Texas had half of all the
private-sector jobs created in the U.S. during the preceding decade, the Times
points to “a more complicated reality behind the flood of incentives.” It
cannot simply be assumed that good jobs will be created.
For example, Texas had the third-highest proportion of
hourly jobs paying at or below minimum wage. In fact, Texas had the 11th-highest
poverty rate in the union. “While economic development is the mantra of most
officials, there’s a question of when does economic development end and
corporate welfare begin,” Dale Craymer of the Texas Taxpayers and Research
Association said. In other words, one might ask how much the benefits from the
financial incentive extend beyond the recipients themselves to the general
public and Texas. Even though businesses cite “job creation” as a benefit of
government help, one might ask what kind
of job as well as how many?
That the government may have been relying on the businesses
themselves or their “consultants” even as they would stand to gain suggests
that a conflict of interest may have blurred the line between decision-maker
and beneficiary. Indeed, political contributions from companies to re-election
campaigns may have exacerbated the problem.
For example, Brint Ryan, a tax consultant specializing in
finding incentives for large companies, was “a familiar presence at the state
comptroller’s office . . . which must sign off on many tax breaks”—potentially
blurring the line between beneficiary (agent) and decision-maker. He also donated
$250,000 to Gov. Rick Perry’s ill-fated run for the White House. Texas had been
largely bereft of financial incentives for big business when Perry became the
head of state in 2001. He had smarted when Texas lost out to Illinois on a new
Boeing plant and he was not going to repeat that mistake. Years later, he could
point to expansions by Facebook, eBay and Apple in Texas. “They’re coming
because it is given, it is covenant, in these boardrooms across America, that
our tax structure, regulatory climate and legal environment are very positive
to those businesses,” he said. This does not mean, however, that they deliver
on well-paying jobs for Texans. There
is also the opportunity cost to the government. As Texas spent more to lure big
business, the education budget took a hit. Brint Ryan may have had Gov. Perry’s
ear when students and even the poor probably did not.
In short, government officials engaged in industrial policy
would be wise to distinguish corporate welfare from “economic stimulus.” The
influence of money in the American political system doubtless created a
conflict of interest blurring the line between the beneficiaries and the
decision-makers. The temptation for policy makers might therefore be to lapse
into corporate welfare at the expense of basic services. CEOs who are looking
for financial incentives from the government as a way to make more money may
claim that their respective companies are “job creators,” but the reality is
that those companies are “profit creators” with jobs being a byproduct of
sorts. The case of Texas suggests that market equilibrium may naturally be well
short of full-employment. If so, government officials should not go overboard
with the financial incentives in the mistaken belief that some full-employment
market utopia is possible, even if providing corporate welfare does not hurt
their own political welfare either.
Source:
Louise Story, “Lines
Blur as Texas Gives Industries a Bonanza,” The New York Times, December 3, 2012.
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