Do government programs to encourage job creation work or do they merely guarantee corporate profits?
Nobody knows the answer with certainty, but there’s evidence corporations promote development subsidies more to boost their profits than to create new jobs.
The mantra of most politicians is “jobs, jobs, jobs.” But many of them oppose direct government hiring or projects that will require government contractors to hire more workers.
Indirect corporate support is appealing, because it seems to have no cost for taxpayers. The benefits are supposed to flow through the business and end up in employee paychecks and corporate profits.
Often government support for business development is offered through extremely complicated programs. One reason for the complexity is reliance on tax breaks, which can obscure where the benefits really go.
Congress and state legislatures are convinced to enact indirect development measures without a full understanding of how they really play out. Corporations can sell them based on the possible job gains, which sound politically appealing, without revealing the loopholes from which they expect to benefit.
Legislators believe that, if business prospers, new jobs will inevitably develop. In that way, two objectives are met: job creation and allowing the private sector, rather than government, to shape economic priorities. That’s consistent with a free enterprise economy and limited government.
Corporate incentives also have a clear political benefit. As noted, they are offered without any apparent cost to taxpayers. There’s no appropriation of public money though they receive support funded by tax revenues. The flow of money from the taxpayer through the budget to the subsidy is too difficult to track.
Businesses like indirect support programs; their profits are virtually guaranteed even though job creation is not. Corporate beneficiaries often turn up as political contributors, providing legislators with their own incentive for offering indirect support for business development.
The New Markets Capital Investment program, recently revealed by the Maine Sunday Telegram, rings all the warning bells of an indirect program.
Through gimmicks created by the corporations involved but not understood by the legislators, some of whom had received political contributions from those companies, investors will receive about $16 million from the state on a supposed $40 million investment, of which not a penny will have gone to creating jobs.
Instead of believing promises that a public indirect investment will be more than compensated by expected employment gains and resulting added tax revenues, legislators ought to regard the cost of any indirect program as an outright expenditure.
Besides, state business-boosting programs are essentially “beggar thy neighbor” measures. They are intended to enable one state to pick up investment and jobs that might go to another state. It’s not a competitive advantage that matters; it’s the gimmick.
At the federal level, Congress does much the same thing, willingly offering indirect corporate breaks while rejecting direct action. It readily adopts tax breaks for the private sector, passing the resulting unpaid cost of government on to average taxpayers, while rejecting funds for roads and bridges, left to deteriorate.
Perhaps the central problem of both the federal and state governments in accepting such programs is the lack of an economic vision. A mere commitment to “jobs, jobs, jobs” is not good enough for judging the value of proposed publicly supported programs.
A state with a coherent and consistent policy, not merely “special” job creation incentives, can prosper. Texas, with its emphasis on little regulation and both major parties pro-business, has boomed. New Hampshire consistently avoids a state income tax, and its economy has grown.
Maine places a higher priority on the environment. Some investors, from renewable energy to tourism, can accept and prosper under a strong environmental regime.
But the state fails to offer a consistent outlook to businesses. Tax reform and a stable economic and social policy could be more effective than risky trade-offs tailored for specific companies.
The Maine Legislature signed onto an investment gimmick it did not understand in the mere hope of creating jobs. At about the same time, it was willing effectively to expel one of the largest companies in the world that had already committed to a major renewable energy investment in the state.
The misguided New Markets tax refund program adopted by the Legislature had no chance of replacing the lost opportunity caused by breaking a deal, not involving tax dollars, with energy giant Statoil for off-shore wind energy.
Keeping policies consistent, uncomplicated and fair could produce better results with fewer chances for programs to backfire. Such policies plus more direct economic support by government would likely produce more jobs.