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.
Louise Story, “Lines Blur as Texas Gives Industries a Bonanza,” The New York Times, December 3, 2012.