Note: This commentary was originally published in The Philadelphia Inquirer.
Conservatives loathe government handouts. Liberals denounce special favors to corporations. One thing can unify these two sides: ending Pennsylvania’s budget-busting corporate welfare handouts.
Every year, state government gives millions in taxpayer dollars to favored businesses under the guise of “economic development.” In reality, these giveaways represent political development profiting special interests and their well-connected lobbyists.
Incredibly, Pennsylvania leads the nation in corporate welfare spending, according to a recent study by the Commonwealth Foundation.
This year, the commonwealth will award nearly $700 million in corporate welfare. In fact, Pennsylvania has topped the nation in business subsidies since 2007, totaling nearly $6 billion of taxpayers’ money.
While the problem is enormous, so is the opportunity. Eliminating corporate welfare spending and redirecting that $700 million to other programs would go far toward addressing our budget deficit.
This should be priority number one—before considering any tax hikes.
Still others reason exists to end business subsidy programs. They reward lobbying and politics over innovation and hard work, and they don’t work as promised.
Dubbed “press release economics” for the media attention and ribbon-cutting ceremonies that come with new grants, these incentives look promising but fail to sustain new jobs. In fact, they undermine growth.
Consider publicly funded sports stadiums. Since 1999, Pennsylvania taxpayers have shelled out nearly $600 million for stadium construction. Franchise owners promise an economic boom, but deliver on that promise “almost never,” according to Holy Cross economics professor Victor Matheson.
Chester’s Talen Energy Stadium (formerly PPL Park) is a prime example. Under Gov. Rendell, the state gave $47 million to help build the soccer stadium, hoping it would turn Chester into a “first-class Pennsylvania city.” Years later, Chester is still “one of the state’s most violent and impoverished cities,” according to an Inquirer report. Economic growth failed to materialize, but taxpayers remain on the hook for the bill.
Horse racing is another corporate welfare favorite. Pennsylvania provides an eye-popping $250 million per year—from taxes on slot machines—to subsidize horse racing prizes. This subsidy supposedly supports horse breeders and trainers. Yet, according to a Tribune-Review investigative report, much of the prize money goes out of state. Meanwhile, horse breeding in Pennsylvania continues to decline.
The $60 million Film Tax Credit offers another example of failure. The state recently awarded almost $19 million in tax credits to Netflix, a $60 billion corporation, to film a series in Pittsburgh. While the tax credit may attract filmmakers, it won’t grow the economy. “Every independent study has found film tax credits generate less than 30 cents for every $1 of spending,” says Joe Henchman of the Tax Foundation.
The evidence is in: Special subsidies don’t generate robust economic growth. In fact, the ten states spending the least on corporate welfare from 2007-2015 saw faster job growth than the ten states spending the most.
Did our first-place corporate welfare ranking boost our economy? Hardly. The commonwealth ranked 35th in job growth, 31st in personal income growth, and 38th in population growth from 2005-2015.
Both sides of the political aisle should agree on ending corporate welfare. Unfortunately, Gov. Wolf proposed increasing it in his 2016-17 budget. To do so, he wants $2.7 billion more in taxes—including a retroactive income tax increase.
Wolf’s tax-and-spend model has been the norm in Pennsylvania for decades. It’s given us a sputtering economy that’s driving people to low-tax states in search of better opportunities. Walloping families and small businesses with tax increases to fund a corporate welfare binge won’t make Pennsylvanians’ lives better.
It’s time we realize that on the roadmap to prosperity, corporate welfare is a detour, not a shortcut.
Controlling spending and lowering the tax burden for all, not tipping the scales in favor of a few, is the proven way to boost economic growth.
# # #
Nathan A. Benefield is vice president of policy analysis for the Commonwealth Foundation, Pennsylvania’s free market think tank.