AskProfWolff: Tax Breaks for Corporations

A patron of Economic Update asks: "Professor Wolff, when corporations receive tax breaks in attempts to get them to locate to any specific city, generally, does that do more harm than good? Do they really “pay for themselves”?"

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[stephaniecarrow]

Prof. Wolff is so brilliant and clear-sighted. He makes clear what others ignore.

[julieallen]

Quite common in the rural south. Yes, jobs. More people, more growth but not more property taxes collected. Workers commute in and out every day. Not spending any money or contributing to the community. Schools do not improve, quality of life does not improve. Local people often are over-looked for the better paying jobs. When these companies move, they leave empty buildings and job loss. Same old, same old.

[louisehoff]

walmart did that to so many rural towns! thank you for all of your insights.

[LARPANET_]

This was an issue in Camden. There were these huge tax breaks for developers on the Camden Waterfront, hundreds of millions of dollars in business was funneled to George Norcross's friends and family. But the people who work there just sort of commute in and out, they arrive at 9AM and leave at 5PM, with no discernible benefit to the community. Plus those tax breaks take away resources the city could use on schools, etc.

[deltaxcd]

I would say there is a more important issue with that: those tax breaks and other perks to the corporation is race to the bottom and diminishes bargaining power from all government because now corporation can say look that town offered me this and that so unless you offer me something more I will move there.
because of this, all places that offer any kind of exclusive benefits for businesses should be penalized to prevent this kind of nonsense, there should be no place to escape for corporations and if such place appears it has to be banned from trade.
(although there are some issues with that as well)

[ParcelOfRogue]

The only "freedom" gained from leaving the EU is freedom to pay phone roaming charges, or private health insurance where hospital charges were free, while the zero cost degree courses will end. We will be free to take the slow lane at airports and free not to have the right to bid fairly for competitive tender work or buy property anywhere, or have our qualifications and product standards recognised in the EU

[steveneubeck]

In western NY all municipalities are chasing these corporations without considering possible negative results. Yes we have been devastated by neoliberalism.

[brianjames]

My observation of this subject in more than one location is that the corporations typically don’t fulfill everything they originally agreed to. Further, typically nothing is done to enforce the original agreement and the public is shortchanged by the politicians and corporations involved in these agreements.

[alexgoslar]

Great. No one can predict the future. We are all speculating and hoping.

[ParcelOfRogue]

Japan clearly states that the UK cannot expect as good a trade deal as the EU because the EU has 450m consumers, biggest in the world. Also, if the UK gets any concession at all, it has to be offered to the EU as a minimum position in order to meet the agreement signed with the EU. There's no benefits, only extra costs and losses. The £7bn saving from EU membership is to be spent over and over, just on extra company paperwork alone, also on 25, 000 extra civil servants, 50, 000 extra customs staff, 50, 000 extra customs clearance private sector staff and 40 industry bodies to have to duplicate what the EU does for 28 countries, soon 30 countries with the Balkans members joining

[forestgreen]

At the very least this is a great argument to be skeptical and require any company to not just sell itself but prove itself first whilst being accountable, and transparent to all residents taking them in.

[Xenoyer]

I've seldom heard such a fine argument for codetermination. You hear the same old argument from capitalists that it is they who provide the capital, so the stockholders should rightly make all the decisions. We counter that labor has a stake in the survival of that enterprise too. This kind of tax break makes me look it it differently now, thank you Prof. Wolff.

The corporation, who says that they should make all the decisions because they provide stock, now want labor to help pay for their gig with a tax break. Now labor's stake is increased significantly. Instead of only providing their labor, the corporation wants labor to provide funding too! Labor already, and rightfully, should have 50% say in the operation of the corporation. If labor is going to provide all that capital in the form of tax breaks, labor should have a 50% say at the corporate board of directors table.

When a corporation comes into a town or city with their flashy presentation, tell them straight up! "If you want us to agree to these tax breaks, to build roads, or the other things, we require only one concession. When the corporation holds elections for the seats on the corporate board of directors, labor/the employees/taxpayers get the right to vote in 50% of the board to protect their interests.

It's only fair!

[이환식-bb]

You are regarded the soul of our notion

[Ratplague]

The clearest example I can think of of the negative consequences of businesses coming in to a community is illustrated in Seattle and other tech-heavy regions. The influx of very high salary workers drives up the cost of housing, leads to the construction of luxury condos and apartments, and drives out old residents as the area gentrifies. Some winners, for sure. The property owning class benefits in a way, as their houses appreciate, but at the same time, as their tax assessments grow, low-income homeowners are priced out. The biggest losers are low income renters, who are pushed further out into the suburbs.

[clarenceedwards]

I just want to add my two cents worth: In the 1960s and 70s Caribbean, long before China was the manufacturing plant for the world, American and British companies that manufactured hardware items including electronic components, relocated to our little islands and they benefited from these tax breaks lasting around 5 to 10 years; while providing low-paying jobs to our people. However, what was very noticeable was that at the end of the tax break, they would pack up and leave.

Of course they conjured up a nice little excuse why they had to go. There was one particular company that went by the name INTEL actually undertook some major remodeling of the plant leading everyone into believing that they were going to stay the course but just like all the others, they too packed their bags and moved on. I daresay that the tax break coupled with the low wages, which would not have been acceptable back then in the US and UK because of the dominance of the trade unions, would have been a boost to their bottom lines.

On the question of the way forward, I want to introduce a biblical aspect to assist with this prognostication. In the book of Ecclesiastes, we are told:

{The thing that hath been, it is that which shall be ; and that which is
done is that which shall be done : and there is no new thing under the sun. Is there any thing whereof it may be said, See, this is new ? it hath been already of old time, which was before us.}

We have no other way of looking ahead other than to look back and see what transpired in our past; if anyone of us was driving on a new highway that we never drove on before, the first thing we would take notice of is the signs; and we would expect that there will be a few hills, bends and intersections along the route; just as we know that the sun is going to be rising the next morning because that happened in our past, we can use this method to discern our future; so it's time for us to reach into the history books and see what was done back then to solve these current economic problems.

[TheIcyhydra]

it's all math but it mostly depend on : employees quality, initial and maintenance cost of the building. which is highly dependent on the location.

[_John_Tyree_]

I'd say, obviously, the gain advantage goes to the corporation, otherwise they wouldn't keep doing it. Want to know the answer...ask the accountants and CFO's of those corporations.

[chrisagar]

in any field you know you’re listening to a true expert when he/she can admit something is unknowable. Great question and great answer as usual, Prof. Wolff

[briananderson]

I would love to take a grad class with Prof Wolff...

[jeffs]

Prof Wolff, most tax breaks are unknown. I think it would be beneficial to list all the various tax cuts or breaks that have occurred over the past 60 years. I think seeing these numbers would shock us into action.