Why Do Politicians Push for Corporate Welfare?

Matthew D. Mitchell (of Mercatus) Interviews Authors of a New Book on Targeted Economic Development Incentives

Click here to read the interview.

The book is Incentives to Pander: How Politicians Use Corporate Welfare for Political Gain.

Excerpts from the interview:

"We show that most of the existing research points to these as very expensive (as much as $80 billion a year in the US alone) and ineffective. We then ask the question: “Why would politicians use such ineffective policies?” Our answer is that they use them to take credit for investment coming into their district. We use survey data and data on incentive use to demonstrate that politicians can use these programs for political gain."

"Our second choice was a picture of then-Democratic Governor of Virginia, Terry McAuliffe. This picture showed him literally handing a huge check to a group of Chinese investors. This turned out to be a scandal, where the company made a fake website and the state didn’t conduct basic due diligence on what became a failing company."

"What has surprised us is how many states have conducted audits or an analysis of their own economic development programs that recommended major reforms or the elimination of these programs."

"State evaluations of film incentives have been especially devasting. Virginia found that for every $1 of film tax credits, only 20 cents is returned to taxpayers."

"A recent decision by the Governmental Accounting Standards Board (GASB) requires governments to disclose how much tax revenue they lose due to tax abatements every year.
This led numerous groups to oppose this new transparency rule, including economic developers, law firms, and industry associations. This isn’t a surprise.

We think this is a good illustration of who supports these programs. Large business associations as well as local Chambers of Commerce are often the most supportive of these programs in general. However, there is a whole cottage industry that has developed around these programs from economic developers, consultants, lawyers, and even financial institutions that specialize in buying and selling the tax credits."

"the sticker price has little impact on public opinion. However, when the costs are presented in terms of tradeoffs, such as increased taxes or reduced spending on education, the political benefits of incentives evaporate. For example, your own estimate that Wisconsin could have reduced its corporate income tax by 21 percent instead of handing over billions to Foxconn is really stunning."