Audit Notes: Race to the Bottom, More Corporate Welfare, Money Is Fungible

The New York Times is good to take a look at how neighboring states race to the bottom bidding to give companies tax breaks to relocate to or stay in their states.

A.G. Sulzberger (the publisher’s son) tells the story through Kansas City, two cities with the same name straddling the Missouri and Kansas border that have seen such a battle.

Interestingly, the Times finds a CEO who’s a bit sheepish about it all. Kansas has offered his company $40 million in corporate welfare to relocate a few miles across the border from Missouri:

Though some say such moves strengthen communities with new jobs and tax revenue, a growing chorus of leaders on both sides are wondering about the point of it all, warning that the efforts serve only to help private companies at taxpayer expense. Even some beneficiaries confess surprise at neighbors’ competing with such rancor.

“In all candor, it’s unusual and a little disconcerting,” said Gerry Lopez, chief executive of AMC Entertainment, the movie theater chain, which is being offered incentives to move to Kansas from Missouri. “I do wonder whether this is an appropriate role for government to be playing.”

This used to be called smokestack chasing, but there aren’t too many smokestacks to be chased anymore—unless you think you can snag them back from China.

Rarely, though, in these corporate welfare stories do I see any hint of a solution. Why don’t states sign pacts agreeing not to raid each other’s companies? After all, as the Times writes, it’s a zero-sum, beggar-thy-neighbor game.

But this is a worthy story. Compare it to how generously The Wall Street Journal treated Kansas City, Kansas’s (KCK to natives) corporate welfare a few days ago:

Meanwhile, the rest of metropolitan Kansas City was largely thriving, thanks in part to high-tech companies like Sprint Corp., based in a prosperous suburb called Overland Park.

Then the leadership of KCK began offering tax incentives for businesses and entertainment companies to develop the city’s western acreage, and the balance of power in metropolitan Kansas City, home to about two million people, started to shift. A racetrack featuring Nascar competitions opened, followed by a shopping center, hotels and amusement parks.

Suddenly, 10 million visitors annually, many from several states away, began pouring into KCK. By last year, the new development, known as Village West, boasted 114 businesses that employed nearly 6,000 people. For the first time in decades, new groceries and residential districts opened in KCK.

— Speaking of corporate welfare, Gawker’s Ryan Tate has a nice post on “How Twitter Extorted a Desperate City

In the first of two votes, San Francisco supervisors approved 8-3 the creation of a special tax zone that will exempt Twitter from payroll taxes on new employees for six years. Twitter, which is publicly threatening to move to the dreadful suburb of Brisbane, wanted even more: total exemption from payroll taxes for eight years.

As Twitter’s defenders themselves point out, this is being done largely to ensure outsized returns for Twitter’s investors—they’ve showered the company with $350 million, or $1 million per employee, and Twitter has a “fiduciary interest” in meeting their outsized expectations, social consequences be damned. The tax is also being touted as a way to make sure Twitter’s staff get super fabulously wealthy on their employee stock rather than merely fabulously wealthy, since the payroll tax would shave a bit off their IPO windfalls.

Smaller, less lavishly funded businesses, meanwhile? Out of luck.

— So the government may shut down, in part over conservative insistence on defunding Planned Parenthood, which they say uses taxpayer money to fund abortions.

Ezra Klein says this:

It’s also worth noting that federal law already forbids Planned Parenthood from using the funds it receives from the government for abortions.

That’s great and all. But Klein well knows that money is fungible. Taxpayer money at Planned Parenthood, then, helps fund abortions indirectly, at least.

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Ryan Chittum is a former Wall Street Journal reporter, and deputy editor of The Audit, CJR's business section. If you see notable business journalism, give him a heads-up at Follow him on Twitter at @ryanchittum. Tags: , , , ,