About Foxconn and Tax Credits

I have often written about taxes in this space, as you know if you've been with me for any length of time. My position on taxes is this: I don't like to pay them any more than anyone else does, but I recognize that if I expect my government to provide services I need or want, I need to pay my share of the cost. As the American jurist Oliver Wendell Holmes, Jr, famously said, "Taxes are the price we pay for a civilized society*."

Unfortunately, taxes in this country have strayed far from their original purpose of providing funds to operate the government and provide basic services. Over the years, they have morphed into a tool for tinkering with the economy, for rewarding political supporters** or penalizing enemies, and for supporting experiments in social engineering. "Tax credits" are the go-to solution for every program a government wants to appear to support, but doesn't want to have to pay for directly.

I thought about this last week when I saw this headline in the Washington Post business section: Foxconn Deal to Build Massive Factory in Wisconsin Could Cost the State $230,700 per Worker. The story details how Foxconn, the huge technology firm that provides parts and supplies to Apple, Google, and many other companies, has agreed to build a giant factory in Wisconsin which would employ 3,000 people by 2020, with potential growth to 13,000. If the factory is built (which is by no means certain***), and if it does eventually employ 13,000 people, an economic analysis suggests that the tax breaks granted to entice Foxconn to build the plant will cost the state of Wisconsin about $230,000 per worker in lost tax revenue.

Which goes to the question I always ask when "tax credits" are touted as the solution to a problem: how will the lost revenue be made up?

The stock answer is that tax credits pay for themselves, because the losses will be made up by increased taxes on on individual earnings and on other businesses which benefit from the economic boom generated by the original tax breaks. This reminds me of the old joke that compared daylight savings time to the man who cut off the lower half of his blanket and sewed it to the top to make it longer.

As I see it, tax credits are a false solution to economic problems. Allowing individuals and businesses to reduce their tax liability, even for ostensibly good reasons, reduces the amount of money taken in by the government for use in funding its programs and operations, and that shortfall needs to be made up somehow ... usually by higher taxes on somebody else.

Americans don't like taxes, but the historical truth is that we're not so much anti-tax as we are anti-taxation without representation^†. We elect (or vote out) a President, members of Congress, governors, state legislators, mayors, and other local officials who we make responsible for decisions - with our input - on the imposition of taxes. Today, of course there's a joke that says "If you thought taxation without representation was bad, you should see it with representation." Nevertheless, although we complain bitterly about high taxes, we here in the US enjoy one of the lower overall tax burdens in the world.

So ...

If you're a resident of Wisconsin, and you're looking forward to one of those jobs at Foxconn making flat-panel displays, you should understand that you will very likely pay higher taxes on your paycheck and higher fees for other services to compensate the state for the huge tax breaks your employer is getting for giving you that job in the first place. Good luck with that.

Have a good day ... one that isn't, hopefully, too taxing.

More thoughts tomorrow.

Bilbo

* Or Donald Trump's version of America, which increasingly doesn't seem to qualify as "civilized."

** "A government that robs Peter to pay Paul can always count on the support of Paul." - George Bernard Shaw

*** According to the article, Foxconn announced plans to build a new $30 million plant in Pennsylvania four years ago, but the factory was never built.

† The Declaration of Independence castigated King George III "For imposing Taxes on us without our Consent," not for "imposing Taxes on us."