Last Thursday, on a single day's notice, the Mississippi Legislature passed a bill that will give two private corporations $274 million along with hundreds of millions in tax incentives. The bulk of the funding ($263 million) and incentives will go to a German tire manufacturer with annual revenues that exceed $38 billion.
In exchange, these two companies promised to produce 3500 jobs by the year 2028. The Legislature will fund these projects by taking out loans that taxpayers must pay back. These deals come on the heels of recent budget cuts and calls by some for tax increases of as much as $375 million/year to fund infrastructure.
Legislators are admittedly in a tough spot when asked to vote on these projects.
A vote against could lead to the criticism that they are not doing enough to spur the economy. The secrecy of these deals, and the speed at which they are considered, means that little investigation and deliberation can occur.
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Legislators certainly are not given time to hear from their constituents.
While promised future jobs are understandably enticing, analysis of their impact often ignores the fact that these new employees are most frequently being taken from existing Mississippi businesses that don't have the advantage of being subsidized.
It also ignores the economic growth that would occur naturally if taxpayers were allowed to keep and spend their own money. Instead of truly growing the economy, we are redirecting resources away from taxpayers and to the detriment of businesses who don't receive subsidy.
Mississippi is not alone in this "economic development" model.
States are increasingly spending exorbitant sums of taxpayer dollars to encourage mega-corporations to relocate. As packages become more lavish, states are engaging in a race to the bottom--one that in the long term is not good for the economy.
In the private sector, venture capitalists find businesses they think have unrealized value and invest their own money. The venture capitalist makes money if the business succeeds, but also bears all the risk of failure. When states act like venture capitalists, taxpayers bear all the risk, but receive none of the direct financial reward.
These risks are not theoretical. In Mississippi alone, there have been costly failures (Beef Plant, $55 million; Kior, $75 million; Twin Creeks, $26 million), projects that have not come close to satisfying job projections (Stion, the Port expansion) and companies that have left after incentives have run (Oreck).
The current crop of projects may not bear the same risks, but they are not risk free. On a practical level, it would seem no one is really asking the question "how much is too much for a taxpayer sponsored job?"
There is a better long term solution than picking winners and losers with taxpayer dollars. America's great wealth was amassed largely on the back of free market principles. Understanding the free market means understanding that it is not the role of government to "create" jobs or to manage the economy.
Instead, the government should create an atmosphere that allows people to buy, sell and profit with as little tax and regulatory burden as possible. In that setting, consumers--citizens--decide what businesses thrive and which businesses go under. It leads to the most efficient use of resources.
The fact that our state gives such lucrative tax breaks to a handful of companies is a tacit admission that lower taxes create a climate for economic growth.
The state should embrace this understanding for all employers and would-be entrepreneurs, not just the chosen few.
In practice, this looks like comprehensive tax and regulatory reform that stops punishing businesses for investment and productivity in Mississippi and tears down barriers to entry for entrepreneurs.
Lastly, I'd invite you to consider this issue as a question of property rights.
In 2011, 73% of Mississippians voted against eminent domain abuse that allowed the government to take private property and give it to a private business.
This is not much different. The money you earn is your property. It should not be given to private corporations.
Write Russ Latino,the state director of Americans for Prosperity, a limited government and free market advocacy group, and an AV-rated attorney, at email@example.com.