Corporate Welfare




Study: Selective Carve-Outs Make Poor Tax Policy

AUGUST 7, 2014

Lawmakers across the country have promoted specific, targeted tax breaks that encourage businesses to invest in their state. According to a recent study, these incentive programs are ineffective at promoting widespread economic benefits, despite being advantageous for certain firms and industries. 

The study, published by The American Legislative Exchange Council (ALEC), examines "the use of public policy to benefit a specific industry, firm, or individual, as opposed to setting broad and generally applicable rules and policies that apply to society as a whole." These include targeted tax breaks or cash subsidies for select firms, as well as preferential tax treatment for firms located in a given geographic area.

ALEC finds that while this type of tax favoritism is not illegal, these programs stunt a state’s potential growth. Tax carve outs, while helping ease the tax burden for select businesses, create an uneven playing field on the whole.

When select businesses are exempt from the standard tax rate, the tax base decreases. ALEC notes that "with a smaller revenue base, states must continually raise tax rates to get the desired amount of revenue." Overall, this results in most businesses paying higher taxes, as they are forced to subsidize the lower tax burden of firms receiving preferential treatment.

To achieve a state's greatest economic potential, carve-outs must be eliminated altogether. Tax policy should be competitive and equal for all businesses. 

posted by EMMA CRISCI | 05:00 PM | Comments

RCAP and Corporate Welfare Hurt Pennsylvanians

JUNE 18, 2014

What would you do if the government spent your tax dollars on a project that could bankrupt your business? Would you fight back by pointing out the injustice? Hopefully you're never faced with such a decision.

But unfortunately, for some Pennsylvanians, this hypothetical is all too real. 

In a recent example, Lebanon Valley Cancer Center’s (LVCC) amicable relationship with Good Samaritan Hospital in Lebanon, PA hit a speed bump when Good Samaritan received a $3 million government grant that could put LVCC out of business.

As reported by abc27 News, Good Samaritan plans to build a new cancer care facility with this public money. Cancer centers are a laudable contribution to the health of our communities and the commonwealth, but the radiation oncology center will duplicate the services already provided by LVCC.

Redevelopment Assistance Capital Program (RCAP) grant, could, as LVCC representatives argue, destroy an established, local, and privately-funded small business that has served the community for 24 years. 

One LVCC reprsentative put it plainly in an interview with abc27:

"Inevitably, if they go through with this, it will put us out of business," said Susan McCoy, Lebanon Valley Cancer Center office manager.

This is one prime example of the ineffectiveness of the RCAP program. RCAP, and other "corporate welfare" type projects result in government picking winners and losers, which hurts our economy.

Last year, the General Assembly was on the right track when in lowered the program's debt ceiling to $3.75 billion. This debt ceiling reduction and other reforms establish greater accountability within the program, but more can be done.

Instead of picking winners and losers, lawmakers should eliminate RCAP and other corporate welfare programs to balance the budget, paving the way for lower taxes. An overall tax rate reduction would benefit hardworking Pennsylvanians without playing favorites.

For more information on how to make Pennsylvania prosperous and fiscally sound, check out our Blueprint for a Prosperous Pennsylvania.

posted by MICHAEL HOGG | 10:56 AM | Comments

Pennsylvania Tops in Corporate Welfare

Part of A Blueprint for A Prosperous Pennsylvania

MAY 14, 2014

Pennsylvania's system of economic development subsidies costs taxpayers hundreds of millions of dollars annually, yet this spending does little to promote overall job growth.

Given the state's fiscal hurdles, ending special subsidies to favored businesses would be a win for both fiscal responsibility and economic growth. Corporate welfare costs taxpayers more than $700 million a year (billions if you include interest from economic development spending bonds and from independent state agencies).

Corporate Welfare Grant & Loan Programs (Operating Budget) 2013-14 Budget (Thousands) 2014-15 Proposed Budget (Thousands)
General & Special Funds
Agricultural Research $787 $0
Agricultural Promotion, Education and Exports $196 $0
Ben Franklin Tech Development Authority Transfer $14,500 $14,500
Commonwealth Financing Authority Transfer $78,019 $82,505
Council on the Arts $886 $886
Discovered in PA Developed in PA $9,900 $9,900
Food and Marketing Research $494 $0
Grants to the Arts $8,179 $8,590
Hardwoods Research and Promotion $350 $0
Industry Partnerships $1,813 $1,613
Infrastructure and Facilities Improvement Grants $19,409 $19,409
Keystone Communities $11,300 $10,799
Keystone Works $1,000 $1,000
Livestock Show $177 $0
Marketing to Attract Business $3,442 $4,586
Marketing to Attract Tourists $7,435 $3,806
Municipalities Financial Recovery Revolving Fund Transfer $7,096 $5,250
New Choices/New Options $500 $0
Open Dairy Show $177 $0
Partnerships for Regional Economic Performance $11,880 $12,380
Pennsylvania First $37,800 $42,500
Pennsylvania Race Horse Development Fund $252,109 $252,159
Tourism-Accredited Zoos $550 $0
World Trade PA $7,296 $7,900
Youth Shows $140 $140
Total  $475,435 $477,923
Tax Credits
Film Tax Credit $60,000 $60,000
Job Creation Tax Credit $10,100 $10,100
Research and Development Tax Credit $55,000 $55,000
Keystone Opportunity Zone $87,400 $87,500
Keystone Innovation Zone $25,000 $25,000
Alternative Energy Production Tax Credit $10,000 $10,000
Total Tax Credits $247,500 $247,600
Total Amount $722,935 $725,523

Not only are taxpayers forking over more than $700 million annually, but these economic development programs don't produce greater job growth—at least not when compared with lowering the tax burden for all. As the chart below shows, the states in the top 10 of economic development spending saw their economies grow at a slower pace than those states in the bottom 10.

Expenditures on Economic Development Programs

Top Ten States

States

Total FY 2007-14

Population

Per-Capita

Job Growth FY 2003-13

Pennsylvania

$5,099,048,477

12,763,536

$400

2.56%

Ohio

$4,635,133,424

11,544,225

$402

-3.60%

California

$4,458,817,000

38,041,430

$117

1.69%

Louisiana

$3,269,130,453

4,601,893

$710

2.47%

New Jersey

$2,891,965,000

8,864,590

$326

-1%

Florida

$2,806,836,571

19,317,568

$145

3.02%

Kentucky

$2,390,976,948

4,380,415

$546

1.81%

Arizona

$2,386,631,775

6,553,255

$364

7.06%

Texas

$2,385,404,844

26,059,203

$92

19.30%

New York

$2,318,185,102

19,570,261

$118

5.38%

Average

$322

3.87%

Bottom Ten States

States

Total FY 2007-14

Population

Per-Capita

Job Growth FY 2003-13

Nevada

$483,109,516

2,758,931

$175

5.03%

New Mexico

$386,315,600

2,085,538

$185

3.38%

Rhode Island

$346,992,377

1,050,292

$330

-3.39%

Maine

$337,491,972

1,329,192

$254

-0.36%

Nebraska

$298,183,050

1,855,525

$161

6.81%

Delaware

$214,754,300

917,092

$234

1.37%

Vermont

$213,484,452

626,011

$341

1.30%

Montana

$197,028,847

1,005,141

$196

12.07%

New Hamphsire

$195,003,279

1,320,718

$148

2.54%

Idaho

$186,680,900

1,595,728

$117

12.49%

Average

$214

4.12%

Source: State Economic Development Expenditure Database, The Council for Community and Economic Research (http://c2er.org); U.S. Bureau of Labor Statistics.

Due to a projected budget deficit of $1.2 billion next fiscal year, Gov. Corbett and lawmakers are looking for areas in the budget to cut. Reducing corporate welfare, which has proven to be ineffective, would be a good first step toward balancing the budget and creating an environment hospitable for job growth.

For more solutions to PA's budget troubles, read our report, Blueprint for a Prosperous Pennsylvania.

posted by BOB DICK | 03:58 PM | Comments

End Special Subsidies to Lower Taxes for All

FEBRUARY 26, 2014

Sony Site

Taxpayers have spent millions on four different occasions to subsidize the infamous "Sony site" in Westmoreland County. In the 1970’s Volkswagen got $70 million in state aid under Gov. Milton Shapp. Under Gov. Bob Casey, Sony moved in with $40 million in taxpayer cash, and secured another $1 million under Gov. Rendell before moving out just two years later in 2007. Finally, in 2011 taxpayers gave $10 million to rehabilitate the site.

The Sony saga is hardly an anomaly. We've identified $706 million in "economic development" grant and tax credit programs from the 2013-14. This total doesn't include independent agencies like the Commonwealth Financing Authority or borrowing for Redevelopment Assistance Capital Spending.

Corporate Welfare Grant & Loan Programs 2013-14 Budget (Thousands)
General and Special Funds
Agricultural Research $787
Agricultural Promotion, Education and Exports $196
Ben Franklin Tech Development Authority Transfer $14,500
Commonwealth Financing Authority Transfer $78,019
Council on the Arts $886
Discovered in PA Developed in PA $9,900
Food and Marketing Research $494
Grants to the Arts $8,179
Hardwoods Research and Promotion $350
Industry Partnerships $1,813
Infrastructure and Facilities Improvement Grants $19,409
Keystone Communities $11,300
Keystone Works $1,000
Livestock Show $177
Marketing to Attract Business $3,442
Marketing to Attract Tourists $7,435
Municipalitites Financial Recovery Revolving Fund Transfer $7,096
New Choices/New Options $500
Open Dairy Show $177
Partnerships for Regional Economic Performance $11,880
Pennsylvania First $37,800
Pennsylvania Race Horse Development Fund $301,225
Tourism-Accredited Zoos $550
World Trade PA $7,296
Youth Shows $140
Total General and Special Funds $524,551
Targeted Tax Credits
Film Tax Credit $60,000
Job Creation Tax Credit $10,100
Research and Development Tax Credit $55,000
Keystone Opportunity Zone $21,800
Keystone Innovation Zone $25,000
Alternative Energy Production Tax Credit $10,000
Total Targeted Tax Credits $181,900
Total Amount $706,451

By eliminating these targeted incentives and instead creating tax relief for all businesses, Pennsylvania could lower the corporate tax rate by 2.91 percent, dropping the tax rate from 9.99 to 7.08 percent. That's assuming a purely static model, not factoring in new businesses attracted with the lower rate. 

Instead of having the second-highest corporate tax rate in the nation (and the highest flat rate), Pennsylvania would land in the middle of the pack with the 22nd highest ranking. That is, we would bypass 20 states that currently have lower corporate income taxes. 

Other states are catching on to the failure of targeted tax incentives. According to the Tax Foundation, New Mexico recently passed a business tax rate reduction and reduced the number of special interest tax credits, with a Democratic legislature. Indiana is keeping corporate tax reductions on track and North Carolina cut their corporate tax, and repealed some selective credits.

As other states continue to reduce the barriers for business, Pennsylvania will become even more uncompetitive despite the billions spent to woo businesses each year.

For more on the failure of Pennsylvania’s corporate welfare spending see our Blueprint for a Prosperous Pennsylvania.

posted by ELIZABETH STELLE | 03:42 PM | Comments

A Look at Job Growth in Pennsylvania

FEBRUARY 25, 2014

Pennsylvania Economy

Pennsylvania’s economy is beginning to recover from the 2007 recession, according to the latest numbers from the Bureau of Labor Statistics.

Since 2010, Pennsylvania has added 86,400 jobs, ranking 21st among states. In contrast, Pennsylvania added just 41,300 jobs from 2002-2010.  This lack of job growth can be attributed to a variety of things including national trends; Pennsylvania's tax burden, which is the 10th highest in the nation; and the state's regulatory environment and growth in government spending—issues which lawmakers need to tackle.

Pennsyvlania Job Growth by Governor

While Pennsylvania employment has not returned to its prerecession peak, the state is slowly making progress. Claims of Pennsylvania ranking near the bottom in job creation during the past few years are widespread but misleading. In fact, the state has ranked poorly in job growth for decades.

Policymakers in Harrisburg should consider reforms to encourage job growth. Here are just a few recommendations from our new report, Blueprint for a Prosperous Pennsylvania:

End Corporate Welfare and Lower the Tax Burden: Pennsylvania will spend approximately $1.6 billion on corporate welfare this fiscal year. Instead of handing out loans, tax credits, and special favors to privileged companies, policymakers should end these programs and use the savings to cut Pennsylvania’s corporate tax rate, which is the second highest in the world.

Enact Welfare Reform: Pennsylvania's welfare budget continues to grow at an unsustainable rate. To prevent burdening Pennsylvanians with even higher taxes, policymakers should crackdown on the fraud and waste inherent in welfare programs, and demand flexibility from the federal government to restructure the welfare system’s incentives, which only hurt those trying to escape poverty.

Enact Spending Limits: In order to put Pennsylvania on a sustainable path, lawmakers should adopt fiscal restraints, such as spending limits for core functions of government.  The limits would control the growth of government spending by tying increases to inflation and population growth.  Had state spending limits been enacted in 2000, taxpayers could have seen savings of $4,000 per family of four. 

posted by BOB DICK | 02:42 PM | Comments

Let Markets Decide Natural Gas Role

NOVEMBER 5, 2013

Marcellus Shale Fee 2

Could natural gas replace gasoline or diesel for Pennsylvania drivers?

With natural gas certain to become even more plentiful, many people are asking whether that could someday be the norm for transportation. But state lawmakers have taken the speculation one step further by introducing a package of legislation, called Marcellus Shale Works, to subsidize vehicles fueled by natural gas.

Unfortunately this legislation is simply corporate welfare that will do little to make natural gas vehicles economically feasible for companies or taxpayers. Petroleum Products Corp., an operator of pipelines and storage facilities notes one hauler decided against compressed natural gas and liquid natural gas for safety and economic reasons. According to the company, it cost up to $100,000 per truck bay to “explosion-proof” its maintenance areas and trucks would have smaller payloads due to the additional weight of fuel tanks.

Reuters reports that C.R. England purchased five liquid natural gas trucks in 2011, but hasn’t recuperated the almost $80,000 premium per vehicle. The company is seeking a grant from the Pennsylvania Department of Environmental Protection to add CNG trucks. Without the grant, the company’s Director of Fuel admits, they wouldn’t be considering natural gas trucks.

Freight hauler Con-way Inc. found natural gas-based fuels are expensive even with subsidies, according to Randy Mullett, a company vice president.

Con-way is testing two compressed natural gas trucks in the Chicago area and plans to add three or four liquefied natural gas (LNG) trucks in Texas, where state incentives will help offset the added costs. But Mullett said fueling big rigs with natural gas is "not the slam dunk that it's presented to be."

Natural gas-fueled vehicles have been economical for gas suppliers like Cabot Oil & Gas, which owns a $1 million compressed natural gas fueling station in Susquehanna County. And natural gas appears to be attractive for companies with certain situations like UPS, which is investing $50 million to support 1,000 liquid natural gas truck tractors whose routes are within 150 miles of a fueling station.

Companies will switch to natural gas when it makes economic sense. Government can’t predict future energy trends, and they shouldn’t be choosing winners and losers.

posted by GORDON TOMB | 03:05 PM | Comments

We Just Lowered the Debt Ceiling

OCTOBER 17, 2013

Yesterday, House and Senate leaders came together to negotiate a deal—that passed with bipartisan support in both chambers—to reduce our debt ceiling.

If that sounds unbelievable, I should mention those were state legislative leaders in Harrisburg, not those in Washington, and the unanimous vote was to reduce borrowing under the Redevelopment Assistance Capital Program (RACP, or R-Cap).

The legislation (HB 493, sponsored by Rep. Matt Gabler) reduces the total amount of debt that can be owed under RACP by $600 million. The bill also provides greater accountability, oversight and transparency regarding how RACP grants are awarded. HB 493 goes to Gov. Corbett for his signature.

As a refresher, RACP effectively uses borrowed money—paid back with interest by taxpayers—for local "economic development" projects or corporate welfare projects. Some of the more controversial projects include the Arlen Specter Library, the corporate headquarters Tastykake, numerous sports stadiums, and a $3 million grant to the Second Mile, the charity founded by convicted child molester Jerry Sandusky.

While politicians in our nation's capital are once again expanding the federal debt limit on the backs of our children after weeks of partisan rancor, it is refreshing to see lawmakers here in the commonwealth come together and actually reduce the debt burden for current and future generations of taxpayers.

posted by NATHAN BENEFIELD | 10:00 AM | Comments

Red Carpets Trip Up Real Tax Reform

JUNE 18, 2013

When Rocky Balboa triumphantly climbed the steps of the Philadelphia Art Museum in the 1976 blockbuster film Rocky, he did it without a special government handout.  But now Hollywood lobbyists are climbing the steps of the Capitol Building in Harrisburg to ask for just that, and top lawmakers are rolling out the red carpet. 

While some lawmakers are talking about keeping an onerous business tax scheduled to end in 2014, others are talking about increasing the state Film Tax Credit (FTC), giving an even greater tax break to Hollywood studios.  While bringing movie stars to Pennsylvania is good for headlines, special tax breaks for targeted industries hurt average Pennsylvanians.

The FTC attempts to entice movie production companies to film in Pennsylvania by giving them a tax credit equal to 25 percent of their total production costs.  As a bonus, if the tax credit is greater than the taxes they owe (meaning they paid zero taxes) the company can sell their excess credits for a profit. 

Supporters of the FTC argue that these tax breaks will bring jobs and economic activity to Pennsylvania.  This is only partially true, and comes at expense to Pennsylvania taxpayers.   According to an Independent Fiscal Office report, the uncapped tax credits will cost taxpayers $108 million per year, with the state recouping only 14 cents in tax revenue for every dollar given away.

And what do Pennsylvanians get in return for the state’s losing investment?  Supporters claim it will bring jobs to Pennsylvania, but the IFO report shows that 70 percent of wages (which make up the majority of production expenses) will go to non-residents transplanted from out-of-state.  When shooting ends and the film crews go home, their earnings leave with them.

Furthermore, the money could be better spent reducing the tax burden for all Pennsylvanians, making Pennsylvania more competitive and leaving us with more of our hard earned money.

The FTC is an example of why Pennsylvania needs real tax reform.  Special tax breaks for some are paid for by the rest of us, and primarily serve to benefit politicians. We should leave the FTC and all other special tax breaks on the cutting room floor, and instead bring real tax relief to all Pennsylvanians.

posted by NATE HEETER | 00:35 PM | Comments

PA Tax Loophole Funds Frackaphobic Film

JANUARY 3, 2013

There's a memorable line in Promised Land, the new Matt Damon movie opening Friday about a gas drilling company buying land rights in a declining farming community. One character fighting the industry's arrival tells Damon, who plays the gas industry's morally ambivalent landman, "We're not fighting for land, Steve--we're fighting for people."

It's a pity, then, that the Middle East-funded film takes such an anti-people approach to fracking. The film assumes that gas drilling is bad for the environment, laying waste to land and livestock, and that the industry preys on a suffering community's desire for wealth and good schools just to turn a profit.

So far, so Hollywood. Big industry rarely gets more than this false celluloid caricature, even though in Pennsylvania, fracking has created over 102,000 jobs, lowered utility bills, and helped real farmers like Bradford County's Jim VanBlarcom, who was able to double his dairy herd size by leasing his land. And contrary to popular belief, fracking has not contaminated the water supply.

Moreover, the gas industry has boomed without taxpayer subsidies and paid all the taxes common to other businesses plus a special impact fee. That's the double irony of Promised Land: It isn't only anti-people on fracking, it's anti-Pennsylvanians because of the Film Tax Credit used to fund its Pittsburgh-area filming.

Pennsylvania taxpayers doled out more than $4 million through the Film Tax Credit for the movie. For those unfamiliar with the Film Tax Credit, it is unique among tax breaks in that it is "transferable." That is, even if the production company (in this case, Gramercy Productions) doesn't owe any state taxes, they can sell the remainder of their tax credit to another company.

We've noted how corporate welfare for Hollywood studios doesn't "create" any jobs, but shifts economic activity from one area to another. A tax break for one industry requires higher tax rates on everyone else, hindering job creation in every other sector of the economy—which hurts Pennsylvanians everywhere.

In real life, natural gas drilling has revitalized communities across Pennsylvania and helped people to better lives and incomes. For more stories of families benefiting from gas drilling in Pennsylvania, check out The Real Promised Land .

posted by ELIZABETH STELLE, PRIYA ABRAHAM | 10:10 AM | Comments

Film Credits More Blooper Reel than Blockbuster

NOVEMBER 21, 2012

Film industry lobbyists are renewing calls for more corporate welfare for the film industry, through expansion of Pennsylvania's Film Tax Credit. 

As we've noted time and time again, the benefits of the FTC are vastly overstated.  As PA Independent's Eric Boehm comments,

The article notes that "Batman: The Dark Knight Rises" did not get any tax credits from the state.

If blockbusters like that are going to film in Pennsylvania without a taxpayer-subsidized incentive, why did we spend $3.3 million to host the filming of "My Bloody Valentine" or $36 million for "The Last Airbender?"

Why indeed.  In fact, most movies and other productions filmed in Pennsylvania don't receive the film tax credit. This fact undermines the argument we need a bigger tax credit (or one at all) to attract films.

The allure of Tinseltown is beginning to wane with fewer states operating film tax credit programs than in 2010. This is due to the ensuing scandal when politicians decide which Hollywood companies get tax breaks and which bad TV shows or political movies get subsidized, and that film tax credits are failing to generate the promised economic benefits.

The biggest problem with film tax credits is common to all corporate welfare and targeted tax breaks—they prevent states from making across the board tax reductions that would benefit all business.  Such reform, not more credits for Big Hollywood, is how Pennsylvania can improve its economy.

posted by NATHAN BENEFIELD | 03:21 PM | Comments

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