Many of the most important stories develop for years before they get covered because no one makes an official announcement, there is no central point where events occur, and the facts are scattered, subtle, and sometimes buried. Gene Roberts, the legendary executive editor of The Philadelphia Inquirer, often said these are stories that “ooze.”
In a widely applauded three-part series last month, The New York Times took a long, deep look at an important story that has oozed for decades: state and local subsidies to businesses.
Reporter Louise Story wrote in the first installment that the Times “analyzed more than 150,000 awards and created a searchable database of incentive spending.” The paper pegged the annual cost to taxpayers of the programs it identified at more than $80 billion, though it added that “the cost of the awards is certainly far higher.”
The series drew immediate and profuse praise. Neal Peirce, a state government specialist whose column is syndicated by The Washington Post Writers Group, called the series “a landmark in U.S. investigative journalism.” A column by Anna Codrea-Rado here at CJR stated that by augmenting the articles with an online database, Story “presided over the perfect marriage of big data and public service journalism.” And Matt Purdy, investigations editor at the Times, told me via email that the paper had “heard from scholars at the Federal Reserve and universities like Duke and Stanford who are grateful for the resource and plan to use Louise’s data in their research.”
I was among those who were thrilled to see so much front-page real estate devoted to a topic I had written about in my 2007 book on corporate subsidies, Free Lunch.
The series, on a vital but under-covered public issue, deserves much of this acclaim. The package compellingly portrays the power imbalance between corporations and local governments in negotiations over incentives, as well as the uncertain, and often unmeasured, benefits of these subsidies to the states and communities that bestow them.
But within days of publication the series also began to draw measured criticism not from the companies it exposed for taking taxpayer money, but from several of its own sources as well as noted authorities on the subsidy issues. These critiques—which amount to worries that the Times may have simultaneously understated and overstated the scale, and misstated the nature, of subsidies to business—were joined to praise for the effort. But with the Times package drawing mention in local coverage of these issues around the country, it is worth taking a closer look back at the criticisms now, because the series will continue to influence work by other news organizations—especially as state legislatures convene for a new year and budget debates move to the top of the news agenda.
Should sales tax exemptions count?
Perhaps the single largest critique focused on the Times’s choice to include sales tax exemptions for businesses in its accounting of subsidies. That decision was not a minor one. As Story wrote in the first article of the series, sales tax relief accounts for “around $52 billion of the overall $80 billion in incentives.”
According to economist Timothy J. Bartik—the first person quoted in the series, and a critic of many incentive programs—it was a questionable decision. In a blog post focused on his home state of Michigan, Bartik noted that of the $6.65 billion in business incentives the Times identified, the majority—about $4.80 billion—came in the form of sales tax exemptions for business services and manufacturing inputs. But lumping these policies in with handouts and special deals to companies is a mistake, Bartik writes:
Most public finance economists would agree that the sales tax should NOT be applied to business purchase of inputs, whether they are goods or services. Why? If we apply the sales tax to business purchase of inputs, this discriminates in favor of vertically integrated firms, and against firm’s contracting out to have some of their needed inputs be produced by other firms. A firm that purchases inputs from some supplier, which may in turn purchase inputs from other suppliers, will find that the sales tax pyramids with each level of additional purchase. A firm can reduce its sales tax bill by acquiring its supplier, that is by “vertically integrating.” There is no public policy rationale for encouraging such vertical integration.
Bartik elaborated on the theme here. A similar point was made by Tax Analysts executive editor David Brunori, who called the inclusion of sales tax exemptions a “serious flaw” in an otherwise “terrific set of articles.” (Disclosure: I am a columnist for Tax Analysts.)