01:00 AM EDT on Friday, September 23, 2005
http://www.projo.com/opinion/contributors/content/projo_20050923_23drut.1d01d226.html
BERKELEY, Calif. -- IN 1995, the Massachusetts-based defense contractor Raytheon -- then the state's biggest private employer -- made a threat. If Massachusetts wanted to keep Raytheon's jobs in state, it would have to make the company a deal it couldn't refuse, preferably in the form of tax cuts. Though it took work, Raytheon eventually got its state-tax breaks -- about $21 million a year worth.
And those jobs that the company threatened to take away if it didn't get its tax breaks? Well, first there were the 4,400 buy-out offers in 1996. Then came the 4,100 layoffs in 1998 (about 20 percent of the workforce), and then another 1,600 layoffs the next year.
The tax breaks, however, remained.
Unfortunately, the Raytheon debacle is no anomaly. It is one of countless tales of corporations' shamelessly demanding that cities and states shower them with generous displays of affection (more technically known as property-tax abatements, corporate-income-tax credits, sales- and excise-tax exemptions, tax-increment financing, free land and land-grant write-downs, and so on) . . . or else!
Sometimes the companies threaten to move jobs away; sometimes they promise to bring in jobs and economic development. Collectively, they manage to wangle $50 billion a year in tax breaks: money that might otherwise go to schools or roads or poor people's health care.
Yet very few communities demand accountability for their generosity to corporations. And as a result, very few communities get any, as Greg LeRoy documents in his indispensable new book, The Great American Jobs Scam: Corporate Tax Dodging and the Myth of Job Creation (Berrett-Koehler, 290 pgs, $24.95).
LeRoy, the founder and director of Good Jobs First, a national nonprofit advocating accountability in economic development, shows that most of these corporations take their gifts, say thank you very much, and a few years later are gone -- along with the jobs and economic development they so coyly promised.
This forces the obvious question: How do corporations get away with this?
The simple answer, LeRoy tells us, is "Because the system is rigged. Corporations have it down to a science. They have learned how to chant 'jobs, jobs, jobs' to win huge corporate-tax breaks -- and still do whatever they wanted to all along."
This "science" of shaking down communities for tax breaks with no accountability makes up much of The Great American Jobs Scam. It's a truly insidious "science," one that brims with disingenuous promises and misleading studies, and regularly pits community against community in a massive prisoner's dilemma.
Particular blame goes to "site-location consultants," experts in inducing helpless acts of sycophancy in elected officials. As LeRoy explains, "Given how this system is rigged, all the power rests with the site consultants and their corporate power."
Some site consultants earn as much as a 30-percent commission on the subsidy package, giving them special incentive to be as unctuous as possible.
Yet despite the huffing, puffing and bluffing that takes place in these lopsided site-location mating dances, LeRoy lets us in on a big secret: The subsidies that companies say are so important don't actually matter that much. When you factor in all the costs of running a company, taxes make up less than 1 percent of the company's expenses.
Sure, companies make much of the tax breaks they say are necessary. But the truth is, most companies have already decided where they want to go -- and on the basis of other things, such as workforce education, quality of life, and the chief executive officer's personal preference. The wooing of competitor cities is often just for show.
As LeRoy reports, "Candid site-location consultants will admit that the only time subsidies can actually tilt the scales is when a company has two equally compelling choices."
But even more infuriating are the aggregate consequences. Between 1980 and 2000, corporate-income taxes as a percentage of state revenue dropped from 9.7 percent to 6 percent. Now it is at 5.2 percent and falling.
What this means is that because of cities' and states' quest for jobs through tax breaks, they now have far less tax revenue to spend on what LeRoy calls "the two things that are proven job-creation winners -- our skills and infrastructure."
Writ large, this is a huge national problem. Writes LeRoy: "If our schools and workforce-development systems fail to provide enough skilled labor and our aging infrastructure impedes productivity, the United States will inevitably become a less attractive place to invest and create jobs."
No wonder all our jobs are moving overseas!
The Great American Jobs Scam's painstaking (though surprisingly readable) details on how corporations have slashed their state and local tax rates are clearly invaluable, as are the dozen reform proposals to help communities fight back. Yet the book's real service is its wake-up call regarding the long-term consequences of all these tax breaks and subsidies.
Elected leaders who recklessly offer corporations idiotically generous subsidies and abatements -- instead of investing in education and quality of life -- should remember that once the incentive packages run out, the corporations can always find a more attractive place to move.
Cities and states, of couse, don't have that luxury.
Lee Drutman, a frequent contributor, is the co-author of The People's Business: Controlling Corporations and Restoring Democracy (Berrett-Koehler).
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