Political Economy: Does Wal-Mart really need tax subsidies to succeed? Does Apple? What about Hollywood? A new study shows that while these goodies enrich companies, they make residents poorer….
First, such deals will almost inevitably misallocate a state’s limited resources, making everyone poorer as a result.
North Carolina, for example, spent $77,000 per job at a new FedEx delivery hub. South Carolina spent $68,000 per job on incentives to BMW. Michigan’s tax credit program cost taxpayers $45,000 per job, Minnesota’s ranged up to $30,000 per job.
Targeted benefits can also crowd out competitors. Much of the state tax money showered on Wal-Mart, for example, ends up paid by retailers that compete with Wal-Mart.
Companies can win fat breaks just by threatening to leave. So, many of the jobs “created” by the breaks likely come at the expense of jobs or opportunities elsewhere.
Then there’s the problem of rent seeking, as companies focus more and more on competing for political favors rather than for customers.
“Once in place,” the paper warns, “cronyism is hard to root out.” Which is why taxpayers would be well advised to hold their applause when a politician brags about some a new targeted tax.