Photo via Frederic Legrand – COMEO/Shutterstock
Last month, Macy’s received a slew of job creation tax credits from the Ohio Tax Credit Authority to expand a warehouse in Jackson Township, a city located within easy reach of both Canton and Cleveland. One of the township trustees — which is akin to a city council member — had this to say about the deal: “With the two very large interstates, 76 and 80, that actually criss-cross in our Township boundaries … I think we’re second to none when it comes to location.”
That quote encapsulates a maddening aspect of the corporate incentive scam: State and local officials acknowledge that a particular locale has advantages for the corporation in question that have nothing to do with incentives. They then dish out financial incentives, even in the face of common-sense evidence that the company will locate in the region regardless.
The most comprehensive look at how often a tax break actually tips a corporate location decision was done by Tim Bartik at the Upjohn Institute, a research organization that studies employment issues. In a working paper published in 2018, he analyzed dozens of studies done on incentives, as well as those on more general levels of corporate taxation. The conclusion? The financial incentives offered up by local governments made a difference in somewhere between two and 25% of the time. The majority of the time, as he put it, “the same decision would have been made without the incentive.”
In other words, the monies dished out by pols eager to boast of bringing jobs home to their constituents are most often all but an abdication of fiscal responsibility. They are both an utter waste to taxpayers and free money to a corporation to do what it intended to do all along. As it turns out, decisions regarding where to locate a particular business activity are more than simply financial.
One thing corporations consider, as evidenced by the quote from the Ohio township official above, is proximity to infrastructure. Macy’s doesn’t want to build a warehouse in the middle of nowhere. It needs a location in a place that provides easy access to customers. An area like Jackson Township with a confluence of major highways makes perfect sense, tax credits or no tax credits. Amazon also builds its warehouses in places where it can easily access highways and airports, and ultimately, its customers — the better to move stuff quickly from plane to warehouse to final destination.
Then there are supply chains and resources. North Carolina lost out on a joint Toyota-Mazda plant a few years ago not from hesitation to pay through the nose for it – the offered up $1.5 billion in tax incentives – but because those cars are constructed from parts coming mostly from Appalachia, and were being sold to mostly customers in the Midwest and Great Plains. It ultimately made more sense to build the final manufacturing facility closer to where the parts were manufactured and the people ultimately buying the cars lived. “We can’t move North Carolina southwest,” one North Carolina official said. The plant wound up in Alabama.
It was the same story when Toyota consolidated a bunch of offices from around the United States into the Dallas suburbs. Only after Texas came up with $40 million in tax incentives did corporate officials admit the move was for logistical and supply chain purposes, and had just about nothing to do with the $40 million it received from the Lone Star State. “It may seem like a juicy story to have this confrontation between California and Texas, but that was not the case,” the head of Toyota’s North American division told the Los Angeles Times. “Geography is the reason not to have our headquarters in California.”
A similar situation occurred with Tesla in Nevada, where proximity to minerals, and the cost savings therein, was the overriding factor in the decision to place a factory there, not the $1.3 billion it received from the state government. “As the only state in the U.S. to mine lithium, Nevada is the ideal location to host Tesla’s Gigafactory. With close proximity to Nevada’s estimated $9 billion worth of mineral resources including lithium, gold and silver, Tesla expects to simplify their supply chain and reduce costs by up to 30 percent,” a mining trade association said in a release.
Key words: “the only state,” “ideal location,” “reduce costs by up to 30 percent.”
Then there’s proximity to existing structures the corporation already owns, such as this instance in Memphis, Tennessee, where a developer received incentives to build near its own building. Or Utah handing Facebook tax breaks this year to build out its already existing data centers.
Expanding an existing site provides a host of advantages for companies that have nothing to do with tax incentives. They’ve got knowledge of the local permitting process and area contractors, access to an existing workforce, and experience with the area’s logistics.
The above is far from an exhaustive list. Corporations often want to be by universities, or near a workforce with particular training, or where land is cheaper. Heck, sometimes they simply want an association with a particular city’s “brand.”
I’m willing to bet Amazon choosing the Virginia suburbs of Washington, D.C., for its second headquarters had little to do with the incentives it received, but was about proximity to the government officials it wants to lobby on matters ranging from Pentagon contracts to antitrust reform, not to mention how near it is to the headquarters of the Washington Post, the newspaper Jeff Bezos owns, and his massive 27,000 square foot mansion.
So elected officials have lots of levers they can pull to make themselves more attractive to business without giving the store away to Fortune 500 corporations. They can invest in better schools or roads, ensure fair competition between small and larger businesses, or promote other quality of life measures for workers that will attract people and the corporations they work for, without resorting to handouts.
But corporate leaders don’t really want you or me or our local city or state government to think about any of that stuff. They want us to believe that incentives are the be-all, end-all of corporate decision making. If they give the appearance that a competition is occurring, then bids will increase. So they claim every location decision is a free-for-all, with anywhere and everywhere in the running, rather than a calculated decision based on a whole host of cost factors, of which taxes are but one tiny slice. And credulous officials, and oftentimes bamboozled local journalists, repeat those claims.
Don’t believe me? Take it from former Treasury Secretary and Alcoa CEO Paul O’Neill: “If you’re giving money away, I’ll take it, you know. If you want to give me inducements for something I’m going to do anyway, I’ll take it. But good business people don’t do things because of inducements.”
That sums it up.
This post initially appeared in a slightly different form on the author’s Substack, Boondoggle.
Pat Garofalo is the author of The Billionaire Boondoggle: How Our Politicians Let Corporations and Bigwigs Steal Our Money and Jobs, the Boondoggle newsletter, and the director of state and local policy at the American Economic Liberties Project.