Governor Walker is pretty good on most things. The Foxconn deal sounds pretty boondoggly to us however.
It’s funny though, in taking issue with the Foxconn plant deal in Wisconsin the author of the attached piece still squeezes in the bit about how Wisconsin should “invest” in job training etc. God forbid one make the obvious pro-market case against enticing a company into a state with tax incentives and other goodies. No, the concern is tax revenue.
(From Real Clear Markets)
This summer, Wisconsin politicians announced they had lured a new Foxconn LCD flat panel plant to southeast Wisconsin with a $3 billion incentive package, in return for a $10 billion investment from the company. But, like many government giveaways to the corporate sector, the bill to taxpayers has gotten even bigger. The Wisconsin Economic Development Agency agreed to a significant reduction in Foxconn’s commitment, down to $9 billion. This was after the state legislature okayed the deal without nailing down the details.
The state legislative bureau estimated it would take 25 years – until 2043 – until the Wisconsin government received enough in additional tax revenues to match the initial $3 billion investment. At $4 billion-plus, the break-even point will recede even further into the future…
…The steep price Wisconsin has committed to paying to host Foxconn will ripple across other states and municipalities. In 2015 alone, state and local business incentives came to $45 billion, including tax credits, property tax abatements, investment tax credits, R&D tax credits and customized job training, according to the W.E. Upjohn Institute for Employment Research. And the cost has been going up; business incentives have more than tripled since 1990.
So the jobs may go to Racine County, but the price will be paid by taxpayers everywhere.
Though the author is generally correct, a very important distinction needs to be made here. Too many big government people look at a new company coming into an area and think, “Oh boy a tax money tree to shake.” That is their concern. How much can government take from a private enterprise? However, this obviously should not be the focus. We want economic activity for its own sake, not because the government rent seekers can pad their bottom lines with new revenue. Understanding of course that lowering a tax rate for a specific company is unfair and warps economic activity, we must also recognize that lowing tax burdens in general is a good thing.
Subsidies, which are paid by taxpayers are bad. Tax breaks, which cost taxpayers nothing, are generally good. (Though as we explain above tax breaks can still be crony tools if handed out to one company and not to the next. Also if a company pays nothing for things like fire services etc, and uses these services, this would be an example of a clearly unfair tax “break” and would then amount to a subsidy.) But what the author fears more than the subsidies to Foxxcon is the tax breaks. Because, God forbid, there might be a tax cutting war across the country where government is shrunk and commerce – commerce that isn’t taxed as much as the author would like – happened. The humanity! The government rent seekers might not get their cut. How terrible.
This is the same fear expressed by a couple of economists over the Christmas weekend with regard to the Trump tax law. As the USA moves to be more competitive tax wise, other countries will likely move to cut taxes. And then what? Reduced rents for governments across the globe.
How many jobs will the deal actually create? The notion of 13,000 jobs is actually a goal, not a guarantee. The legislative bureau acknowledged that some estimates place the probable payroll as low as 3,000. The agency tasked with holding Foxconn accountable has a history of failing to verify job-creation claims and rewarding companies that fall short of quotas, according to state audits. How long will the jobs actually last? Foxconn has launched an extensive commitment to automation and robotics, eliminating tens of thousands of jobs in China with the introduction of specially-designed “Foxbots” – with the stated goal of eliminating almost their entire global workforce.
Do you hear that Wisconsin? A big company wants to locate to your state and bring cutting edge technology. Better you go back to making cheese and ice fishing I guess.
Still, the Foxconn deal is pretty crony it sounds like. It always stinks when business and government become closely entwined. We just wish people like the author of the attached piece would get more worked up about broadly lowering the tax burden than about how much government should be able to extract from business.