President Trump traveled to Milwaukee last week to celebrate the groundbreaking for a new factory and the steady flood of good economic news.
There’s plenty to celebrate. Unemployment is below 4 percent. Wages are rising. Manufacturers are more optimistic now than at any point in history.
The economy has been recovering since 2009, but the pro-growth policies of the White House deserve great credit. By cutting taxes and reducing regulation, Congress and the Trump administration have helped the economy by getting out of the way.
That’s why it is a pity that Trump chose the venue he did for his rally. When completed, the Foxconn Technologies plant where Trump and Wisconsin Gov. Scott Walker broke ground will stand as a monument not to free enterprise but to corporate welfare and the sort of industrial planning that doesn’t work.
The plant will cost $10 billion to build, and Foxconn is paying only about half. Taxpayers are picking up the other half. Gov. Walker, a Republican who often talks about the virtues of free enterprise and smaller government, wrangled $3 billion in subsidies from the state legislature. That includes $2.85 billion in “refundable corporate tax credits.” A “refundable tax credit” is a “tax credit” that can exceed one’s tax liability, which means it’s just a corporate handout disguised as a tax break.
Foxconn gets additional sales tax exemptions on its construction materials, which every other developer or builder must pay.
Local governments are chipping in another $1.8 billion. Racine County, for instance, helped Foxconn buy the land. It’s a nice deal for Taiwan-based Foxconn, which will thus pocket the largest subsidy any foreign company has ever received.
Wisconsinites are skeptical of the deal; 46 percent think it’s a bad deal and only 40 percent like it. That skepticism is well founded.
Foxconn makes components for the iPhone, which is a cutting-edge technology. If the plant is profitable as forecast, it will take about 25 years for the state to break even. Think about technology and tech companies 25 years ago and then ask yourself how confident you are that the iPhone or Foxconn will still be going in 2053. “Betting that a high-tech product will even be here a quarter-century from now is like betting on modems or beepers or MP3 players,” Greg LeRoy, executive director of a pro-union, anti-subsidy group Good Jobs First, said.
LeRoy points to a Dell plant that North Carolina awarded $281 million in 2005. It then shut down in 2009. While Dell repaid most of the subsidies, it still showed the folly of picking winners and losers. Land, resources, and public and private investment were all tied up in a failed venture. The market sometimes makes mistakes in its attempts to pick winners, but it’s got a better record than governors and state legislatures.
The list of subsidized companies going bust is lengthy. Solyndra, the solar-panel maker, was former President Barack Obama’s famous one. Former President George W. Bush and Georgia Gov. Sonny Perdue built an ethanol plant with $65 million of federal and state taxpayer money in Soperton, Ga. The plant was supposed to turn woodchips into ethanol. It never did.
We could go on, but the pattern is clear.
“Incentives do not have a large correlation with a state’s current or past unemployment or income levels or with future economic growth,” said Timothy Bartik, an economist who compiled and studied perhaps the most comprehensive catalogue of business subsidies.
Trump has a fondness for business-government deals, as he showed with his subsidy package for Carrier in Indiana. The instinct to help employers may be laudable, but Trump’s duty is not to Carrier, Boeing, or Foxconn. It’s to all workers.
Subsidies cannot stimulate the whole economy. It takes a rising economic tide to lift all boats. The best way to ensure economic boom times is for Trump to put down the shovel and pick up the machete needed to hack away regulations and taxes that choke investment.
