Washington state on Monday officially handed out an $8.7 billion package of tax breaks to Boeing, the mega-manufacturer best known for building huge aircraft. The package is the largest subsidy any state or local government has given to a single company in U.S. history.
The justification for this heap of tax breaks is that it will ensure Boeing builds a new jet, the 777X, in Washington, as opposed to taking its production somewhere else. (Never mind that Boeing is also asking workers in Washington state to take big cuts to their health care and pensions, and threatening to move production if they don't, tax cuts aside.) Boeing said it would "pursue other options" if the state legislature didn't play ball.
But fear not, if you think this looks like a corporation blackmailing a state into doling out massive tax breaks. "I don't feel like we're being blackmailed at all. There's no question that extending the (tax breaks) … in exchange for an absolute rock solid, black and white written commitment for the 777X and its descendant planes is a responsible marriage and partnership," said Washington state House Finance Committee Chairman Reuven Carlyle, a Democrat.
Such a "marriage," though – built on threats to shift production and kill jobs – has become standard operating procedure for Boeing. In fact, a decade ago Washington state gave a round of tax incentives to Boeing to keep manufacturing of the company's 787 in the state. However, as the Associated Press reported, "wing production was placed in Japan and a new production line was established in South Carolina" anyway. So Washington may not even be buying what it thinks it is, though the current round of giveaways supposedly has more stringent safeguards.
Unfortunately, in the last few decades, more and more states have been giving these sorts of subsidies to corporations in the desperate hope that they will create jobs, leading to a race to the bottom in which companies are the big winners and taxpayers lose. As the New York Times found in a major investigation, "Over the years, corporations have increasingly exploited that fear [of job loss], creating a high-stakes bazaar where they pit local officials against one another to get the most lucrative packages. States compete with other states, cities compete with surrounding suburbs, and even small towns have entered the race with the goal of defeating their neighbors."
Making matters worse, the evidence that these deals lead to job creation or economic growth is scant, indeed. And even when they do create some new jobs, it is often at a cost to the taxpayer that is several times greater than just hiring people directly would have been.
Good Jobs First, an organization that tracks corporate tax giveaways, found that the average cost per job created by these subsidies is $456,000. Many deals have a cost that eclipses $1 million per job created. And remember, every dollar that goes into subsidizing a corporation is one less dollar that can be spent on building infrastructure that benefits everyone or on providing better education, health care or other vital state services. (Unfortunately, there isn't the data to calculate the cost per job of Boeing's subsidies.)
Adding a couple of final insults to injury, Washington state is handing out these billions of dollars in new corporate tax breaks when it has the most regressive personal state tax system in the country, according to the Institute on Taxation and Economic Policy. In fact, the poorest 20 percent of Washington residents face a tax rate of 16.9 percent, while the richest 1 percent see a rate of just 2.8 percent. Meanwhile, between 2008 and 2011, Boeing paid not a dime in federal corporate income tax, even as it reaped huge subsidies at the state level.
Sadly, there's little reason to believe these incentive packages will be resigned to the dustbin of history anytime soon. Particularly with unemployment remaining stubbornly high, lawmakers seem unable to resist the promise of job creation, even if the evidence isn't there to back it up or a cost-benefit analysis comes up lacking. But state budgets would be in better shape if legislatures could fight the temptation of a quick economic development fix and focus on building more sustainable growth and opportunity.