I’m sure how you remember that a few months ago the state of Illinois, hard up for revenue, imposed new income taxes on individuals and companies. The story continues:
The ink was barely dry on the new taxes before major employers announced their unhappiness. The equipment giant Caterpillar, the spinal cord of the Peoria economy, says the higher business and personal income taxes will cost the company and its 23,000 Illinois employees $40 million a year. “I want to stay here, but as the leader of this business I have to do what’s right for Caterpillar when making decisions about where to invest,” CEO Doug Oberhelman said in the wake of the tax increase, adding that Illinois “is not favorable to business.”
Caterpillar has long built new facilities outside Illinois to avoid the United Auto Workers, most recently in Texas. And after the Quinn tax hike, at least six states—from Virginia to zero income tax South Dakota—offered lower costs if the firm relocated. Caterpillar is staying put for now.
When the cellphone business Motorola Mobility hinted this spring that it might leave for San Diego, Mr. Quinn bounced into action. “I know how to work with the big businesses,” he declared to the media, as he rushed—taxpayer checkbook in hand—to keep the company in the state. Motorola pocketed $100 million in tax incentives last month to stay in Libertyville.
In addition to Caterpillar and Motorola Sears, Navistar, Continental Tire, Groupon (!), and U. S. Cellular have all lined up for incentives and are feeding at the trough. The Chicago Tribune remarks:
We’re seeing these threats because Illinois government does not welcome business.
We’re seeing these threats because Illinois has failed to address its broad fiscal problems and has massive debts that will fall on taxpayers.
We’re seeing these threats because rival states are pushing to be more open to business. Illinois is the outlier.
Did you hear Quinn on Thursday? In one sentence he summed up the hostile, government-centric view of this state. “The taxpayers of Illinois aren’t going to subsidize private companies unless they give something back to the people of Illinois,” he said.
They give something back! They give people jobs, Governor!
There will be several outcomes from all of this wheeling and dealing. First, the state won’t realize the revenue that was projected from the tax increase. That was obvious from the get-go. Where will they turn now?
But even more pernicious in my view is that the state is picking winners and losers. Motorola can secure breaks from the state but smaller businesses (which may in aggregate employ more people) can’t. Big retailers get tax breaks. Small stores don’t.
Add to that the companies that won’t even think about moving to Illinois because of an unfriendly business climate (in addition to an unfriendly ordinary sort of climate, said as as I watch the thunderstorm outside my window). What is seen and unseen.
Lest this be treated merely as an Illinois outlier, I believe the incentives are being driven by competing incentives from other states. This is a particularly vile piece of interstate competition that I wish could be outlawed (by Constitutional amendment). By all means let businesses move to states with better laws and business climates, but this type of competition will usher an even more distopian future.
I certainly agree that it would be better if we were growing by expanding the size of the pie rather than squabbling over who would get the biggest share.
There’s an article in the WSJ today claiming that 37% of all jobs created since the start of the recession have been created in Texas. Hard to say how many of those were transferred from other states.
PD –
I’m sorry, I most respectfully and stridently disagree. There has always been an active competitive market in “corporate domicile,” and it continues today. Let’s not turn this into a corporate tax, or incidence of corporate tax, debate, but to think otherwise is pure fantasy. And it transcends corporate taxes. Quality of life. Property taxes. Climate. It all factors in. There are consulting firms to large corporate that identify “best locations” for plants and such.
More importantly, (at the risk of being biased) is the small business location decision. And that is much more tax and regulatory driven. We’ve owned businesses in TX, FL, OH etc. Give me Texas any day. Let me tell you what we currently avoid, unless there are compelling reasons: CA, NY, OH, MI, IL, PA…….. Like: IN, TX, FL, NC, ……….. Guess why. And we aren’t the only ones.