Recent developments with Amazon and Boeing have compelled us to speak more clearly regarding our view on taxpayer-funded incentives – and the broader debate surrounding government-run “economic development” efforts.
Do we believe that such deals are good for our state? Or do they impose burdens on taxpayers and existing businesses that outweigh the economic benefits they provide?
First, we believe fundamentally that the less government has to do with the economy – the better.
It all boils down to a simple question: Do you believe that the invisible hand of the free market is better equipped to allocate scarce resources? Or would you rather put that responsibility in the hands of a bunch of politicians and overpaid government bureaucrats?
As libertarians, we have an ingrained contempt for government-run “jobs” schemes – epitomized in South Carolina by the speculative development disaster that is the University of South Carolina’s “Innovista” project.
Our state’s “top-down” approach to managing its economy – via our Commerce Department, our research universities or our anti-free market port system – has been a miserable failure, as evidenced by our high unemployment rate, low income levels and rampant poverty. Not only that, South Carolina’s ongoing refusal to implement long-overdue education reforms has exacerbated the poor performance of our worst-in-the-nation public school system (saddling our state with a glaring competitive disadvantage).
Without putting too fine a point on it, it’s time to try something different … or rather it’s time to try a lot of things differently.
For starters, if it were up to us we would implode the money-losing building that houses our state’s free-spending S.C. Commerce Department – and salt the earth when we were done. In addition to eliminating Commerce (and the S.C. Research Authority, Centers for Economic Excellence, etc.), we would forbid our state’s “research universities” from pissing any more money down the drain on so-called “job creation” efforts.
Any institution that disobeyed this edict would see its state funding evaporate.
Of course it’s not just the hundreds of millions of direct taxpayer funds going toward our state’s failed “industrial recruitment” efforts that are draining the life out of our economy – it’s also the hundreds of millions in targeted incentives that lawmakers are doling out. According to the S.C. Board of Economic Advisors (BEA) the state’s investment in “targeted tax credits” has soared from $34 million annually in 1998 to more than $1 billion a year today.
Some estimates have the total value of the recent Boeing package at more than $900 million – although under the current system (which permits these taxpayer-funded deals to be cloaked in a shroud of secrecy) we may never know how much money was promised.
Heck, even the chief architect of the Boeing deal – S.C. Sen. Hugh Leatherman – confessed after the fact that he wasn’t quite sure just how much money the state pledged to land the aircraft manufacturer.
Whatever the amount … was the deal worth 15,000 jobs (assuming Boeing follows through on its commitment)?
It’s hard to say …
We initially supported the Boeing deal, although here’s what we wrote the day after the big announcement was made:
Making a lasting impact on our state’s unemployment rate means improving our underlying business climate for companies that employ 50 or fewer employees – small businesses – the people who (oh by the way) produce 95% of the jobs in this state. Incentive packages are fine for big-game hunting, but as these numbers indicate the real solution is a climate that fosters small business growth and entrepreneurship.
More recently, during the 2010 gubernatorial campaign, here’s what we wrote shortly after then-candidate Nikki Haley proposed a God-awful status quo tax swap that failed to provide any relief to individual taxpayers:
.. of the 68,738 full-time employers currently doing business in South Carolina, 97.5 percent of them are small businesses. There are also 101,000 full-time self-employed South Carolinians. Obviously, most of these companies and individual income earners file individual returns, not corporate returns. That means they would get no relief under Haley’s plan – which would benefit only the largest corporations.
Obviously we’re all for cutting taxes, but as we said (when she unveiled her plan) we “hope Haley expands her scope and eventually proposes lowering the one tax that would actually create jobs and raise income levels in South Carolina – the individual income tax.”
Haley didn’t expand her plan – nor has she sought a single dime of tax relief for either small businesses or individual income earners since taking office. Also, she offered her tacit support for the Amazon deal – promising not to veto it if it reached her desk.
Look, it’s not that we object to companies being permitted to withhold certain tax payments as a condition of bringing jobs and capital investment to our state. We’re all for keeping money OUT of government’s grubby paws.
But therein lies the problem. Government never actually loses money on these deals – it just increases the tax burden on everybody else to cover what it would have otherwise brought in. Even more unfairly, a bunch of glad-handing, special interest-fed politicians are the ones deciding who gets these tax breaks – and who doesn’t get them – an inherently corrupt and self-perpetuating process.
Seriously … what would have happened if the estimated $1 billion in targeted tax breaks our state doled out last year had been evenly dispersed among the state’s 67,000 small businesses?
Heck … what would have happened if the $4 billion in so-called “economic stimulus” money dumped in South Carolina over the last two years was spread out evenly among those same businesses (instead of being poured into the black hole of state government)?
Our guess is that the Palmetto state would be experiencing an explosion of job growth …
And moving forward, what would happen if we eliminated our state’s individual income tax – i.e. the one tax most directly tied to job creation – and paid for it with a long-overdue reduction in the size and scope of government?
Again … the answers is obvious.
UPDATE: Beyond the reforms outlined above, we would also require our State Ports Authority to immediately accept private investment for the purpose of expanding our port infrastructure (with the state retaining ownership of those facilities), while implementing a universal parental choice plan for our K-12 system that imposed some long-overdue market-based accountability on this monument to inefficiency.
By Andy April 28, 2011 at 12:32 pm
The reason so many people, including Sic, need to explain and re-explain their stand on this is because of the ongoing tension between the ideological aspects and the practical aspects of the issue. Ideology gets and keeps the base, for sure, but in practical fact the government is, has been and always will be involved in the economy. I suppose one can argue about the more or less of it, but to suggest it shouldn’t exist at all is to suggest that it won’t get dark tonight.
If South Carolina politicians fuck up a chance to have Boeing and Amazon expand their businesses here it would be so, well, South Carolina. You know, shooting ourselves in the balls just to see if we might like it.
By Billy Bob April 28, 2011 at 12:46 pm
Stupid is as stupid does. 1200+ unemployed will remain unemployed, Amazon still won’t be collection sales for SC purchases and those unemployed, well, they will still be living off the taxpayer drawing unemployment, welfare, medicare, medicaid, WIC, food stamps, etc.
Brilliant!! Absolutely brilliant!!
By Staffer April 28, 2011 at 12:54 pm
If our state government won’t “meddle” in the economy by offering competitive incentives to businesses, then another state will. We can then pack ourselves on the back for staying true to our principles while we watch daytime television and receive unemployment.
By Here's how you remain consistent... April 28, 2011 at 12:55 pm
…shut your piehole on the tax breaks given to a company to come here but instead rail on the fact the rest of SC’s small business is getting hammered and as the economy slides down the tubes the dirty pols are forced to scale way back. Doing that you’ve injured no one in the process and kept true to small gov’t low(or no) tax principles.
Chasing away companies and jobs to make some twisted/inconsistent idealogical point is the pinnacle of stupidity.
The Left is loving this because in their warped viewpoint it’s better to have no jobs rather than “cater” to corporate America.
The only time any Tea Partier, or “Libertarian” should be protesting is if gov’t property is being given away for said company.
Like land grants for example. If a company is simply being exempted from certain taxes that it’s not a “giveaway” you fools…because it’s money SC gov’t doesn’t have in the first place.
By Staffer April 28, 2011 at 12:55 pm
I meant pat not pack
By Above and Beyond April 28, 2011 at 1:37 pm
The facts …..Boeing, Amazon, any respectable company….. are not going to play patty cake with the romper room children of Team Haley. It’s all over till the kids running SC are all gone.
By Just Asking April 28, 2011 at 1:46 pm
Without government to regulate and police capitalism, which is, by its nature, amoral, the “invisible hand” will wield a club to destroy anyone and anything that stands in its way. Capitalism works, and it works well, but it must have some regulation. Perhaps not a great deal, but enough to prevent innocent bystanders from being injured, or splattered with the brains of the loser of a competitive battle.
Just sayin’
By bqueen April 28, 2011 at 2:02 pm
FITS: The above wish list of reforms is fine and dandy. Sure, a lot of us would like to see these reforms. But the reality of the situation is that we have to deal with the hand we got. And the hand we got at the moment does not give us the luxury of dreaming about a wish-list of reforms. That is living in la-la land. The reality of the situation here and now is that Amazon is not oming to SC. The reforms you speak of may never happen courtesy of our politicians. But we were very close to getting 1200 jobs in Lexington County, NOW. And legislature blew it. Go talk to people on the unemployment line about these reforms. We need to get our heads out of the sand.
By Pee Dee Patriot April 28, 2011 at 2:09 pm
This inconsistent application of economic development policy will hurt this state’s efforts for years to come. All of these folks operate in pretty tight circles and word –especially negative travels fast. Maybe Marshall Sanford should not have made the deal but I’m certain he felt empowered to do so. Actually, he was doing what many Govs before him had done repeatedly during the final stages of sensitive negotiations.
By CA Yankee April 28, 2011 at 2:17 pm
Read this book and see if you still want to leave the state’s ecomony to the mercy of the free market while other states are making efforts to attract business and industry.
By CA Yankee April 28, 2011 at 2:18 pm
This book. Bad Samaritans: The Myth of Free Trade and the Secret History of Capitalism By Ha-Joon Chang
By Ralph Thomas April 28, 2011 at 2:24 pm
Existing industry receives these “tax break giveaways” same as new companies. If a manufacturer expands, invets over $5 Million, they receive a fee-in-lieu of taxes (FILOT) just as if it was a new company. BTW, this includes Crane Company, formerly Dixie-Narco in Williston, SC, who employers Talbert Black…
The FILOT is necessary for new and expanding industry to make our property tax on industrial property, set in the current constitution at 10.5% assessment to make it only comparable with the states we compete against. It just evens the playing field. Most companies receiving incentives are not the Boeing type deals, once in a generation types like BMW and Boeing. In know this, w/o those incentives BMW would not be in the Upstate and the unemployment rate would hover around 15% considering the previous manufacturing (textiles) has mostly disappeared to countries where they can remain profitable. Not blaming them, they just ultimately have to leave. Same reasons why textiles left New England in the 1800′s to come South. But PTL for the incentives that landed BMW.
Sanford so fucked up the Commerce Department, an Executive Agency, that the General Assembly basically took it over and manages it like its in a receivership. They are the problems here, and the assholes you don’t like are cutting deals or not cutting them based on the whims of the day. Used to be we only gave the incentives for manufacturing, we need to get back to that and stick to basics. Nothing to commercial, retail and etc.
Most of the incentives for most of the new and expanding industry in SC are positive public policy and get us in the game on recruitment. These companies can locate anywhere so we have to be involved and recruiting them to our state. Doing nothing and not recruiting new expansions and new manufacturers to locate here? Maybe they will come here because they like your taste in women, music and your politics? What a strategy.
By CNSYD April 28, 2011 at 2:39 pm
Sic Willie says we have a “glaring competitive disadvantage”. I guess that is why BMW, GE and the North American Headquarters of Michelin are located within a few miles of each other on the I 85 corridor. Sic, venture outside the cloistered walls of Richland-Lexington sometime. BTW is Rich’s check in the mail to you or have you already deposited it?
By Groundball April 28, 2011 at 2:55 pm
I guess I found out just now what I really suspected all along, you are not a Republican, but are, in fact, a Libertarian. Instead of calling Republicans who are not in lock step with you “RINOS”, perhaps you should call them “LINOS”.
Davis, Ryberg, Ballentine, Haley, etc. should take the “R” off their names and replace it with the much more appropriate “L”. I’m sure that using the “R” is just to look a little more mainstream to get elected.
By tomstickler April 28, 2011 at 4:31 pm
I still want to see an honest economic analysis of the Return on Investment (ROI) South Carolina can expect of something like the Boeing deal.
If, and I say “if” Boeing adds 15,000 new jobs (let’s suppose, just for laughs, that none of the potential employees of Boeing or their suppliers isn’t just moving up to a better-paying job from one they already have in SC) and also suppose that these jobs average — what? — $50K/year in net taxable income after exemptions. That will result in about $45.5 million in income tax revenue for SC per year at today’s rates.
That’s about a 5% annual ROI. Is that a good deal? Someone who knows a little about business and finance can chime in here. If my assumption about 100% of these jobs being a net addition to the tax rolls is off base, the ROI is obviously less that 5%/annum.
By Skidmarks April 28, 2011 at 5:27 pm
This is true: “of the 68,738 full-time employers currently doing business in South Carolina, 97.5 percent of them are small businesses.”
This isn’t true: “small businesses – the people who (oh by the way) produce 95% of the jobs in this state.”
For example, the automotive sector accounts for about 10% of the jobs in the state and most of the sector’s employers have more than 50 ermployees.
Also, consider the number of government employees.
By Pelion Potentate April 28, 2011 at 7:11 pm
Sic – can you point to one state that has implemented your beloved libertarian principals? And if so, how has it fared for them? Please show us how your methodology has kept any state from the “inherently corrupt and self-perpetuating process” that you constantly rail against. I look forward to your response…
By Dear Pelion April 28, 2011 at 10:14 pm
Keep in mind that not only is our gov’t no way reflective of what it started out to be….but in it’s original concept it was laughed at by King George who thought no gov’t could exist without a king, monarch, etc.
So in answer to your questions, early American gov’t reflected libertarian principles in much larger amounts and the idea that a minimal gov’t can’t exist because it’s never been tried before in not a valid argument. If we as a society thought that way collectively there would never be any new inventions aside from the fact King George has already been proven wrong once before…
By voodoo dr April 29, 2011 at 12:20 am
WE KEEP GOING DOWN THIS PATH, SOON THE TOP TWO BUSINESSES IN SOUTH CAROLINA WILL BE GOVERNMENT AND RELIGIOUS.
By Mike April 29, 2011 at 8:14 am
Absurd and not remotely living in the real world.
By 420 May 1, 2011 at 2:35 am
The education problems are cultural, not economic. SC has a very large number of folks from demographics no system will ever improve.
We need school choice to restore ECONOMIC segregation, not racial segregation.
Multi-generational poor families are trash, should be disregarded like trash, and resources devoted to their betters who are the people who really make a difference.
By CNSYD May 1, 2011 at 6:55 pm
420, I assume you consider the phrase “all men are created equal…” to be a Jeffersonian lie.
By Michael J. Stefonick May 2, 2011 at 5:51 pm
When you hear the architect of killing Amazon speak of giving back excess fund to the resident of SC you’ll understand we have no excess. Listen the debate in the Senate. We have almost $500 million in food stamps, 13 Billion ini unfunded liabilities and we owe the US Government $900 million. When the Chairman asked Senator Davis how are we going to cover this debt when he want to give money back to he citizens. He admits he has no answer. Welcome to the fairytale Senator just killed 4000 jobs. The man knows NOTHING about finance or business.
http://www.southcarolinaradionetwork.com/wp-content/uploads/2011/05/Davis-and-Leatherman-web.mp3
Listen to the 6 minute audio.