Economic Development For The 1 Percent: Tax Incentives Gone Wrong

Isaiah J. Poole

One might expect that Ayn Rand devotee Eddie Lampert, the CEO presiding over the disintegration of the once-great Sears and Kmart retail stores, would be a zealot when it comes to wriggling out of paying taxes to the governments that serve and protect his properties.

But let’s not kid ourselves. What he extracts out of state governments to subsidize his failing empire isn’t “economic development.” It’s more like a rich bully running an extortion racket, like the time in 2011 he persuaded the state of Illinois to give him a $275 million tax subsidy in exchange for not moving Sears’ headquarters out of the state.

That one deal, though, is just about half of the $536 million in tax subsidies Sears has gotten from state governments since 1989. That puts Sears at the top of a list by Good Jobs Nation of “low-road employers” who are using tax subsidies to sustain businesses whose practices worsen economic inequality.

That list is contained in a report Good Jobs Nation released this week, “Tax Breaks and Inequality: Enriching Billionaires and Low-Road Employers in the Name of Economic Development.” It’s a look at how state and local economic development tax breaks are exploited by wealthy corporations, propping up businesses that generate massive wealth for CEOs and shareholders while keeping wages down and limiting benefits for rank-and-file workers.

“When they enrich companies owned by billionaires like those in the Forbes 400, and subsidize companies such as Wal-Mart that pay low wages, economic development subsidies are fueling income inequality,” the report said.

The economic development subsidies the report looks at range from property tax abatements and income tax credits to training grants and infrastructure expenditures that are all sold as ways states and local governments can promote job creation and overall economic growth. Some of these programs started out as benign-sounding “enterprise zone” schemes that conservatives touted as a way to steer business investment toward struggling, high-unemployment communities that were otherwise being passed over by the private sector.

But these programs quickly turned into a race-to-the-bottom free-for-all competition exploited by America’s wealthiest companies and CEOs. The result is that today 99 corporations held by members of the Forbes 400 list of the wealthiest Americans have been awarded more than $19 billion in cumulative subsidies. Five of those firms have each received more than $1 billion each: Intel, Nike, Cerner, Tesla Motors and Berkshire Hathaway.

Some people might be willing to forgive a generous tax break for an Intel microchip-fabrication plant or a Tesla Motors battery factory because of the promise of good-paying, next-generation jobs that are kept in America. (But it’s worth noting that the report is certainly not so forgiving of technology giants like Google and Apple, which “seek big subsidy packages when they build data centers, even though the decisions on where to locate those facilities, which create few jobs, are mainly based on the availability of cheap electricity.”)

Still, there is special level of scorn for the likes of Sears Holdings, Amazon, Cabela’s, Convergys, Starwood, Wal-Mart, Lowe’s, Tyson Foods, CVS Health, Target and Kohl’s. These are the 11 “low-road” corporations that the report identified as receiving more than $100 million each in tax subsidies. Sears, Amazon and Wal-Mart have CEOs in the Forbes 400. Eight are retail operations; of the other three, Convergys runs call centers, Starwood is a hotel chain and Tyson runs food processing plants. All run on low-wage labor.

Some states and localities have safeguards that are supposed to limit tax subsidies to operations that support “quality” jobs in higher-skilled sectors of the economy, such as manufacturing. Nonetheless, the report said, “large companies that pay low wages are receiving substantial amounts in state and local subsidies. Among the 1,415 parent companies in Subsidy Tracker for which we have assembled total subsidy amounts, there are 87 whose workforce is predominantly low-wage.”

Economic development tax incentives done right would help reverse the effects of policies that have driven down wages for working-class households, kept unemployment rates high in many communities and restricted economic mobility. They would create jobs that lift people out of poverty in the communities that most need a hand up, especially at businesses that represent the future of American technology development, manufacturing and sustainability. Rigorous auditing and sunset provisions would ensure that subsidies fulfill their promise of providing more in public benefit than what is given up for private incentive.

But to the extent that is happening, it’s the exception, not the rule. What we have instead is economic development for the wealthy and economic crumbs for the rest of us. This is what happens when conservative lawmakers and their big-money benefactors hijack what could be a helpful tool for rebuilding the middle-class economy and pervert it into one more funnel for the upward redistribution of wealth.

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