Competition is at the heart of the free market, but due to crony capitalism the free market has all but died. Many of us live in states where corporations approach the state houses and Governor’s offices looking for tax breaks in return for moving their facilities to the state.
First, tax breaks for specific companies DO NOT create jobs. They just shift the jobs around the country. Let’s look at company X, they currently reside in Washington State but Connecticut has offered them a huge tax break to relocate. The company takes the offer and then lays off 1,000 employees in Washington and hires 1,000 new employees in Connecticut. This didn’t create jobs. It shifted 1,000 jobs 3,000 miles away.
Second, giving tax breaks to a specific company reduces their personal costs. What do you think that does to their competitors that still have to pay all their taxes? Isn’t this picking winners and losers? Of course it is. Imagine a big box store coming into your town because it just agreed to relocate due to a 20% tax break for 10 years. This big box store can now lower the price their product while their small business competitors still have to pay the regular tax. Eventually the small community based businesses close up due to this crony capitalism.
Let’s look at what is happening in Illinois. According to the WSJ,
CHICAGO—Sears Holdings Corp. is telling Illinois officials it may move its headquarters out of the state if a package of tax incentives is allowed to expire next year.
In March, Caterpillar Inc. Chief Executive Doug Oberhelman wrote Illinois Gov. Pat Quinn, a Democrat, saying he was being courted by Texas, South Dakota and Nebraska. The Peoria, Ill., heavy-equipment maker has about 23,000 employees in the state.
The Sears incentives, which included land and highway improvements and tax breaks, were crafted in 1989 to woo the retailer to Hoffman Estates from the Sears Tower—now called the Willis Tower—in downtown Chicago.
Sears’s 720-acre spread generated $26 million in property taxes, Hoffman Estates Mayor McLeod said. Of that, $16 million was returned to Sears to pay off bonds issued for infrastructure upgrades.
Illinois awarded $100 million in tax breaks—the largest package it has ever given— to persuade smartphone maker Motorola Mobility Holdings Inc. to keep 3,000 jobs at its Libertyville, Ill., base.
State and local taxes typically account for 1% to 2% of a company’s costs, and are just one factor in location decisions. Access to skilled workers, well-maintained infrastructure and good schools are other factors.
A well maintained infrastructure and good schools are funded through the taxes they do not want to pay….it seems counterproductive, doesn’t it?
Both parties are to blame for this. Unfortunately if Democrats want to win elections they have to play by these same rules and give these specific tax breaks, or they will be attacked by the GOP in the next election cycle. If Democrats stood by their principles they would tell the corporation to pound sand either pay the same taxes as everyone or go elsewhere.
This whole problem could be rectified if the federal government stepped in. In order to stop these job shifts across the country and create a true competitive market, the federal government could halt the allocations of highway funds to the states that participate in these actions. Every state depends on these funds for infrastructure purposes. The crony capitalism would grind to a halt.