Fourteen years ago, investigative reporters Donald L. Barlett and James B. Steele did a lengthy, four-week series for Time magazine that estimated the federal government “shells out $125 billion a year in corporate welfare.”
That number is much larger today.
Recently, Louise Story of The New York Times wrote a series of articles documenting that “states, counties, and cities are giving up more than $80 billion each year to companies.” After noting Texas’ huge corporate giveaways, she compared each state’s subsidies to their annual budget: “Oklahoma and West Virginia give up amounts equal to about one-third of their budgets; Maine allocates nearly a fifth.”
Corporate welfare takes many forms. In Maine, business and equipment tax reimbursement (BETR) is one form. In fiscal year 2012, BETR reimbursed some 1,800 corporations $52.7 million. Of this amount, 55 percent went to 20 large corporations – almost all highly profitable Fortune 500 companies. In BETR’s 14-year existence, approximately $730 million has been disbursed, and most of it went to these same (or similar) large corporations.
TIF payments (the return by municipalities of property tax revenues) are another form of corporate welfare. Payment commitments often extend 20-25 years into the future. In 2011, $60.4 million was returned to 500 Maine corporations. Over the last five years, approximately $280 million was disbursed, and the amounts grow annually. Again, the largest recipients are large, profitable national corporations.
In 2011 one corporation, Bath Iron Works, received a $3.5 million “credit against withholding taxes otherwise due.” Individual employees were credited for their withheld taxes, but since 2000 BIW has retained and will continue to retain $3 million-$3.5 million annually. This subsidy lasts 20 years, or until $60 million of state income tax revenue has been captured by the company.
Beyond the reimbursements noted, the variety of corporate welfare mechanisms seems infinite: the gift, or sale, of government owned property at write-down prices; sales-tax exemptions (which abound in Maine); job and investment tax credits; research expense credits; visual media (TV and movie) production credits; fishery infrastructure credits – the list goes on.
This transfer of scarce state and local tax dollars to corporations is undertaken in the belief that these subsidies will induce a heightened level of capital investment in Maine, which in turn will produce jobs.
But no data supports this premise.
On the contrary, over the last 10 years – a period in which Maine’s population rose slightly, and all forms of corporate welfare increased dramatically – total private employment declined.
This decline was most dramatic in the manufacturing sector, where nearly 30,000 Maine jobs were lost. The reality is, new capital investment in many manufacturing settings simply substitutes equipment for labor – employment declines; it does not increase.
BIW is a classic example. After being given $197 million in state and local tax subsidies to modernize its Bath plant, employment went from nearly 7,700 in 1999 to below 5,200 in 2011. Similar data exists for Maine-based paper-making and construction firms.
Proponents of corporate welfare argue that tax subsidies are a necessary inducement to obtain corporate commitments to come to, or remain in, a particular town or state. This argument, whether stated bluntly or more coyly by a corporate entity, contains an implied threat that the corporation will not undertake a proposed project or capital investment in a town or state unless a generous BETR, TIF, or some other tax subsidy is provided.
Corporations are often actively (and simultaneously) engaged in negotiating tax subsidy options with nearby towns and/or states to get the best deal possible. This cynical playing of one town or one state against another is little more than extortion – and it is engaged in widely.
Economists see this for what it is: a no-win, “zero-sum game.”
Maine’s economy is not better off when Wal-Mart opens in Skowhegan instead of Waterville. The national economy is not better off when a new assembly plant is built in Ohio instead of Michigan. The only entity better off is the corporation that extorted the largest subsidy from the so-called “winning” town or state.
What a perversity: one “wins” by losing – by giving away more taxpayer money than the competition.
The reality is some jobs have been shifted from one location to another – nothing more. But sadly, tax dollars have been shifted from schools and roads, from the needs of real people to the bottom line of the “winning” corporation.
This ongoing transfer of public funds to private corporations is a state and national absurdity. It is corporate welfare that Maine and the nation cannot afford.
Next month: A closer look at corporate threats to leave, or not come to Maine, unless subsidies are provided, and an examination of the real factors that determine where corporations build or expand. Also, how to reduce outlays and change the direction of the current corporate welfare system.
Orlando Delogu of Portland is emeritus professor of law at the University of Maine School of Law and a longtime public policy consultant to federal, state, and local government agencies and officials. He can be reached at email@example.com.