April 3, 2014 10:59:03 AM
Speaking before the Rotary Club of Jackson recently, Gov. Bryant addressed the issue of special tax incentives to lure big manufacturers to Mississippi.
"Recently I've been reading that some people believe that tax cuts are not a good thing. Oh, they say it's that corporate welfare. If you give too many tax cuts, you won't have enough money in the general fund. Let me tell you, that is just seeding the field. If you don't put down seed and you don't go buy seed and invest, that garden is not going to grow. Government has been incentivizing companies with tax credits since (Mississippi) Gov. Brewer (1912 -1916) has been around. Now all of a sudden there is this idea that we ought to stop doing that. Do you think Texas is going to stop doing that? Or (Governor) Bentley in Alabama is going to stop doing that? And (Governor) Jerry Brown in California is going to stop doing that? We have to compete in the economic development area called the SEC. We compete with Alabama and Florida and Rick Perry in Texas. We compete with South Carolina, North Carolina and Tennessee. If we do not incentivize and grow our businesses, other states certainly will and then we will be the loser. Now I don't like to lose. I like being in that top 10. I like the other governors and CNN and Fox Business News saying, 'What's going on in Mississippi? Why is it being so successful?'"
Job growth is the most important issue in Mississippi, so Bryant's remarks bear scrutinizing.
Sticking with the governor's farming analogy, the government should make sure the soil is fertile. It should not be planting the seeds. That's the role of the free enterprise system.
When a governor decides which companies to recruit and subsidize, it is government planning. Such centralized planning of the economy has never worked. Only the free market can properly allocate goods and services and maximize efficient employment.
Instead, we have crony capitalism. Big corporations get states to engage in bidding wars, manipulating the egos of governors to "win" the game and have bragging rights for their speeches.
The Legislature backs these efforts. Everybody wants to appear to be on the side of job growth, but ultimately this approach backfires. Only West Virginia has a lower percentage of people working than Mississippi.
Let's take the Yokohama Tire plant as an example. Bryant and the Legislature gave this company $330 million in incentives, according to the Associated Press.
The incentives are in the form of waived corporate, sales, franchise and property taxes. In addition, the state will give the company hundreds of millions in direct financing, guaranteed by the taxpayers.
In essence, Yokohama Tire is one massively subsidized state enterprise. Just like China.
As it stands, Yokohama plans to hire 500 employees in West Point next year. Yokohama promises to one day hire up to 2,000 in the future, but often these rosy employment promises never pan out.
Dividing the $330 million in Yokohama incentives by the 500 jobs comes to $660,000 a job. At that rate, the government could just invest the money and pay the 500 employees the interest. They would make the same amount of money and not even have to work.
Even if the 2,000 jobs materialize, you are still looking at $160,000 per job. You would be hard pressed to find a single company in Mississippi worth $160,000 per employee.
Mississippi has 1,266,300 people in its civilian workforce. The 500 Yokohama jobs expected next year represent one out of 2,500 jobs in our state - a tiny percentage.
Put another way, if Mississippi values each job in Mississippi at $160,000, then the 1,266,300 jobs in Mississippi are worth a total of $208 billion. That's 2.4 times the entire annual GDP of our state.
Anyway you crunch the numbers, the price per job for luring these big companies makes no sense. Ultimately, the other businesses and taxpayers of Mississippi must pick up the bill. That a mighty expensive tab for giving Gov. Bryant bragging rights in his civic club speeches.
It gets even worse when you think about this logically. Where do those 500 jobs come from? If they all come from out-of-state, then it really doesn't benefit existing Mississippians at all.
If the jobs come from existing Mississippians, then there is no net increase in jobs. You are just moving jobs out of one pocket into another. The Yokohama jobs are coming from its Tupelo competitor, Cooper Tire.
Only if 100 percent of the Yokohama employees come from the ranks of the existing unemployed, could you even begin to make a case. Unfortunately, most of the chronically unemployed have low skill levels. These are not the people likely to be employed by Yokohama. Even then, the numbers don't work.
Now Cooper Tire wants $38 million in tax breaks to modernize their plant. Where does it end? They are threatening to shut the plant down, presumably because they are losing market share and good employees to the state subsidized Yokohama plant.
In the end, Mississippi loses $330 million in tax revenue and gets nothing in return. This stifles growth.
Numerous academic studies verify the problems of playing favorites with incentives. A recent Cornell study "Incentive Use Among U.S. Local Governments: A Story of Accountability and Policy Learning" finds "Our model results suggest that governments that rely most heavily on incentives may face more intergovernmental competition, stagnating or declining economies, and lower tax bases. For such governments, business incentives may contribute to a cycle of destructive competition."
Good Jobs First rates Mississippi No. 2 in the nation, per capita, with $2.3 billion in "megadeals" and a population of just three million. Only New Mexico beats us in crony capitalism. In contrast, Texas, with nine times our population, has only $3.1 billion in megadeals. Georgia, with nine million people, has half the megadeals of Mississippi. (If you added the Kemper power plant to the megadeal total, Mississippi would be No. 1 in the nation by a long shot.)
Basically, the money given to the big corporations comes out of the pockets of the grassroots mom-and-pop businesses that are the backbone of our state. It's a losing proposition.
Now that the casinos are struggling, it's just a matter of time before someone proposes to subsidize gambling with state funds.
Should we just give up? Of course not. Having a pro-business environment in our state is crucial. But it should be done in a sensible, fair way that applies to all and respects the free market. South Dakota, Wyoming. Nevada and Washington have no corporate tax. The average unemployment in those states is two percentage points lower than Mississippi. It's the sweetheart deals that need to go.
The Tax Foundation think tank rates states for having a pro-business tax policy. Mississippi is not in the top 10. Getting in the top 10 would be a better path to growth than letting government bureaucrats pick and choose winners and losers on an ad hoc basis.