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Corporate Welfare: Why Trade When You Can Be Mugged?

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Now, there’s nothing wrong with commerce. It’s a way for people to come by things they want with a sense of honesty and feeling that they’ve helped somebody else. That’s called trade, exchanging value for value. And herein lies a major flaw of the Progressive paradigm.

To the Progressive, big, greedy capitalists are the enemy. They are viewed as taking money from little people, not as providing something people value so much they are willing to trade money for it. And while they oppose letting people trade value for value with The Man, they exclaim, “This is exciting!” and some twinkle their fingers, when they arrange for The Man to take money from the people in exchange for nothing.

That’s called economic development incentives. Oh, the people are promised the millions of tax dollars gifted to private industries will result in job creation with multipliers that trickle down a hundredfold; but nobody asks our local government leaders why the money they trade to get a widget from the same company never multiplies so prolifically.

The folks at the John Locke Foundation are no fans of the practice, otherwise known as corporate welfare. The reasons are philosophical, in the sense that it is unjust to confiscate money and lump it on this and that favorite son; economical, in the sense that businesses should prosper to the extent they can make products society deems worthy for trade, and not to the extent they can kiss up to wielders of taxing power; and empirical, in the sense that studies are showing these gifts aren’t multiplying as promised.

One report, published July 9, tried to find out how much money North Carolina counties had given out in corporate welfare over the past five years. It wasn’t a straightforward task, as different counties gift differently. Some give cash, some give reduced taxes, some gift based on meeting certain criteria and others don’t, some pay for beneficial infrastructure, and most mix and match the possibilities.

When all was said and done, the researchers determined that between 2009 and 2014, the 81 counties awarding corporate welfare entered into 776 agreements promising a total of $284 million. Due to time-release terms in agreements, only about half the promises, or $144 million, had been paid during the same time. Most interesting was Buncombe County’s performance. Approving 23 contracts totaling $29,728,143, or $124.74 per capita, the county ranked second in the state.

The report concluded, “We suspect that, in most cases, there are much better uses of tax revenue and much more efficient ways to spur economic growth, such as lower tax rates and reduced regulations.”

A more scathing attack on what has been referred to as socializing the risk and privatizing the benefit appeared in the JLF’s “Alternative Budget.” Carrying on a tradition begun in 1995, the think tank consistently manages to draft something that doesn’t look like a log-rolled, bureaucracy-preserving, contributor-pandering ticket to anybody’s re-election.

The entire report is recommended reading for the shear rush one gets every time they call for the scrapping of a government program with no marginal utility. But the matter at hand, corporate welfare, is addressed in the very last pages, with budgetary recommendations for the Department of Commerce.

Dissolved would be the One North Carolina Fund, which is set to spend $18 million matching corporate welfare grants from local government over the next two years. Job Development Investment Grants (JDIG) would also disappear. Last year, the state paid out over $36 million in such grants. This year, $11.25 million is budgeted.

The JLF references a study from the NC Justice Center that concluded the program had a 60 percent failure rate, a result the alternative budget authors deemed “predictable and avoidable.” They argue, “North Carolina’s economy should not rely on unsuccessful state programs that breed more dependency.” Existing contracts would be honored, but no new agreements would be signed.

The Film and Entertainment Grant Fund is another biggie the JLF, and many others, would terminate. The state could save $10 million a year without it. The authors cite a 2014 report by the Labor and Economic Analysis Division (LEAD) of the NC Department of Commerce itself, which found a net negative budgetary impact, or fractional multiplier effect, from the state’s welfare program for Hollywood actors and producers. The findings that only 19.4 cents were returned for every dollar spent were similar to conclusions from other reports.

Supporting outfits that sell stuff people don’t want enough to pay what it takes to keep their business alive is called economic distortion. The world is worse off because subsidized chintzier, outmoded, or overpriced items are to a degree crowding out production of items, the value of which individual consumers could be, as it were, voting for with their money.

The JLF report disses other “economic development” programs on the grounds that picking winners and losers in industry is not a core function of government, and some programs are local affairs. Also getting the axe would be the Agriculture Gas Expansion Fund ($5 million/biennium), the Biotechnology Center ($12.5/annum), the Industrial Development Fund ($7.5 million/biennium), the Grassroots Science Museums Collaborative ($2.5 million/annum), Rural Infrastructure Grants ($10.6 million/annum), the Underserved and Limited Resource Communities Grant Program ($1.75 million/year) and a few others.

“If business owners wish to expand their operations, they should pay for those expansions with the earnings from their growing businesses or private loans. It is unfair that taxpayers should assume risks in an investment not of their own choosing,” they wrote.

“The failure of government programs to generate sustained ‘economic development’ is nothing new. North Carolina needs a bold, transformational plan that includes lower taxes and a state government focused on improving delivery of core services, so that local communities can attract job creators and not be reduced to reliance on unsuccessful state programs that breed more dependency and bureaucracy.”

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