Wisconsin, Foxconn And The Lure Of State Tax Incentives
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Wisconsin's multibillion dollar deal with Taiwanese manufacturer Foxconn is the most expensive tax incentive package a state has ever given a foreign company. But whether government incentives for businesses are money well spent is up for debate. Wisconsin Public Radio's Laurel White explains in the last of three stories on Foxconn.
LAUREL WHITE, BYLINE: The debate over American business incentives is almost as old as the United States itself. In 1791, Alexander Hamilton backed a charter to create a tax-free zone for businesses in New Jersey. He thought it would help create more manufacturing jobs. Today, states and cities are still offering tax breaks and sometimes cash payments to companies, sports teams or even movie productions in exchange for jobs - companies like Foxconn.
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UNIDENTIFIED REPORTER: That breaking news - after months of speculation, Foxconn promises to build its first American factory here in Wisconsin.
WHITE: Critics of the more than $3 billion deal argue it's too pricey and too risky for taxpayers. Tim Bartik is a senior economist at the W.E. Upjohn Institute for Employment Research. He's been studying business incentives for more than 20 years.
TIM BARTIK: It's not clear to me that the voters really understand that incentives have a cost and that they're not a free lunch. I think people get lost in the details of the arguments over the benefits and costs of incentives.
WHITE: Bartik's research shows that a new factory doesn't always translate to a job for an unemployed person living nearby. It's more likely people will move to the area for the jobs, with local government picking up the cost of serving those new residents.
BARTIK: It's going to have to either increase someone's taxes by that amount or it's going to have to cut public spending on something.
WHITE: Bartik says the number of these deals across the country has tripled since 1990, and some of them, like the one between the state of Illinois and Motorola in 1997, haven't turned out so well.
I'm standing at the edge of this big manufacturing facility. They have these metal gates up that are locked with chains. And on the right, there are two big, gray buildings. This place has been sitting empty for 16 years.
NATE JENSEN: Most of the academic literature is very skeptical of these incentives.
WHITE: That's Nate Jensen, who studies incentive deals at The University of Texas at Austin. He studied hundreds of deals and says most can be boiled down to two main points.
JENSEN: One, that many of the companies are coming anyways, and secondly, often the benefits are way overstated.
WHITE: But Ellen Harpel, who runs a consulting company working with governments as they negotiate deals, disagrees. While she concedes that some big incentive deals have gone bad, she insists the model is still worth pursuing.
ELLEN HARPEL: A well-designed and well-managed incentive program can absolutely help achieve a community's economic development goals.
WHITE: Harpel says deals need to include safeguards for states, including ways to claw back money if businesses don't do what they said they would. Supporters of the Foxconn deal say those protections are in place. They also point to deals like Royal Dutch Shell's $1.65 billion agreement with Pennsylvania to build a plant in former steel country. President Donald Trump has visited the construction site, which is employing thousands of workers.
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PRESIDENT DONALD TRUMP: Your future has never looked brighter or better. It's so great that you stayed because you suffered - this whole region, Appalachia.
WHITE: Some who oppose incentives insist they're often more about politics than economics. Nate Jensen understands that cynical point of view.
JENSEN: This is a great way to have a ribbon-cutting ceremony. And not to say Apple or Foxconn or Amazon came because of the location or because of the human capital, you say they're here because of the program, and I'm the reason we won this deal.
WHITE: Alexander Hamilton's plan to zero out taxes and spur job growth in New Jersey back in 1791 was a bust. But more than 200 years later, states and local governments across the country trying to lure new jobs are embracing these deals. They hope their plans turn out a little better than Hamilton's - or at least that they'll get credit for trying.
For NPR News, I'm Laurel White in Madison. Transcript provided by NPR, Copyright NPR.