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Trump XV – Choosing Corporate Welfare Over Public Investment

December 2, 2016

The newspapers the past two days have been full of news about the jobs Mr. Trump saved in Indiana by getting Carrier to pledge to keep one of its factories operating in Indiana. But an op ed piece by Christian Weller in today’s NYDaily News points out the wrongheaded approach Mr. Trump used to save these jobs.

Not all specifics are yet known, but the deal — the fulfillment of a crucial promise made by Trump during his presidential campaign — appears costly. Indiana state government, where Mike Pence is still governor, offered some tax incentives for Carrier to stay. These may well have been sweetened with additional, albeit vaguer, promises of future help from the federal government.

Tax giveaways are politically expedient, but they tend to be wasteful. Even though agreements often promise to put decent jobs first, there is nothing to force companies like Carrier to actually spend the money on jobs rather than on, say, bonuses for executives.

And even if Carrier made an ironclad pledge to keep all those rank-and-file jobs for now, governments have no mechanism to ensure such jobs will stay for a long period of time. This means that Carrier could choose to move the jobs to Mexico next year, and still keep its benefits. This would especially be the case if Trump cannot deliver on his promises of slashing taxes and rolling back regulations, for instance.

Mr. Weller didn’t delve into the “trickle down” effect of the tax incentives and tax cuts that made it possible to retain Carrier. As noted in one of my earlier posts, offering “tax relief” is a losing proposition. In their zeal to seek and retain Carrier’s jobs, Mr. Trump and Mr. Pence effectively gave their parent corporation a large sums of money, money that ultimately comes from taxpayers. Mr, Trump and Mr. Pence did this because if they failed to respond to the requests for relief or lost to Mexico in a race-to-the-bottom for wages they could be voted out of office.

Who loses in these “tax relief” efforts? The rank and file tax payers who must backfill the revenues lost when Carrier is given a break on its property taxes and pay for the “incentive package” that Carrier receives— an incentive package that is offered unconditionally. And if the taxpayers DON’T want to see their taxes raised or cannot raise their taxes any higher they are forced to limit public services like the maintenance of roads, the policing of their communities, and– yes– the operation of their public schools.

Mr. Weller explains the impact near the end of his op ed piece:

States already engage in plenty of this corporate welfare. Do we need more of it?

Spending more money on ineffective retention deals leaves less money to invest in good policy. Better uses of the funds would be improving infrastructure, beefing up access to fast broadband and lowering the costs of higher education.

Trump will claim he wants to do all those other things, too — but the public purse is limited. To govern is to choose. America needs more infrastructure spending for good jobs in the future. The Carrier deal and others likely coming down the pike could tie the new administration’s hands.

The business community is watching this scenario VERY carefully…. and if this de facto extortion works for Carrier it will be attempted frequently in the coming months. Here’s hoping Mr. Trump makes better choices on how to spend scarce taxpayer funds in the future.

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