I saw an article today in which Hillary Clinton said the following:
“I prefer a ‘we’re all in it together’ society. I believe our government can once again work for all Americans. It can promote the great American tradition of opportunity for all and special privileges for none.”
She was referring specifically to big, bad businesses that get tax breaks, ship jobs overseas and pay their top employees millions of dollars.
I agree with her. Not because I believe in socialism and a nanny state, but because I do not believe politicians should pick the winners and losers in a community, including businesses. Rather, the government should ensure a level playing field on which all can compete.
What are government subsidies?
Government subsidies are carrots officials dangle in front of businesses to get them to locate in a specific place. There are three primary arguments in favor of this approach.
When a business locates in a specific location it 1) creates jobs to build the infrastructure to support the business (buildings, roads, etc.), it 2) creates jobs to run the business, and it 3) creates revenue for the local government by generating taxes.
Often, business incentives come in the form of waiving building fees, which for big businesses, are in the millions of dollars. Other times, such as for professional sports facilities, the government sells bonds.
Government officials rationalize these handouts in three ways.
First, they argue that they don’t have the money in their bank accounts right now, so they aren’t actually loosing or giving the business money.
Second, they argue that primary and secondary taxes (property taxes, sales taxes and income taxes) paid by the new business will generate enough revenue to make up for the loss in income.
Third, public officials argue that if they don’t offer a good enough incentive, neighboring jurisdictions will and they will not get any new revenue.
These arguments do not stand up to scrutiny and I will explain why tomorrow. Again, public officials should not be in the business of picking the winners and losers in a community.