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In today's New York Times, Louise Story begins a series, "The United States of Subsidies," ten months in the making, with a story focusing on General Motors closures, the border war for investments between Kansas and Missouri in the Kansas City metropolitan area, and a new estimate of state and local incentives to business, $80 billion a year. Backing this up, and no doubt contributing to the long lead time, is a database of 150,000 state and local subsidy deals going back at least 20 years. Given its appearance in the country's newspaper of record, the series is sure to elevate the issue of state and local subsidies to a prominence it has never known before.

Since my 2011 estimate was $70 billion per year in total subsidies to business, and $46.8 billion in location incentives, the Times figure represents a substantial increase if accurate. Ever since David Cay Johnston reviewed my book when it first came out, he has argued that my $70 billion figure was probably an underestimate, and the new report would seem to back him up. Nevertheless, I will certainly be spending some time analyzing the database to see just what is in it. According to the story, $18 billion per year is accounted for by corporate income tax breaks, a whopping $52 billion by "sales tax relief," and the other $10 billion unspecified but most likely property tax breaks. I have some questions about these numbers, however.

First, it seems to me that property tax breaks likely exceed $10 billion a year. When California axed tax increment financing earlier this year, it was generating $8 billion in tax increment all by itself. Although California cities were by far the biggest user of TIF, municipalities in almost every other state still use it, as well as myriads of property tax abatements offered at the local level. Story is well aware of this. She writes:

The cost of the awards is certainly far higher. A full accounting, The Times discovered, is not possible because the incentives are granted by thousands of government agencies and officials, and many do not know the value of all their awards
.

Thousands of local governments give subsidies, and these are overwhelmingly related to property tax. In my most recent estimate, in Missouri local subsidies exceeded state subsidies, so my default  assumption was that they were equal if I did not have adequate information on local incentives, as is usually the case due to the huge number of governments involved.

On the other hand, there is some chance that the $52 billion in sales tax subsidies could be an overestimate; it all depends on what The Times includes in this category. My own thinking about sales tax has changed since I first created the subsidy estimates in my 2000 book, Competing for Capital. My estimate for Minnesota, for example, included many hundreds of millions per year in sales tax exemptions for business services. Now, I tend to think of these tax breaks as methods to avoid tax cascading (paying the sales tax on a good more than once, by taxing the full value of every intermediate good) and not a subsidy at all. They have been removed from my estimate of total subsidies in my more recent work, which did not prevent my estimate for 2005 (published in 2011) from being $20 billion higher than that for 1995 (published in 2000). I do still count some sales tax breaks as subsidies, particularly those on plant and equipment, which apply to the initial investment rather than ongoing operations.

While this may seem like a sterile academic argument, in fact it makes a big difference whether incentives are $50 billion a year or $80 billion a year, approximately 600,000 public sector jobs paying $50,000 annually. The larger the true figure, the more pressing is the case for subsidy reform. The inauguration of this new series of articles, plus the database, will help us put a better number on the value, a critical first step toward galvanizing public opinion to force politicians to rein in subsidies.

I will be commenting more on this series over the course of this week.

UPDATE: Text corrected to reflect that although I had specific data for local incentives in Michigan, the total of local incentives was somewhat lower than that of state incentives. In addition, it is clearly true that TIF in California exceeded state subsidies, so obviously so did the total of local subsidies. However, I did not know this at the time I made the estimate.

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Comment Preferences

  •  Thanks for posting this. Meteor Blades is (0+ / 0-)

    also up with similar info.

    Off now to read Ms. Story's story!

  •  Just one point. (0+ / 0-)

    There is a difference between the money given to GM and companies like big oil, pharma, etc. that get subsidies all of the time.      Automotive get mandates for higher mileage, and big oil get $$$$$$$$$$$$$$$$$$$$$$$$$$$$$$.

    Just like many homeowners working through their financial crisis, the Great Recession came out of the blue and pushed them and GM right over the edge.   During this time, MI governor would have given away her kids (figuratively speaking) to bring jobs of any kind to the millions of Michiganders out of work.  The big villains and are the banks.  Money spent during this time to mitigate their damage belongs in their column.  

    If money is speech, then speech must be money.

    by dkmich on Mon Dec 03, 2012 at 04:07:31 AM PST

    •  GM's subsidies are contingent on investments (0+ / 0-)

      While pharma's main ones (accessing government research way below its value) are not connected to investment. Big Oil's subsidies are ostensibly connected to exploration, but the oil companies are so profitable they don't need the subsidy.

      Of course, we need to prosecute bankers like Iceland did.

  •  Meh, the states and local governments (1+ / 0-)
    Recommended by:
    Kenneth Thomas

    can make it up by increasing taxes on the little guy.

    Oh wait,  that's already the case as shown by the second graph at this link

    And the comments section includes this blurb, which perhaps could/should also be used here at DailyKos from time to time:

    Comments

    Please use the comments to demonstrate your own ignorance, unfamiliarity with empirical data, ability to repeat discredited memes, and lack of respect for scientific knowledge. Also, be sure to create straw men and argue against things I have neither said nor even implied. Any irrelevancies you can mention will also be appreciated. Lastly, kindly forgo all civility in your discourse . . . you are, after all, anonymous.

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