Carrier deal: Good business or bad precedent?
One common criticism of the deal President-elect Donald Trump struck with Carrier last week is that it sets a bad precedent.
The concern, as I understand it, is that corporations will expect to be showered with tax breaks and other incentives in exchange for keeping their jobs and factories in America. Government officials will be forced to roll out a red carpet and offer them all kinds of goodies whenever they threaten to pull out and go someplace else. Businesses will make costly demands that offer little return on investment, and taxpayers will pay the price.
“Trump has endangered the jobs of workers who were previously safe in the United States,” former presidential candidate and Vermont Sen. Bernie Sanders warned, in an opinion piece in the Washington Post. “Why? Because he has signaled to every corporation in America that they can threaten to offshore jobs in exchange for business-friendly tax benefits and incentives. Even corporations that weren’t thinking of offshoring jobs will most probably be re-evaluating their stance this morning.”
Given that generous tax breaks and incentives are a key element of the Empire State’s economic development strategy, New Yorkers could be forgiven for wondering what the fuss is all about.
How many times have we seen state and local officials announce that a business or company would be coming to New York or expanding operations thanks to an attractive package designed to make doing business here more attractive?
Such deals are typically made with the goal of creating jobs, rather than retaining them, but the underlying strategy is the same. It might not be a good strategy, but no matter. It’s standard practice, and if a Carrier plant based in New York threatened to move out of state, state and local officials would offer the company big public subsidies, too.
That’s what happened in 2003, when Carrier announced that it would close its last two manufacturing plants in Syracuse, where the company was once based, and move its manufacturing operations to Singapore, China and Georgia.
According to a Syracuse.com report, the company rejected a $210 million incentive package from the state and labor unions, resulting in 1,200 layoffs.
This is a hefty package — one officials were more than happy to make if it would have saved decent-paying manufacturing jobs. In comparison, the deal negotiated by Trump and Vice President-elect Mike Pence gives Carrier $7 million in tax breaks over 10 years and saves about 1,000 manufacturing jobs. I suspect that Carrier also viewed making a deal as good politics, as United Technologies, Carrier’s parent company, brings in about $5 billion in government contracts each year.
It gives me no pleasure to see people lose their jobs, which is why I have mixed feelings about the Carrier deal.
On one hand, Sanders and other critics make valid points when they blast such deals for cozying up to big business, rather than standing up to it.
On the other hand, there’s a cost to layoffs and factory closures. It’s easy to dismiss giving companies tax breaks and other incentives as bad policy until you consider the human factor. Doing nothing while people’s livelihoods disappear is bad policy, too. Much has been made of the fact that Carrier still plans to move a significant number of jobs to Mexico. But I’m betting that those whose jobs are saved will still consider the deal a great success.
After living in upstate New York for over a decade, I’ve come to view offering tax breaks and incentives as an approach to job creation and development that’s overused, but can offer real benefits.
GlobalFoundries, the chip manufacturer in Malta, has always struck me as a good investment, despite its high cost to taxpayers. But the millions in tax credits and funding for GE’s ill-fated Durathon battery plant, which opened in Schenectady in 2012 and closed just three years later, seem ill-advised, especially in hindsight.
There’s a reason such deals get made, even though the cost is high: Good jobs can be hard to find, and officials will do whatever they can to help the workers in their own backyard.