Culture > October 19, 2005 > Web Only
Climate Change Needed (cont’d)
As a result, there has been a rollback in taxes that corporations pay to states and local governments. One example cited by LeRoy is the single sales factor income tax now used in 10 states: Rather than tax multistate corporations on three factors—the share of its payroll, property and sales in the state—they are taxed solely on the basis of only their sales. But like many other tax breaks, if other states do the same thing then even its minimal theoretical advantage in retaining or attracting jobs is negated.
At the local level, there’s been a profusion of property tax abatements, including “tax increment financing” (TIF) districts that redirect any growth in taxes from the TIF area to helping that particular district, not the general public coffers. Originally intended for depressed regions of a city, they’re now used everywhere, and they especially hurt school districts, which often have no voice in establishing the TIF but lose taxes nonetheless.
Local areas lose in many other ways as well, particularly as the subsidy competition encourages sprawl, LeRoy argues. Increasingly, suburbs in fragmented metropolises compete against each other to capture big box retailers so they can gain a share of their sales taxes. But cities also lose out as they dump their scarce public funds into building sports stadiums that provide little economic payoff—except to the team owners.
Whether it’s team owners or manufacturers, the business threats of losing—or promises of gaining—jobs are potent political forces, intimidating many government leaders who are afraid of being labeled responsible for a team or a factory that leaves town. But rarely do local officials have the expertise to evaluate the claims. Thus, they have no basis for challenging what is often simply a bluff, argues Peter Dreier, professor of politics and Director of the Public Policy Program at Occidental College. Often economic development officials accept uncritically the conventional views of what constitutes a good “business climate” and have incentives in their career for landing or keeping jobs at any cost.
Turning the tide
A few communities, often after getting stung by bad deals, have begun resisting the jobs blackmail, enacting legislation that sets performance standards for subsidies and permits the community to “claw back” subsidies if the company doesn’t deliver. LeRoy offers a dozen major types of reforms, including much more disclosure of the costs and benefits of deals, higher standards for the quality of subsidized jobs, putting deals to an official vote (with a voice for all affected jurisdictions, like school boards), and a variety of “smart growth,” anti-sprawl measures (such as regional sharing of sales tax revenue). Also, although the federal government has finally banned the use of federal funds for luring jobs from one location to another, LeRoy proposes that the federal government could also withhold some funds from states until they adopt certain reforms. And communities themselves can learn to negotiate community benefit agreements, requiring local hiring, living wages, labor-friendly practices and environmental amenities for any subsidized business development.
Recently, Deborah Groban Olson, executive director of the Capital Ownership Group and a longtime advocate of worker ownership, has proposed that communities giving businesses public subsidies should receive ownership shares in those businesses as a “fair exchange.” That might involve setting up community trusts that would own the shares and use them to advance public interests. There are a number of intriguing precedents. In 1979, for example, the federal government bailed out Chrysler and received shares in the company that it sold seven years later at a profit, after Chrysler repaid its loan.
But as Olson observes, the political tide doesn’t favor community ownership of corporations, even if it’s in fair exchange for investments provided by the community. At its foundation, the “great American jobs scam” that LeRoy describes so comprehensively is a highly political movement that takes advantage of the fragmented, decentralized governmental system in the United States. It thrives on deceit and on the ignorance and weakness of local and state authorities, who are unable or unwilling to cooperate among themselves for the public good.
The response has to be a political movement that redefines a good business climate as one where workers are well educated and public infrastructure is well developed, as LeRoy argues. But such a political movement needs also to insist that a good social climate is as important as a good business climate, and that involves high standards of living, less inequality, a greater voice for workers and more corporate accountability. It may seem utopian now, but it was a commonly held view in this country 40 years ago. It could be again.
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