The Myth that Corporate Tax Breaks Create Jobs

The St. Petersburg Times point out this fallacy with Motorola as an example:

In a state whose government prides itself on being stingy, Motorola Inc. has found the gift that just keeps giving. It is labeled "economic development," and for all the oversight the government provides, one would think these handouts were play money. They are not.

As Times writer Sydney P. Freedberg reports, Motorola has provided an awkward return for nearly three decades worth of multi-million-dollar government investment. The company, which reported $1.5-billion in worldwide earnings last year, has closed one of its two Florida manufacturing plants and reduced the overall state workforce from 6,500 in 1995 to roughly 3,000 today.

Still the checks keep coming, and Scott Openshaw, spokesman for the governor's Office of Tourism, Trade and Economic Development, offers an almost robotic assessment: "Without question, these incentives have been a good investment for the state." Without question? What, exactly, would constitute a bad investment?

Global economic pressures have forced many companies to re-evaluate and downsize, and Motorola is no exception. But the point in Florida is whether state and local governments can keep showering tax money on a select few of the state's 1.5-million businesses without regard for the results. How can lawmakers justify tax breaks for companies that are losing jobs or filling them with foreign workers on permanent work visas? What is the purpose?

The lack of accountability in economic development programs is almost breathtaking. One month after the state agreed to give Motorola $4.5-million to create 1,000 new jobs at its Plantation plant in 1995, the company turned around and offered buyouts to 1,000 workers at its Boynton Beach plant. When a state bureaucrat threatened to end the tax breaks in 1999, the company challenged the job-creation numbers the state was using and the state simply backed down. Three months after a Broward economic official complained about Motorola transferring jobs to Japan, the state approved another refund in 2001. Only weeks later, another county official wrote that "I have no confidence the state is actually tracking this." The next year, another refund was approved.

For this fiscal year alone, Florida will spend almost $1-billion on economic development - most of it in the form of tax breaks. Some people question whether such incentives are fair because they grant competitive advantage to a few companies, either new or politically connected, at the expense of others. Others question whether such breaks play any significant role in attracting new businesses, noting that retail giants such as Wal-Mart choose to build wherever they can find customers.

Whether such incentives are good public policy or not, they ought to at least be handed out carefully and the results measured judiciously. But that's not the way Florida does business, which is why Motorola gets tax money as it lays off workers.