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Tax Racket

June 1, 2014

Timeless Posts – I

I originally wrote this in 2002 after leaving Wappingers and moving to Charlotte, VT… since then I have seen this scenario play out over and over… Alas, the only answer to this dilemma is the willingness of corporate shareholders to trade short-term profits for long-term investments in our country as a whole… and that’s not likely to happen for a while

When a racketeer threatens to hurt you unless you pay them money, its called “extortion”. When a business threatens to relocate if you don’t lower their taxes and improve the services you provide for them, its called “a response to market conditions”.

When someone pays a government official to get a contract, it’s called “bribery”. When the government pays a business to maintain its existing operations or to help it relocate, it’s called an “incentive package”.

When an individual gets assistance from the government, its called “welfare”. When a business gets assistance from the government, its called “economic development”.

Several years ago I personally witnessed a case study that illustrates how this pro-business Newspeak permeates the reporting in the media to the detriment of public funded organizations or undertakings. In 2002 I moved to the Burlington, Vermont area from Hudson Valley where I worked for five years as superintendent of schools. The district I led included the town of East Fishkill where IBM had a large manufacturing. In 1999, IBM announced that “in response to market conditions” they were either going to downsize or close their plant in East Fishkill and relocate their operations to Essex Junction, just outside of Burlington, Vermont, or downsize or close the plant in Essex Junction and move to East Fishkill. The governments in both states and the local governments in each town fell all over themselves to develop an “incentive package” that would expand IBM’s presence. New York’s Governor Pataki, citing the need to “invest in the future”, put together a sweeter package than Vermont’s Governor Dean. As a result, IBM decided to expand its operations in East Fishkill and reduce jobs in Essex Junction.

The results were favorable for IBM and its shareholders. As a result of the incentive packages offered, both Vermont and New York reduced IBM’s State taxes and Essex Junction and East Fishkill lowered IBM’s local taxes. Because the new facility had advanced technology, IBM experienced a net reduction to their overall payroll. As a result of these cuts in taxes and personnel, IBM’s profits increased. But wait, the governments weren’t finished! Both New York State and the town of East Fishkill paid to upgrade the highways and the infrastructure around the IBM plant. At the same time, the new Governor of Vermont, in an effort to show how important IBM is to his state, made the completion of the Circumferential Highway that served IBM a priority and pledged to review the electrical rates charged to IBM. These were both investments in the future that were needed in “response to the market conditions”.

The results were not favorable for taxpayers in either New York or Vermont. The results were especially onerous for local taxpayers. The New York State incentive package provided IBM with $475 million in “tax benefits”. This meant that $475 million in taxes shifted from the state to towns. The $475 million “tax incentive” IBM received from New York State was, in effect, a $475 million cash gift from the state, and was $475 million that will not be available to publicly funded organizations or publicly funded projects. The New York State package also included a PILOT (Payment In Lieu Of Taxes) agreement that reduced the assessed valuation of the IBM facilities in East Fishkill. This effectively shifted the local tax burden from the IBM plant in East Fishkill to small businesses and homeowners in that town. The downsizing of the IBM plant in Vermont had the same effect in Essex. It lowered IBM’s tax payments to state and local governments and shifted the local tax burden in Essex from the IBM plant to small businesses and local property owners.

This case study illustrates the lose-lose proposition State and local government officials face when a major local employer seeks “tax relief”. If, in their zeal to seek and retain businesses, our elected officials give corporations large sums of money, this money ultimately comes from taxpayers. If the elected officials fail to respond to the requests for relief or lose to a competing community in a race-to-the-bottom, they are voted out of office.

This case study also illustrates how the media’s use the euphemistic language of politicians and the business community obscures the burden taxpayers assume when elected officials are “business friendly”. In my 29 years of experience as a school administrator I cannot recall a time when the school districts I led didn’t face the same “difficult economic conditions” and “government regulations” as the private sector. Taxpayers, businessmen, politicians and the media focus their attention on how the schools “waste money” and “overspend” without accepting the fact that school districts face the market conditions that compelled IBM to seek government relief. Like the private sector, school districts face spiraling health insurance costs, energy and utility costs that rise, increased costs for hiring, training, and retaining good employees, and a bewildering array of local, State and federal regulations. Unlike businesses, however, school districts cannot threaten to leave town, cannot threaten to send their jobs overseas, or downsize.

So… the next time you read about “incentive packages” to lure businesses to your state or community, realize that you are paying for these incentives out of your own pocket… the next time you read about increases in the welfare rolls because of downsizing, realize that IBM received $475 million in welfare from New York and asked Vermont to provide new roads and lower electrical rates… and send me an email if you EVER hear of any State giving a school district a $475 million tax incentive to help upgrade their facilities.


Categories: Essays
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