Corporate Welfare

Jimmy Quinn at NRO is upset about corporate welfare.  We are too but he doesn’t do much to convince us that the Foxconn deal is a bad deal for Wisconsin.  We would prefer that he gave us the details on Foxconn before discussing Amazon’s search and other issues.  Here is what he says about the Wisconsin deal:

Here’s the bottom line: If the jobs target of 13,000 is met, Wisconsin taxpayers will pay $219,000 per job. If only 3,000 jobs are created, they will pay $587,000 per job in the form of a $1.7 billion tax credit. And these are conservative estimates, leaving out the additional tens of millions of dollars that will go toward the infrastructure improvements necessary to accommodate Foxconn’s new plant.

The second part of the paragraph is a distraction because infrastructure is going to be the responsibility of governments.  We are supportive of the first part of the paragraph because we support what Jimmy identifies as the New Hampshire model: low taxes for every organization and no special privileges.  There are two problems with Jimmy’s analysis.

First, what is the nature of the tax credit?  Presumably, it is a special purpose tax credit that we would likely oppose.  We want to know the details.  Don’t worry, we will be doing some research in the future.

Second, there is a problem with the time frame.  Jimmy says that the deal lasts until 2043 or 25 years.  Thus, the large sum is over 25 years and the cost per job is for 25 years of jobs.  A cost of $9,000 (roughly) per job year is much less scary.

Much more interesting is the possibility of federal tax reform.  Jimmy says that the next push for tax reform will treat state incentives as income.  It makes sense as the backbone of taxable income is all income from whatever source.  We’re supportive of Jimmy’s opposition to corporate welfare but he needs to give us details and alternatives to evaluate Foxconn.

Corporations, sates, and municipalities should be free to act but they should do so in the sunshine.  Voters should know what the deal is and if the corporate income should be properly accounted for.

Sidebar: For example, if the corporation was exempt from income tax on the state level there would be no need to adjust.  The corporation would not get that deduction and pay federal taxes as appropriate.  End Sidebar.

We are against corporate welfare but it is up to the voters.  Educating those voters about the problems is tricky but if New Hampshire can do it then we can hold out hope.  We need to do a better job than Jimmy.

 

 

 

 

ECONOMY & BUSINESS

The Foxconn Plant Is a Bad Deal for Wisconsin Taxpayers

Wisconsin Governor Scott Walker (left), President Donald Trump, and Foxconn chairman Terry Gou at a groundbreaking ceremony in Mount Pleasant, Wisc., June 28, 2018. (Kevin Lamarque/Reuters)

State and local governments genuflect before the corporate altar.It was a nice photo-op: the president of the United States, the speaker of the House, the governor of Wisconsin, and the CEO of Foxconn, a Taiwanese manufacturing company, breaking ground on a new plant that could potentially bring some 13,000 jobs to Wisconsin. President Trump used the ceremony last Thursday to celebrate what he hails as an American manufacturing renaissance: “So we’re open for business. Made in the USA. It’s all happening, and it’s happening very, very quickly. We’ve created 3.4 million jobs since the election, including over 300,000 manufacturing jobs.”

But the Foxconn deal is a condemnable example of corporate welfare in its most egregious form.

A look at the numbers is illustrative. All told, Wisconsin could end up delivering $3 billion in tax credits to Foxconn. Even if Foxconn’s arrival results in thousands of new jobs over the next several years, it will open a gaping fiscal hole that will be filled only in 2043, when the state recoups the money spent on these tax breaks.

Here’s the bottom line: If the jobs target of 13,000 is met, Wisconsin taxpayers will pay $219,000 per job. If only 3,000 jobs are created, they will pay $587,000 per job in the form of a $1.7 billion tax credit. And these are conservative estimates, leaving out the additional tens of millions of dollars that will go toward the infrastructure improvements necessary to accommodate Foxconn’s new plant. The ill-conceived incentives are the core of an all-around terrible arrangement. Who wins? The politicians. Who loses? Fiscal sanity and those footing the bill for political pet projects.

Unfortunately, Foxconn is one among many cases of state and local governments making massive concessions to corporations in exchange for benefits that are easily outweighed by the costs. States and cities dole out billions of dollars every year to attract businesses through cash grants, tax breaks, and new infrastructure.

The search for Amazon’s second headquarters (HQ2), for instance, has left around 230 state and local governments genuflecting before the altar of the Seattle-based tech deity, offering tributes amounting, in several cases, to billions of dollars. The offers are truly extravagant. Various proposals include land giveaways (Stonecrest, Ga.), Amazon input in city-planning initiatives (Fresno, Calif.), and municipal funding for employees to expedite Amazon projects (Boston).

States and municipalities want the jobs and prestige that come with hosting these companies; politicians want the votes that accompany the credit for attracting these companies. It’s a simple function of the wrong incentives run amok.

Aaron Renn, a senior fellow at the Manhattan Institute, explains: “Like Amazon HQ2, whenever there is a major facility like [the Foxconn plant] . . . it is really difficult for states to resist playing the game.” According to Renn, the incentive structure is such that decision makers will either face criticism for aggressively pursuing contracts at great cost, or for failing to secure them. Wisconsin governor Scott Walker would have faced criticism regardless of the decision he made, Renn says.

Economic-development agencies of state governments exacerbate the problem. By using certain metrics to measure success — such as jobs created by government programs — these agencies incentivize state officials to pursue low-benefit, high-cost deals at great expense to the state and its taxpayers.

Nathan Jensen, a professor at the University of Texas and the co-author of Incentives to Pander, makes a version of this argument based on research spanning the United States and several other countries. Astonishingly, he says, most studies find that approximately three-fourths of companies benefitting from special incentives make their decisions before securing tax breaks. Most of the time, these packages aim to influence a decision that has already been made.

Asked about Amazon’s country-wide search for a new headquarters, Jensen sticks to his thesis. “I think they already have a pretty good idea of what they’re doing,” he says. The company has a need for highly-educated workers, and will therefore already prefer a city where many already live or to where they would be willing to move. The whole thing is “a bit of theater,” according to Jensen: “I would have been shocked if they didn’t have one to two places” at the top of their list “from the get-go.”

Most of the time, these benefit packages aim to influence a decision that has already been made.

For skeptics of these mega-deals, the Amazon HQ2 search marked a turning point. The blatant and reflexive rush to offer Amazon carve-outs proves just how willing many state and local governments are to trade tax dollars for job creation. New Jersey and Maryland are prepared to lavish Amazon with more than $7 billion in corporate goodies.

The cost of these kind of incentives is astoundingly high — there is little research that points to their success. And competition among states to lure in large companies can yield absurd results. Jensen writes about an ongoing bidding war between Kansas City, Mo., and Kansas City, Kan., that sees firms regularly cross the Missouri River to secure better benefits. In a recent episode, reinsurance firm Swiss Re moved from Kansas to Missouri — a journey of four miles. Last year Kansas state senator Tom Holland complained that state policies amount merely to “rearranging chairs on the patio.”

But there’s hope for reform. Included in the recent tax-reform law is a provision that treats some state incentives — such as infrastructure improvements and cash grants — as taxable corporate income. The next tax-reform push, which Trump says might come in October, should prioritize a measure treating state and local tax credits the same way. By taxing corporate incentives as income, the federal government can limit their abuse.

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Culture Wars

Jim Geraghty starts out the Morning Jolt with this:

Brett Kavanaugh is a fine pick for the Supreme Court.

Yes, Amy Coney Barrett might have triggered a clarifying culture war Ragnarök. Yes, at 53, if confirmed, Kavanaugh will probably be on the Court until “only” the 2040s.

For the uninitiated, according to Wikipedia, Ragnarok is:

In Norse mythologyRagnarök (/ˈrɑːɡnəˌrɒk/)[2] is a series of future events, including a great battle, foretold to ultimately result in the death of a number of major figures (including the gods OdinThorTýrFreyrHeimdallr, and Loki), the occurrence of various natural disasters, and the subsequent submersion of the world in water. Afterward, the world will resurface anew and fertile, the surviving and returning gods will meet, and the world will be repopulated by two human survivors.

Thor: Ragnarök is also a Marvel Studio’s movie where Thor stops the destruction of his world.

So, the Never Trumpers at NRO have switched from disliking The Donald for fighting about everything to disliking him for failing to cause cultural Ragnarök.  It would seem that a consistent position for them would be to praise The Donald for avoiding cultural Ragnarök.  Perhaps The Donald is maturing into this presidency thing.  Don’t color us convinced as of yet but we like his decision to avoid Ragnarök.

Suicide Of The West

Jonah Goldberg’s Suicide Of The West is a book everybody should read.  It is not a great book but it has parts that are absolutely awesome and is full of thought provoking moments.

The best part is the discussion of what Jonah calls The Miracle and Deirdre McCloskey calls the Great Enrichment.  On titles, we’re with Deirdre but we will use Jonah’s here.  Jonah does a great job of explaining the extent of The Miracle.  We love his “most important “hockey stick” chart in all of human history” on page eight.  It shows actual global GDP over the last two thousand years and we get a hockey stick.  He doesn’t limit himself to one method of teaching so everyone should get it.

Sidebar: We thought of saying that everyone should be required to read Jonah’s introduction and appendix but we can’t count on everyone’s sense of humor.  Everyone should read it but we are not into coercion.  End Sidebar

Jonah’s book’s appendix has a nice summary of his four core arguments which we have abridged even more here:

The Miracle has caused us to be unnaturally prosperous
We stumbled into The Miracle and we can stumble out
Human nature is fundamentally unchanging
Human nature can overpower the institutions that make prosperity possible

We agree.  We are fans of the growth fairy so we would add (and think that Jonah agrees based on the last argument) that we now have the knowledge to make prosperity more likely.  We think that Jonah would say that our romantic side, the feelings of human nature, cause the conflict that might end prosperity.

Part of his stumble out argument is that we got The Miracle by argument and rhetoric and we can lose it the same way.  Here Jonah cites Deirdre’s article above.  We love both of them and especially Deirdre’s Rhetoric of Economics.  It was a light from above in our understanding the intellectual differences between economics and accounting.  When Deirdre finds rhetoric for the second time it is less convincing to us.

The conflict of the book is the the rationality of the discussion of economics and human nature and Jonah’s feelings towards The Donald.  Jonah despises The Donald because he has brought tribalism to the right.  With an already tribal left then there is little to do but despair for The Miracle because corruption will set in and capitalism will become ineffective.

In summary, we were beyond delighted that somebody made such a beautiful and sincere argument for capitalism.  Jonah hasn’t convinced us to share his pessimism but we are concerned.  It is an important book that you should read but it is not a great book.

 

Soccer Rule Changes

NRO has reprinted Sami J. Karam’s suggestions for soccer rule changes under the title Soccer For Americans.  We guess that the title means that Americans would like soccer if it only changed its rules.  The problem that Sami focuses on is nicely illustrated by last night’s baseball game between the Nationals and the Marlins.  The Nats were down nine to nil going into the bottom of the fourth.  The Nats then scored 14 runs to take a five run lead only to see the Marlins score three to make it a nail-biter at the end.  On the other hand, when France scored the second goal versus Uruguay in the 61st minute (of 90) everyone assumed it was over.

Sidebar: When Japan went up two nil versus Belgium in the 52nd minute being earlier wasn’t the big difference.  The big difference was that Belgium had had numerous scoring opportunities and players with the skill to succeed.  Still, in order to win in regular time Belgium needed a blunder by Japan (not taking the corner short) and one of the great goals in World Cup history.  There can be comebacks in soccer but you need to watch lots of unsuccessful ones to see a success.  Sami does a good job of making that point.  End Sidebar.

Sami has three suggestions: change the rules for more goals, change the scoring, do away with penalty shoot-outs.  Sami’s only suggestion for more goals is changing the offsides rule which he concedes won’t produce much.  We are not impressed but there might be an idea out there that doesn’t change the game and produces more goals.

We like part of the scoring change idea.  Particularly we agree that a goal (notice the rhetorical device of implying that a penalty is not a “real” goal) should count twice as much as a penalty kick.  We don’t care if it is two versus one or one versus a half.  This will reduce the number of ties.  The rest we can do without.

Then there is doing away with penalty shoot-out and references this article with a list of alternatives to shoot-outs.  Other than the MWG recommendation that we reduce players we don’t see much interesting.  We do think that reducing players should be tied to increased substitution opportunities.  In this World Cup there is an extra substitution allowed in overtime.  We think that another plus allowing the removed players to be free substitutes would improve the quality of the overtime periods and decide soccer games with soccer.

It is highly likely that Sami’s first two suggestions will come to naught.  We still think fewer players and more subs in overtime means more goals.  Who can we find that can afford to bribe FIFA so we can get this fixed?

 

Soccer Tiebreakers

The World Cup has a problem with tie breakers.  First, Japan ousts Senegal based on FIFA Fair Play points

Sidebar: The terminology seems particularly ironic given the corruption that is endemic to FIFA.  End Sidebar

and then two of the first four knockout games are tied after 120 minutes.  They can’t make the teams play until a winner like hockey because they need to play in a few days and there are limits on substitutes.  Playing forever is unfair to the winner in soccer because it is a one game series.  Thus, FIFA goes to penalty kicks or spot kicks to resolve the tie.  It provides high drama but it isn’t soccer.

Here is how we think we could reduce the number of games that go to penalties.  We like the additional substitute that is allowed in overtime but we would go beyond that.  We would reduce the teams by by a man at the beginning of overtime.  But that man becomes an additional free substitute.  So you could take a star like Ronaldo out but then substitute him after a bit of rest.  Nine on nine in front of the goal keepers with, effectively two subs, should open up the game and lead to more goals.  We would even consider taking off a second player at the end of the first half (15 minutes) of overtime.  Let’s try it in a smaller tournament and see how it works.

Politics And Corporations

Those pesky corporations, allowed by Citizens United, are at it again exercising their right to free speech.  Just to remind you of the case:

The United States Supreme Court held (5–4) on January 21, 2010 that the free speech clause of the First Amendment to the Constitution prohibits the government from restricting independent expenditures for communications by nonprofit corporations, for-profit corporationslabor unions, and other associations.

Really, the vote was 5-4 so we were that close to losing a basic freedom.  Well, we think it really was two basic freedoms: speech and association.  Recently we got this email from Airbnb.  We have only excluded the signatures:

The US Supreme Court decided to uphold the travel ban. We are profoundly disappointed by the Court’s decision. The travel ban is a policy that goes against our mission and values — to restrict travel based on a person’s nationality or religion is wrong.

And while this news is a setback, we will continue the fight with organizations that are helping those impacted. Airbnb will be matching donations to the International Refugee Assistance Project (IRAP) up to a total of $150,000 through September 30, 2018 to support their work advocating for systemic change and legal pathways for those affected by the travel ban. If you’d like to join us, you can donate here.

We believe that travel is a transformative and powerful experience and that building bridges between cultures and communities creates a more innovative, collaborative and inspired world. At Airbnb, we are so grateful to our community who will continue to open doors around the world so that together, we can travel forward.

We are glad that Airbnb didn’t lose their right to speak to their customers and others on political issues. We are glad that the court made the decision on the legal issues rather Airbnb’s mantra of travel is good.   We are travel fans too but it should have nothing to do with the legal decision the court made.  We will continue to use Airbnb despite our differences.

MLB Scheduling And Relegation

Relegation in MLB, as we discussed recently, is the only real solution to tanking.  By tanking we mean teams that give up on the current year to either maximize current profits or build for the future.

Sidebar: We saw a nice example of soccer tanking in the 0-0 tie between France and Denmark  both teams were happy with a tie and did little to try and score.  Will Belgium versus England be the same today?  End Sidebar.

It is unlikely to happen but if it does there is one additional problem: MLB doesn’t play a balanced schedule.  For example, consider the situation where MLB relegates exactly one team.  Currently, the Orioles (23 and 56) would be the first choice for relegation and the Royals (25 and 55) would be the second.

In soccer leagues that use relegation it is a fair result because every team plays a balanced schedule of each opponent home and away.  In MLB, teams play division rivals more often.  So far in 2018, the teams with the two best records in MLB are the Red Sox and the Yankees.  The Orioles will play each of them 19 times.  The Royals will play each of them six times.  It seems likely that the ranking of the Orioles and the Royals would be reversed if the teams played a balanced schedule.  Our proposed MLB relegation would raise a ruckus but it would be a triple ruckus, and properly so, without a balanced schedule.