Opinion: Gov't shouldn't play subsidy game with free market

Rachel Greszler

Everyday. Low. Prices. Those three words draw some 140 million American shoppers to Walmart stores every week.

Amazon’s recent decision to back out of its planned New York City headquarters shows how sometimes even massive subsidies can’t win over businesses.

Other retailers may offer short-term sales, or special pricing for preferred customers, but most people tend to shop where they can count on consistently low prices.

Similarly, businesses want to set up shop where they can count on consistently low taxes and minimal government intervention in their operations.

They also want a fair and level playing field where their success or failure isn’t dependent on them cozying up to politicians.

That’s why it’s so disturbing to see state and local governments vying for businesses by offering special-interest tax breaks and other corporate subsidies.

According to the Megadeals database compiled by goodjobsfirst.org, state and local governments have granted $115 billion in corporate subsidies across 399 different special-interest deals. The largest deal on record was an $8.7 billion tax subsidy to Boeing approved by the Washington state legislature in 2013.

But while Boeing and other big companies can secure hundreds of millions or even billions in special-interest subsidies, the little guy gets nothing. Sometimes, small businesses and workers end up paying higher taxes to make up for the subsidies granted to big corporations.

That’s not fair, and it’s not the way to grow an economy.

After all, small businesses are the backbone of America. They employ almost half of all private sector workers in the U.S. and have accounted for two out of every three new private sector jobs created since 2010.

State and local leaders who want to foster innovation and growth will fall flat if they set high barriers to entry and discriminate against small businesses through selective subsidies.

The failure of crony capitalism is not just speculation. It’s already playing out in states and cities across the U.S. as businesses and workers flee high-tax, high-regulation states in favor of ones that offer low rates and level playing fields. According to the most recent ALEC-Laffer State Competitive Index, “Rich States, Poor States,” the low-tax states of Florida, Texas, and North Carolina had a combined net in-migration of 3.4 million residents between 2005 and 2016 while the high-tax states of New York, California, and Illinois had a net outflow of 4.5 million residents.

And Amazon’s recent decision to back out of its planned New York City headquarters shows how sometimes even massive corporate subsidies can’t win over businesses. That’s likely because there was no guarantee that the hundreds of millions in tax breaks and all sorts of special perks the city gave to Amazon would last.

If future New York City politicians decided to pull the plug on Amazon’s subsidies, the company would face: a top state and local marginal corporate tax rate of 17.2 percent (compared to a U.S. median of 6.8 percent); onerous zoning and land use laws; outrageous property taxes; and all sorts of heavy-handed labor regulations.

States like New York that drive up costs also drive out businesses, workers, and incomes. For every dollar of income that left New York between 1997 and 2016, the state gained back only 71 cents. Those losses will spiral for New York and other cities and states that try to micromanage their economies through high taxes, excessive intervention, and crony capitalism.

Although Amazon turned its back on the Big Apple, it is moving forward with its Arlington, Va., headquarters. As one of the top 10 most competitive states in the ALEC-Laffer rankings, Virginia has a much more favorable business and economic climate—even without the subsidies it’s giving Amazon.

Cities and states are right to want to attract businesses that will help grow their economies and provide jobs and good incomes to their workers, but picking winners and losers is not the way to do that.

In the long-run, a level playing field, with low barriers to business start-ups and everyday low tax rates will always triumph over crony capitalism.

Rachel Greszler is a research fellow in economics, budget and entitlements at The Heritage Foundation, a leading national think tank