Get ready for a wave of corporate welfare. Lawmakers are back in state capitols and they will surely introduce and enact a slew of subsidies for big business — a time-honored tradition embraced by both parties but despised by taxpayers. Historically, convincing lawmakers to do anything different has been impossible, since they see giveaways as essential to competing with other states. Yet there is a workable solution to this problem, and it’s quickly gaining bipartisan support.
Lawmakers in as many as 22 states are pushing legislation that would create an anti-corporate welfare interstate compact, an idea that first arose in 2019. Essentially, these measures would permanently ban each state from doling out business subsidies, whether tax incentives, credits, abatements or direct cash payments. The compact would only go into effect once multiple states sign these bans into law, so none would have to unilaterally disarm in the fight to attract and keep companies. Progressive lobbyist and Illinois native Dan Johnson is the lead advocate for this policy.
State and local spending on corporate welfare has ballooned to at least $95 billion, up 200 percent in the past 30 years, and nearly twice as much as public funding for fire protection. Every state throws money at corporations, and while most don’t report the true totals, the evidence that exists is deeply concerning. New York alone has doled out at least $40 billion to more than 135,000 companies in recent years. Five other states — including my home state of Michigan — have given away more than $10 billion, and at least 35 states have spent more than $1 billion in business subsidies.
Research shows that such handouts accomplish little to nothing. They can harm economic growth, since politicians aren’t well-suited to figure out which companies will succeed or fail. They typically do not create the promised number of jobs, since the economy is constantly shifting and politicians can’t see into the future. Most importantly, corporate welfare is unnecessary, since up to 98 percent of companies would have moved to or stayed in a certain state without the taxpayers’ unwitting help.
But sound public policy isn’t the point. Politicians — on the left and right — use business subsidies to make big announcements. The thinking goes that convincing a big corporate name to set up shop, or stopping a local legend from leaving, will help come the next election.
Hence, the monster subsidies of recent years. In 2017, Wisconsin offered $2.9 billion in subsidies to help Foxconn build a $10 billion factory, in a blatant bid by former Gov. Scott Walker to look good on the issue of jobs. Amazon famously pitted decently sized cities in America against each other in the search for its HQ2 location. Lawmakers in the two winning locales, Virginia and New York, respectively promised at least $750 million and more than $1.5 billion. Nationwide, politicians routinely pony up taxpayer cash for companies that are synonymous with their state — see Boeing in Washington, the Big Three automakers in Michigan, and oil companies in Louisiana.
Yet the massive — and increasingly visible — growth in giveaways is finally creating a public backlash. Voters don’t want politicians to give taxpayer money to corporations that often add billions in shareholder value while paying little in taxes of their own. In Wisconsin, Walker lost his 2018 reelection bid in part because of widespread opposition to the FoxConn deal, while a public outcry caused Amazon to withdraw HQ2 from New York. Florida lawmakers have even cut funding to Enterprise Florida, one of the state’s main subsidy providers. Texas lawmakers recently phased out a subsidy program altogether, although others remain.
Corporate welfare is getting harder to justify, making it easier to end through an interstate compact. Sensing the public mood, Democratic and Republican lawmakers in states such as Michigan and Rhode Island have joined forces in the effort to ban it. The Utah House of Representatives passed the bill in an overwhelming and bipartisan vote of 63 to 3 in 2020, and the head of the state’s incentive program has come out in support of repealing them. The groundswell of support from both sides of the aisle is impressive, especially for such a new idea, and a record number of state lawmakers are expected to support an interstate compact in their 2022 legislative sessions.
Realistically, a large-scale ban on corporate welfare is still years away, since multiple states have to pass legislation before the compact would go into effect. Yet the case for action is growing stronger, and opposition to business subsidies is growing more popular. States should compete on quality of life and their overall economic climates, not how much taxpayer money they can throw at big business. The sooner that realization becomes reality, the better.
James M. Hohman is the director of fiscal policy at the Mackinac Center for Public Policy, a research and educational institute in Midland, Mich. Follow him on Twitter @JamesHohman.