Trump and Pence may have saved hundreds of Carrier jobs but they've only reinforced a troubling trend of taxpayer handouts to big corporations
For the hundreds of workers in Indianapolis whose furnace-building jobs were saved by the Carrier deal, there was plenty of reason to celebrate today. The involvement of President-elect Donald Trump and Vice President-elect (and Indiana Gov.) Mike Pence likely cemented the company's willingness to accept tax incentives and not send those jobs to Mexico.
It's unusual for a president-elect to place such a large personal stake in a relatively small corporate decision, but Mr. Trump had certainly singled out Carrier often enough during the campaign as a bad actor in outsourcing and economic globalization. Whether the deciding factor was Mr. Trump's threats of tariffs or the fact that its parent company, Connecticut-based United Technologies, holds a significant number of U.S. military contracts is hard to tell.
At the heart of the deal is $7 million worth of taxpayer-financed incentives provided by the host state. And that's something with which Marylanders are quite familiar — and likely have mixed feelings about. Just this week, Gov. Larry Hogan and General Assembly leaders struck a deal to provide a combined $40 million in incentives to retain Northrop Grumman and Marriott International and keep them from shipping their jobs elsewhere. The major difference? Maryland appears to be getting a lot more bang for its buck, with 10,000 jobs at stake in the Northrop deal alone.
Politicians love to trumpet such arrangements as a win-win-win. The companies benefit, their shareholders and workers benefit, and communities that otherwise would have lost well-paying jobs benefit, too. But there's just one thing wrong with that calculation — somebody is left holding the bag, and that's usually state and local taxpayers who end up shouldering a greater share of the long-term cost of essential government services, from hiring teachers and police officers to paving roads and building wastewater treatment plants.
It's an economic war that keeps escalating. What big employer, particularly one facing the need for major new investments or one that's easily able to relocate its facilities, doesn't hit up local government for a handout these days? Under the circumstances, it would be irresponsible of them not to seek the same benefits accrued by their competitors. Meanwhile, what politician wants to see a major employer leave town on his or her watch? It would be foolish to ignore the incentives other states and cities are all too willing to lavish.
It's a trap — and a tricky one at that. Mr. Trump's involvement merely represents an escalation of this potentially destructive pattern from state houses to the White House (and before he's even taken residence). Now companies in a position to ship jobs to Mexico would be foolish not to seek Mr. Trump's personal involvement. How far will the next president go to retain jobs, what goodies might be included in the incentives, and what guarantees can he offer?
And here's the really frustrating part. The Carrier deal won't preserve those jobs forever. The global economy is a far more powerful force than any one tax deal, and for certain types of manufacturing, lower labor costs available overseas still beckon.
Maryland has seen the downside of corporate tax incentives often enough. In 1987, a governor-elect who campaigned on a pro-business platform was similarly worried about lucrative jobs headed out of state in the wake of the closing of a tire manufacturing plant in Western Maryland. William Donald Schaefer pieced together millions of dollars in tax incentives to retain Kelly-Springfield Tire Co. headquarters in Cumberland before he even took office. It worked — for a while. The jobs shipped out to Akron 11 years later after a corporate takeover. All that's left now is a museum.
There are no easy answers to his kind of Catch-22 — play the game and lose or don't play and lose. We have certainly strongly advocated for extending government help toward the redevelopment of Baltimore's Port Covington championed by Under Armour's Kevin Plank. But at least a much more elaborate bargain was struck with a guarantee of local hiring, community aid, affordable housing and the like in exchange for tax increment financing to be repaid by property taxes generated by the new construction.
Perhaps that's the best that can be expected — cost-effective deals that make sense under the circumstances. Will Carrier's prove worthwhile? We don't know. But we do know it's far easier to strike such bargains and take one's chances on the future than to worry about gradually shifting the cost of government away from big corporations and on to Joe and Jane Average Taxpayer. Interestingly, Mr. Trump didn't mention the taxpayer handout — not one word about it — when he spoke at the Carrier plant today. In his speech, he also casually mentioned that he doesn't mind companies negotiating the best deals possible with state governments and that he expects to soon lower corporate tax rates and roll back regulations. Clearly, good times are ahead for big employers — but maybe not for those left holding the bag.