Governor Nixon and corporate welfare: the case of Boeing

To induce the Boeing Corporation to build the new 777X airliners in Missouri, the Governor has convened a special session of the legislature to consider his plan to give the aerospace manufacturer millions in tax credits and other incentives. An Associated Press story reports that one of the Governor’s scenarios predicts the creation of 8,000 jobs at a cost of $ 1.74 billion in incentives over several decades. This works out to $ 217,500 per job created. All the Governor’s scenarions predict that new taxes collected will exceed the cost in tax expenditures.

We note the following:

Government analyses such as those from the Governors office are usually based on faulty assumptions and rarely pan out as predicted. Among other problems, they fail to account for the opportunity cost of the tax credits. The analyses we have seen usually show that a lower general level of taxation is more stimulative and creates more new jobs than do targeted tax credits. The tax breaks for one huge corporation will likely come from increased levies on Missouri citizens and businesses. Do the governor’s analyses account for the jobs lost from excess taxation? It could well be the case that the net jobs created would be negative. Rushed analyses controlled by a political governor’s office do not inspire confidence.

Liberals and Democrats – those would-be wizards of manipulating the economy – like high levels of taxation and targeted tax relief because they provide more leeway to manipulate tax rates in response to recession and inflation, not to speak of the political realities of reelection. This kind of fine-tuning does not have a track record of success, particularly at the state level.

Progressives trumpet their concern about inequality and fairness, which they contend are inherent in Republican policies. It would be harder to come up with a situation more unfair than this one. Wouldn’t all subsequent manufacturers expect a handout to move to Missouri?

The tax cuts the Governor wants to give the Boeing Corporation exceed the tax relief that would have been given individuals and businesses in a recent bill the governor vetoed. The reason he cited was that the tax cuts would harm education funding. Are we to believe that although his tax cut is bigger, it will not harm education funding? Education funding might be harmed, but the Governor’s allies in labor unions would be mightily pleased.

The Governor has urged the legislature – to no avail – to reduce the huge amount of tax credits doled out to special interests. The amount is so great that it has been a severe drag on state revenues for years. We were with the Governor in his fight against these politically powerful interests, but with a different political situation he has changed colors and now advocates a mammoth tax credit.

In 2011, following disputes with its labor unions in Seattle, the Boeing Corporation was accused by a politicized National Labor Relations Board of unfair labor practices for building a plant in South Carolina . The NLRB’s suggested remedy was to require Boeing to move the plant back to Seattle. The uproar was such that it became an issue in the 2012 presidential campaign. The NLRB decision was rescinded, but the warning shot across the bow of US businesses has been heard. The Missouri legislature has been in favor of making Missouri the next right-to-work state after Michigan, but the Governor, very close to Missouri unions, would veto any such bill in a heartbeat. Now who really thinks Boeing would want to move the plant building its 777X airplanes, on which the company’s future is based, to a forced-union state like Missouri? Wouldn’t right-to-work and no tax credits attract far more businesses than incentives for a few?

As documented many times, notably by the economists of the Show-Me Institute, the end result of Missouri’s poor policy choices has been among other things a miserable record of GDP growth – the state ranking 48th out of the 50 states for 2010. Missouri’s economic performance was recently ranked forty-second among states. Thus we conclude that giving incentives to Boeing would be a big mistake. But is does raise this much broader issue: How best to improve the business climate in Missouri? There is much more to be said about Missouri’s poor record, but we will content ourselves with summarizing the policy prescriptions outlined in a policy statement from the Heartland Institute, Wisconsin’s analogue to the Show-Me Institute:

  • Low level of taxation
  • Low business taxation
  • Right to work
  • No corporate welfare
  • Control workman’s compensation
  • Reasonable regulation
  • Tort reformTroglo

Troglo

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