Corporate welfare is having a bit of a moment in the sun, particularly after the very public tax credits and threatening that Carrier and its parent company received in order to keep about 800 jobs in Indiana. Incidentally, manufacturing employment in Indiana has decreased by 3,900 jobs year-over-year as of November 2016, or by about 0.8% [1]. Corporate welfare, however, is a bi-partisan endeavor. Even in “deep blue” Maryland, the Democratic controlled legislature and Republican governor can agree on giving hand-outs to large companies. And it’s nothing new; past governors supported such measures.
Most recently, Governor Larry Hogan and legislative leaders have agreed to give a $20 million forgivable loan to Northrop Grumman, on top of about $38 million in refundable tax credits over the next five years, approved last legislative session. They also agreed to pursue around $60-70 million in refundable credits and forgivable loans in order to keep Marriott’s headquarters in Maryland (including $22 million from Montgomery County, where Marriott is currently headquartered).
Marriott was given about $43 million in 1999 (or $62 million in today’s dollars) for a promise to add 700 jobs (or about $88,600 per job in today’s dollars). Unsurprisingly, the jobs never came. The final value of the incentives was pared down, but Marriott kept a majority of the money despite not fulfilling its promise [2]. This time around Marriott does not need to create any jobs to be paid in full, but only to keep the ones that already exist. There are many other tax credits that reduce state revenues for dubious benefit, such as a film production credit. Altogether, corporate tax credits reduce revenue by over ten million of dollars a year.
In Maryland, a portion of corporate income tax revenue goes towards higher education and the Department of Transportation (MDOT). Tax credits therefore lower investment in higher education and transportation networks. The revenue that goes to MDOT for capital projects often includes matching dollars from the federal government, multiplying the opportunity cost. To the extent that we end up with lower quality education and transportation systems, the state will suffer [3]. Good education systems and transportation networks attract employers, without the choice of who benefits being left up to politicians. Only a portion of corporate income tax goes to those purposes, but the point is that against the dubious supposed benefits, there are real costs in reduced public investment.
In defending corporate welfare, Hogan stated: “In the past eight years, I believe Maryland lost 20 of its 24 Fortune 500 companies. I don’t want to see that happen. We have four left.” He repeatedly made this claim during his campaign, although the numbers cited tend to vary. Whichever quote you use, it's false. But even if it weren't, who gives a shit? What matters is not how large some of our employers are, but whether jobs are being created and how much they pay. Here’s the performance of employment and income over the past eight years, indexed to 2006 Q4:
1. To be fair, Indiana was having a bit of a manufacturing employment boom until around the end of last year. Also the figures cited are seasonally adjusted, and the monthly data for November could change significantly in revision.
2. Are you fucking kidding me? $88,600 a job? Does nobody do any math related to these deals, or is it just politicians buying corporate favors? Even if it worked, that’s such a stupid way to spend tax money. But hey, if the either stupid or ignorant voters let them get away with it whose fault is it really?
3. Similarly, local governments often rely on property tax credits to buy favor with large companies, I mean “incentivize job creation”. Property taxes, in MD anyway, are how local governments fund their school systems. This is also stupid; a bad school system is much worse for a locality than whether or not a big company keeps a few hundred jobs there (they’ll probably leave if the school system sucks anyway).
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