Who Pays for “Tax Incentives”? WE Do!
The following is an op ed piece I am submitting to our local newspaper, the Valley News. It is an updated version of an earlier post I wrote title Tax Racket.
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 in it’s community, it’s called an “economic development”.
When an individual gets assistance from the government, its called “welfare”. When a business gets assistance from the government, its called “an incentive package”.
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. In 2002 I moved from Upstate New York where I worked for five years as superintendent of schools to the Burlington, Vermont area. The district I led in New York included East Fishkill, a town where IBM had a large manufacturing presence. In 1999, IBM announced that “in response to market conditions” they needed to modernize their facilities and eliminate jobs. AS a result they were either going to downsize or close their plant in Upstate New York and upgrade their operations to Essex Junction, Vermont, or downsize or close the plant in Essex Junction and upgrade their operations in Upstate New York. The governments in both states and the local town governments 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 upgraded its operations in Upstate New York and downsize its operations in Essex Junction.
The results were favorable for IBM and its shareholders. The incentive packages offered in both Vermont and New York reduced IBM’s State taxes, and both Essex Junction and East Fishkill lowered IBM’s local taxes. And, as they indicated from the outset, IBM’ experienced a net reduction in its workforce. As a result of these cuts in taxes and personnel, IBM’s profits increased. But the governments’ incentives included more than tax breaks. 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 Governor of Vermont, in an effort to demonstrate his State’s commitment to IBM, 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”. The $475 million “tax incentive” IBM received from New York State was, in effect, a $475 million cash gift from the state. It represented $475 million that could not be available to upgrade schools, to provide high speed internet to rural areas, or fix roads. 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, money that ultimately comes from taxpayers. If the elected officials fail to respond to the requests for relief or lose to a competing community, they are voted out of office.
This case study also illustrates how the media’s use of the euphemistic language obscures the burden taxpayers assume, because when elected officials say they are “business friendly” it means money is shifted from taxpayers to corporations. As a public school superintendent I would cringe whenever I read of that a corporation threatened to relocate because of “difficult economic conditions” or “over-regulation”. In my 29 years of experience as a Superintendent I cannot recall a time when the school districts I led didn’t face the same “difficult economic conditions” and the same “government regulations” as the private sector. Like the private sector over the past four decades, school districts faced spiraling health insurance costs, high energy and utility costs, increased costs for hiring, training, and retaining good employees, and a complicated 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. Indeed, the opposite is true. When the IBM PILOT agreement was struck the school board needed to make budget cuts to soften the impact to local taxpayers by deferring the acquisition of technology, increasing class sizes, and deferring some maintenance projects.
So when I read about the “incentive packages” Mr. Trump and Mr. Pence offered to Carrier, I realized that I helped pay for these incentives out of my own pocket and realized that the property taxpayers in Indianapolis paid an even higher price. So the next time you read about the high cost of welfare, recall that over a decade ago IBM received hundreds of millions in welfare from New York and asked Vermont to provide new roads and lower electrical rates,
And one last request: please alert me if you EVER hear of ANY State giving a school district a $475 million tax incentive to help upgrade their facilities.