Is Corporate Welfare a Good Use of Tax Dollars?

The question we should ask about Corporate Welfare is: why?  There are many different reasons why this happens.  First, it depends on the type of business that is receiving an incentive from the government.  A suburb may give a property tax rebate to a Wal-Mart Super Center because that expenditure will be offset many times over by an increase in sales tax revenues.  A city like Salt Lake City may give a tax break to Microsoft because there will be an increase in tax revenue in other area.  If there are people coming to town for jobs, houses are going to be built and stores are going to sell goods.  It increases the overall health of the economy.

The other reason why government at all levels gives tax breaks to firms is because it is a common practice world-wide, and it is a competitive world.  If your town is not willing to give a tax break to bring some business to town, someone else is.  That becomes a lost opportunity.

This usually works all fine and dandy until the company begins to have trouble and then begins to lay off employees.  Let's say the corporate tax break in your town was given to Widgets are US because of a military contract.  Your town gave them a 50% discount on property tax because the new factory would bring 2,000 jobs to town that did not exist before.  Your town has put in the streets, street lights, sewage, water, electricity and gas into new subdivisions to make way for the new hoses.  They have bonded for new schools and parks.  The town has incurred tons of new debt in hopes of increases the tax base in town by 2,000 new households.  They have also zoned for new shops and other commercial development.

Right before Widgets are US breaks ground on their new factory, Congress cancels the contract.  Then the town is out all of the investment that they put into the project.  The new subdivisions remain vacant and the new stores never come to town.  What has been lost?  The money put into the anticipated new development.

What some people call Corporate Welfare is really a gamble.  But the most important thing to remember is the way that Corporate America plays the game.  When they want to build a new plant, they will shop it around to several communities to see who will give them the best deal.  That has been going on for a long time and it is not likely to stop unless congress makes it illegal.

But what would happen if America outlawed corporate tax subsidies.  Would that put the United States at a bigger disadvantage than they already have?  Would that mean more jobs going overseas? The answer is yes to the first question and maybe to the second.  Companies will not completely leave the US until there is no longer a market for their products in the United States.  But it will cost this country jobs.


It would be unwise to spend money on projects that are going to be in your jurisdiction anyway.  For example, if Winco is opening a store in either Layton or Kaysville, why would the State of Utah bother to incentive-ize one city of the next?  But if the company is considering Layton instead of Wendover, then I would want those jobs to come to Utah.

At the federal level, the government may want to give businesses incentives to expand and hire people.  Column A is people who have jobs and pay taxes.  Column B is people who lack jobs are receive government assistance.  The federal may spend millions as an incentive for Apple to open a new plant in Indiana.  But that is worth it if the government can save millions more in welfare payments.  It is worth if Apple is going to not build the plant for 2 or 3 years.  It is worth it if Apple may build the plant in Mexico.  It is worth it if the plant is going to revitalize an economically depressed area of Indiana instead of a affluent community in California.  It is not worth it if none of the above applies, because any of the above options could save the federal government millions in social welfare payments.

A positive example is the government spending millions to provide incentives for companies to take over a closed military base or auto plant or steel mill.  These programs will save taxpayers money as federal safety-net programs are allowed to recoup funds and people are removed from the sting of welfare.  Hud sells houses and business properties.  The city has the tax funds to repair their infrastructure.  It's a win/win.

It goes too far when one member of congress uses federal funds to take a proposed projects away from the district of one of his colleagues.  Then it simply becomes a bidding war, buying votes and everything else that is said negatively about it.  Is there a fix for this?  Yes, this is the type of problem that could be resolved with a line-item veto and someone sensible enough to use it the right way in the White House.

The bottom line is this: even though Corporate Welfare sounds bad, it can bring positive results when used correctly.  It is not Corporate Welfare or Social Welfare, it's using corporate welfare to PREVENT the use of Social Welfare.