Don’t Believe That We Aren’t Paying for Corporate Crony Subsidies

As Democrat Governor Gina Raimondo pushes for more top-down subsidies allowing government to pick economic winners (mainly by offsetting the absurd government-imposed costs on the economy) and as she also proposes to make business more difficult and more expensive in Rhode Island for everybody, I’ve been thinking about a notion with surprisingly broad purchase in the Ocean State.

People seem to believe that all of these tax incentives only (or at least mostly) draw down tax revenue that would not have existed except for the programs.  A recent Kate Bramson article in the Providence Journal places the argument near the beginning, with respect to a relatively small part of Raimondo’s corporate welfare scheme:

One of Raimondo’s key incentives, the Qualified Jobs tax credits, draws criticism from Good Jobs First, in Washington, D.C. The national research center decries programs such as Qualified Jobs that set aside employees’ personal income taxes so corporations get tax breaks. It calls such programs “paying taxes to the boss.”

The Raimondo administration counters that if those new jobs weren’t here, there’d be no new tax revenues. But Good Jobs First says it’s difficult to know whether those employees might have been hired anyway, without incentives.

This brief description misses key points that make Raimondo’s comeback mostly false, at least for a time.  In the future, it will just be “not entirely true.”

Yes, as the program is written, the companies’ tax credits are tied to the taxes that their employees actually pay, but the measure is withholdings, not final taxes paid.  That means the companies’ credit for employees tax refunds is entirely financed by other taxpayers.  Based on the most recently released tax statistics from the state, within the range of incomes targeted by this incentive, that’s between $450 and $600 per employee that comes right out of the state’s budget.

Then comes the punchline.  As an early-bird bonus, the first 500 jobs subsidized through the Qualified Jobs tax credits program grab their companies the maximum credit of $7,500 no matter how much the employees actually pay.  That means the rest of us Rhode Islanders have to pay somewhere between $5,500 and $7,000 per employee for the privilege of having them pay taxes to our state government.  That’s $2,750,000 to $3,500,000 taken out of our paychecks for the lucky 500.

And after punchline comes insult.  The state government is giving the companies receiving these and other subsidies a competitive advantage over our companies, even if we didn’t have to pay for them.  Again, the underlying purpose of these subsidies is to minimize the harm done by Rhode Island’s tax and regulatory regime.  With its subsidies, the state is allowing a select few companies to operate as if they were in a business-friendly state while those who don’t attract the affections of Mama Gina and her Commerce Corp. lap dogs find their jobs getting more difficult and more expensive every time a local politician opens his or her mouth.

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