Photo Credit: Sergey Novikov / Shutterstock.com
In 2021, when small businesses were still closing en masse and many were unable to afford even rent, large corporations across the country got billions of dollars in tax breaks and other public support. It was a year defined by massive economic development subsidy packages.
The year started and ended the same way: governors signing into law expensive subsidy programs aimed at luring companies to their states. In between, large corporations were able to extract more than a dozen “mega-deals” (defined as packages worth at least $50 million) from state and local communities. Combined, those company-specific deals of tax breaks and other subsidies are worth more than $5 billion.
The recipients include:
- Samsung, which received the biggest subsidy package in Texas history when state and local officials approved over $1 billion in tax breaks and infrastructure for a microchip fabrication plant;
- Apple, which also set a state record, in North Carolina, for its subsidy package of nearly $900 million for a research hub;
- Walt Disney, which got $570 million in tax breaks for simply moving jobs from California to Florida; and
- Amazon, with its sales and profits booming due to the pandemic, got at least $691 million from communities big and small across the country.
All these recipients are cash-rich, multinational, and publicly traded corporations, run by massively wealthy CEOs. The Center for Economic Accountability, a free-market think tank, noted that Apple could fund North Carolina’s entire 2021 budget and still leave $38 billion to its shareholders.
It’s hard not to connect the 2021 subsidy spending spree with the influx of federal pandemic relief funds to states. The CARES Act and the American Rescue Plan Act together give states roughly $500 billion to help communities recover from the pandemic. The money was supposed to be used in ways that help everyone–ensuring schools and daycare facilities have protective measures to safely open, or helping small businesses deal with the pandemic consequences–but some states seized the opportunity to cut sweetheart deals with corporations, or as a justification for corporate and other tax cuts.
Another reason is tied to supply and demand. Since 2007, the total number of economic development projects for which states and cities could compete has been depressed, in part due to outsourcing, automation, high-tech monopolies, and mergers and acquisitions. All of this means that there are fewer companies that can offer projects with large investments and big job numbers; consequently, a few large companies drive up subsidy prices for desperate communities.
One sector in particular contributed to many of the poorly structured, expensive deals: electric vehicles.
Rivian, an electric vehicle start-up backed with Amazon money, engaged last year in a secretive site selection auction. It found a willing buyer in Georgia, in an incentive deal that could be worth over $1 billion. As with many mega-deals, though, we may never know the full price tag, as the details will be hidden behind poor state, local and corporate transparency practices.
There is a false, long-held belief that without subsidies companies will not come. But independent research has repeatedly proven the opposite: that between 75 percent and 98 percent of the time, subsidies do not impact company location decisions. Proximity to suppliers and customers, efficient roads and highways, skilled workforce, and quality of life are vastly more important to companies than tax breaks.
Consider: Samsung declined New York State’s subsidy offer of nearly $2 billion for a Texas bid half that size. It chose to be near Austin, where it has operated for decades and where high-tech workers are in abundant supply. Apple chose North Carolina because of its booming tech talent pool in the Research Triangle Center and the state’s first-class universities.
There is a better way to do economic development than giving away public money to private companies: minimum wages that correspond with the true cost of living, affordable childcare centers, public infrastructure investments, climate change preparations, outstanding and affordable public education from preschool all the way to community colleges and state universities and, targeted assistance for small and local businesses and start-ups.
Let’s stop these mega-deals and instead put our attention, time, and money on things that truly help all of our neighborhoods thrive.
Kasia Tarczynska, a senior research analyst with Good Jobs First, received her Masters in Urban Planning and Policy from the University of Illinois at Chicago.