Today seems to be the day for specious claims and vapid prescriptions. Maybe they’re assuming that no one notices over the weekend. Under the category of vapid prescriptions we have this op-ed from Edward Alden and Rebecca Strauss at the New York Times on the sad strategy of producing growth in your own state by luring businesses away from other states:
Such competition among states is all too common. Each year, state and local governments in the United States spend more than $80 billion, or roughly 7 percent of their total budgets, on tax breaks and subsidies to attract investments from auto companies, movie producers, aircraft makers and other industries. Last year, Washington State granted a subsidy package to Boeing worth $8.7 billion — the largest to a single company in American history — to keep Boeing from moving production to South Carolina.
From a national perspective, this is about as dumb as it gets. Taxpayer money is wasted to pay off companies that would most likely have invested somewhere else in the United States. State governments would be better off if they collectively ended the handouts and competed for business in other ways, such as making investments in infrastructure or education or offering lower overall tax rates. But no state wants to stop first and risk losing jobs if other states don’t follow suit.
That’s a genuine problem but as is the case with so many op-eds the proposed solutions are genuinely vapid. The prescriptions are to explain to the voters the cost of the inducements and for states, for reasons they don’t explain, to enter into bilateral agreements.
Let’s take the example of companies that re-locate from California to Texas. Do Mr. Alden and Ms. Strauss genuinely believe that explaining the costs to Texas voters (in many cases, none) and California entering into a non-compete contract with Texas will solve the problem? Companies move from California to Texas for the more business-friendly climate offered without further inducements by the Lone Star State. You can salute the benefits of California’s more extensive regulations or explain how dearly California needs the tax revenue to support its commitments but I doubt those will be particular inducements either to Texas voters or companies.
Further, governors who court out-of-state businesses are fulfilling their fiduciary responsibilities to the voters that elected them. The governor of Texas has a responsibility to the voters of Texas, not the voters of California. That Texas voters will re-elect or reject him based on what he does for them is an additional inducement.
The brutal reality is that states going out of their way to lure businesses from other states will be an attractive strategy as long as economic growth is as low as it has been since the late recession. As long as re-allocating economic growth among states is an easier chore than producing growth within states, we should expect states to encourage the behaviors that the authors decry.