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Them’s the Breaks

An article in the NY Times with the innocuous title “Lines Blur as Texas Gives Industries a Bonanza” brings up one of my pet peeves. The article is about how Texas gives out billions of dollars in tax breaks to entice companies to open factories in the state. Where does this money come from? Last year, Texas cut education by $5.4 billion.

Proponents claim the tax breaks create jobs, but they are actually just stealing jobs from other states, who are competing over who can bribe companies more in order to get their business. Indeed, Governor Rick Perry brags that about a third of the jobs he recruits came from California. Asked if he has qualms about taking jobs from other states, Perry says “Competition is what drives this country.” It is sad when a governor of one of our largest states doesn’t understand that it is businesses who are supposed to be competing, not states in handing out bribes and stealing jobs.

And how is it working out for Texas? In exchange for giving out $19 billion in incentives — significantly more than any other state, costing taxpayers $759 each per year and comprising over half the state budget — Texas does get to brag that unemployment is low and has more new jobs than any other state. And yet the state still has the 11th worst poverty rate of all states and the third-highest proportion of jobs that pay at or below minimum wage.

And what is the result of this competition? Amazon opened up a distribution center near Dallas using incentives from the state, but six years later shut it down because of a tax dispute.

I’ve said it before and I’ll say it again. Giving tax breaks is just the latest incarnation of supply-side economics. It does not create jobs. Demand creates jobs. A state could offer to completely subsidize the salary of a new employee, but as a businessman I’m still not going to hire anyone unless there is demand for what that worker would do.

Republicans like to complain that federal incentives like the ones that promote energy efficient products are the government picking winners or losers, but giving tax breaks to individual companies is easily the worst form of this. Most of the tax incentives go to large companies, like Walmart, Texas Instruments, Shell, AT&T, Verizon, General Motors, Tyson Foods, and the German chemical giant BASF. This completely ignores the fact that most real new jobs are created by small businesses.

Cutting education, health, and other services, is a double edged sword. It doesn’t create educated and healthy workers for these jobs. But the real problem is that it doesn’t nurture the real job creators — people who would start new small businesses. Even worse, giving out tax breaks to large companies tilts the playing field against small businesses.

Handing out tax breaks is a spiral of addiction that makes people more dependent on large companies. And it makes even the large companies addicted to the tax breaks since they make business decisions based on which state gives them the biggest bribe. They become the real “takers” who mooch off of society.



  1. Michael wrote:

    That should be “the 11th highest poverty rate…”

    Monday, December 3, 2012 at 9:48 am | Permalink
  2. Don in Huaco wrote:

    Sigh. More corporate welfare from governor-for-life Perry hits the light of day. Not only are there incentives from state government but local taxing districts are expected to pony up breaks also, including local property tax, the funding source for Texas public schools. This is nothing new, WalMart has been holding municipalities hostage on taxes for years. If a city won’t deal with them, they just build outside city limits where the city won’t get the sales tax.
    In the meantime, the majority of Texans who vote won’t care what that librul rag has to say about us. The Texas Democratic Party barely exists outside of urban areas, so there’s not much hope for change anytime soon. Perhaps its a strategy to import enough R votes through jobs to offset the population wave of Hispanics.

    Monday, December 3, 2012 at 9:49 am | Permalink
  3. your economics are generally dead on. The same sort of dynamic operates also between rural and urban areas. We have an outerbelt here via which companies also have the suburbs bidding against each other. If the promises of one town are “better” than another the companies just relocate to a different quadrant to take advantage of the offered tax breaks, which really do much other that increase the commute time and impoverish the competing suburbs. It is just another race to the bottom by way of free market extortion.

    Monday, December 3, 2012 at 10:38 am | Permalink
  4. Jeff wrote:

    I’ve said to many people that if the only thing needed to create jobs was money, every company would be expanding into the desert. No competition, few zoning restrictions, and the land is practically free. Of course, money isn’t the only thing, and Texas is proving that.

    I remember about a year ago (I think) when Boeing was going to move a plant from Washington to one of the Southeastern states. The argument for those in favor of the move was that it would create jobs. In reality, it would have resulted in a net loss, since the company was going to hire fewer people at the new plant than they fired at the old one.

    Sending jobs from one state to another is not job creation, it’s a shell game. The values never change, they just shift around. Meanwhile, our economy stagnates, and no one can figure out why…

    Monday, December 3, 2012 at 11:14 am | Permalink
  5. Dan wrote:

    Iowa has also been involved in this BS. What they should be doing is investing the money in very small businesses that already have a commitment to the state. Another thing we do here is not tax new commercial property for a few years. The school district I live in has several towns, one of which is divided between 2 districts, another between 4. These two are always finding ways to extend tax exceptions, yet, they also have the fastest population growth, so when new schools are built in their town the rest of us pay of them. Further, we have a large factory in town, tax revenue? Nope, the county cut them a deal.

    Monday, December 3, 2012 at 11:47 am | Permalink
  6. Iron Knee wrote:

    Oops, thanks Michael. Fixed. That’s what I get for ranting at 5am.

    I’m heartened to see comments from others who understand the problem with tax incentives. Many sins are committed in the name of creating jobs. I just wish more people would talk about this problem so that the public wouldn’t fall for it over and over again.

    Monday, December 3, 2012 at 12:04 pm | Permalink
  7. Michael wrote:

    Hmm…this seems like an interesting topic for an economic paper. On the whole, could job moving be a source of economic stimulus?

    On the plus side, you’ve got moving companies involved. After all, somebody has to transport your life’s collection of Beatles albums. That means the company (assuming they are the ones footing the bill…which is often, but not always, the case) is adding to aggregate demand (which is a good thing in Keynesian economics). Plus, you have to buy meals in that flux period when you’re moving. More aggregate demand. Also, you get realtors involved with buying and selling homes.

    On the negative side, you end up with worker demoralization, lost productivity, and lost reputation. You also get less revenue for local taxes, which means worse schools and other services. Many people also will simply refuse to move and take worse jobs. All those things mean less aggregate demand.

    It would be interesting if someone came up with a solid academic model that captured all of this information. How many jobs would you have to move in order to increase aggregate demand to break us out of the Great Recession? Would the net effect even be positive (ignoring the psychological effects)?

    Don’t get me wrong. I think the entire thing is a horrible idea. I’m just curious in a cynical and sardonic sort of way.

    Monday, December 3, 2012 at 12:53 pm | Permalink
  8. Don in Huaco wrote:

    There are other side effects to the incentives. A few years ago Texas gave incentives to a meat-packing plant to locate/relocate to a small city in North Texas. Total jobs at the plant was ~1000. However, as is common in that industry, most of the jobs went to low income/low wage, and primarily Hispanic workers. Those workers tend to have larger families so the incentives basically attracted a worker base that put extra pressure on public schools and other city/county agencies. Those workers don’t tend to live in high $ property so all those extra workers don’t add enough to the tax base to compensate for the extra public school expense. The state pols brag about the jobs but don’t do anything to help out the now-burdened school district that has to serve more with less.

    Texas’ other competitive advantage is lack of a state income tax. Somehow that hasn’t helped the Dallas Cowboys much.

    Monday, December 3, 2012 at 4:20 pm | Permalink
  9. ebdoug wrote:

    Actually the hispanic immigrants have the biggest decline in reproduction than any other group according to Pew Research. (or something I read)

    Let’s see, I still have children and want the best education and health care for them. I’m offered a job in Texas. I decline.

    Let’s see, some day I may need a nursing home. The very best are where I live. I plan to stay in a blue state the rest of my life.

    So the brains are in the blue states, the brown in the red.

    Tuesday, December 4, 2012 at 10:53 am | Permalink
  10. Don in Huaco wrote:

    Plenty professionals are moving to Texas they just live in the suburbs. Nursing homes aren’t so much of a problem here as are the large numbers of uninsured. Our medical care is pretty much the same as every other state once you get to be 65. Education is determined by district but, like elsewhere, mostly affected by how engaged the parents are in the process.

    That being said, there are plenty of us who are well aware we’re the epicenter of right-wing crazy. It was so much easier back in the days when we were just the buckle of the bible belt.

    Tuesday, December 4, 2012 at 4:09 pm | Permalink
  11. Iron Knee wrote:

    EBDoug, I assume you meant “brawn” not “brown”.

    Wednesday, December 5, 2012 at 10:12 am | Permalink
  12. Steve wrote:

    The international version of this can be seen in the story of state governments offering production studios tax breaks to make films in their countries: see Harry Potter (UK) and the Hobbit (NZ). I’m late to the party, but here’s an article on it:

    I don’t think this type of subsidisation is any more legitimate between international states as between intra-national states – it’s a prisoners’ dilemma where only the production companies win.

    Thursday, December 6, 2012 at 3:48 am | Permalink