Business "Subsidies" Plummet 70% As Government Support Evaporates

Business “Subsidies” Plummet 70% As Government Support Evaporates

Tyler Durden’s pictureSubmitted by Tyler Durden on 04/27/2016 13:40 -0400

In order to attract and retain small and big business alike, it has long been a tactic by states and local governments to offer tax breaks – just ask Elon Musk who has been a happy recipient of taxpayer generosity over the years. However, as times have got touch in Obama’s “recovery”, government subsidies of at least $50 million have plummeted by 70% Bloomberg reports.

As an example, tax breaks for companies such as Boeing, IBM, and Toyota were part of $17 billion from state and local governments in 2013. In 2014 that number dropped to $7 billion, and last year plummeted to just $4.8 billion.

The reasoning may be twofold.

The first, is that new accounting rules will force state and local budgets to account for tax incentives given to business as lost income in order to stay compliant with GAAP. This could upset the public, knowing just how much each business in their area didn’t have to pay in taxes, and thus potentially increasing property taxes.

Another reason could be the fact that it’s political season, and a lot of the rhetoric on the television and radio has been centered on everyone paying their “fair share” and reducing “crony capitalism.”

Those that are critical of the incentives say corporations have gotten away with not living up to their end of the bargain.

“Corporations have long gotten pretty much whatever they wanted under the guise that they are doing something wonderful for the community or society as a whole,” wrote Tim Noonan of West Bend, Wisconsin, in a November 2014 letter to the board, arguing for greater disclosure of corporate incentives.

“This is rarely ever the truth, they get what they want so a politician can make themselves look good for a reelection.”

While admittedly more transparency and accountability is always better, and tax incentives are certainly not a guarantee a lasting partnership between business and community, there are real consequences for those areas that won’t cut tax reduction deals with local businesses. There will always be a state or town willing to cut taxes in some way, shape, or form in order to lure new business in.

The St. Louis Rams moved their entire franchise to Los Angeles as a result of the inability of the local government to come to an agreement on incentives.

Those that are on the receiving end of a business packing up and leaving suffer greatly as jobs, net taxes, and any community investment leaves with it. As as was so eloquently put by Kenneth Thomas, a professor at the University of Missouri-St. Louis:

“There’s an ebb and flow to subsidies, but somewhere down the line there will be another recession, and we’ll see what state and local governments do.”

Leave a Reply