Note: This op-ed was originally published in the Scranton Times-Tribune.
The saying, “Third time’s the charm,” may need revising. Scranton is now on its fifth economic recovery plan and charmed hardly describes the results. For decades, Scranton residents have been promised solutions to the city’s long-standing economic struggles, but job growth and fiscal stability remain elusive.
One of the most damaging of those false promises is government-driven “economic development” known as corporate welfare. These government subsidies to businesses via loans, grants, and tax credits unfairly benefit the politically connected and simply doesn’t work. Scranton is a prime example.
In the 1990s, Scranton spent hundreds of millions of tax dollars on county roads, museums, a stadium, a shopping mall, and an industrial park. Yet, the projects “largely failed” to revitalize the city, according to a study by the Mercatus Center at George Mason University.
Pennsylvania’s story is similar. Since 2007, our state has led the nation in corporate welfare spending at a staggering $6 billion, outspending its nearest competitor by nearly $2 billion. Yet, these massive handouts to special interests have failed to boost economic growth.
The ten states spending the most on corporate welfare from 2007-2015—Pennsylvania first among them—saw less job growth than the ten lowest spenders.
From 2005-2015, the commonwealth underperformed in key economic indicators, ranking 35th in job growth, 31st in personal income growth, and 38th in population growth. In fact, the ten states spending the most on corporate welfare from 2007-2015—Pennsylvania first among them—saw less job growth than the ten lowest spenders.
Here’s why. Normally, businesses make decisions based on what consumers want. But when government subsidies are on the table, businesses start competing for politicians’ or government bureaucrats’ priorities.
Success is determined by who lobbies better, not by who makes the best product at an affordable price. The result? A few businesses “win” at their competitors’ expense, and taxpayers suffer.
Consider Pennsylvania’s Redevelopment Assistance Capital Program (RACP). This program gives an unfair advantage to large cities and awards grants disproportionately to businesses in Pittsburgh and Philadelphia. Scranton workers, meanwhile, are left to pay the tab.
RACP isn’t the only example. Commonwealth Foundation has identified more than $800 million in corporate welfare in this year’s state budget.
One of the biggest winners is the horse racing industry, receiving about $250 million each year from the Race Horse Development Fund. A big chunk of this funds prize money, nearly 30 percent of which is spent outside of Pennsylvania. You can bet the house most Scranton residents have not benefitted from this spending.
What’s more, a 2016 Pennsylvania Gaming Control Board report found attendance and wagering on horse racing dropped since 2011. Despite the perks, the industry is losing ground.
Horse racing isn’t alone—Pennsylvania has given Fortune 500 companies like Aramark and Amazon millions in tax dollars while taxing small business owners out of existence.
Lower-profile companies have also won taxpayer-funded subsidies at the expense of hard-working Pennsylvanians. Aquion Energy recently filed for Chapter 11 Bankruptcy, but not before receiving nearly $19 million in taxpayer subsidies. Remarkably, the Department of Community and Economic Development promised to recoup the funds and use them again for “reinvestment” in Pennsylvania’s economy.
Instead of giving tax breaks and subsidies to select businesses, lawmakers should cut corporate welfare and use the savings to reduce tax rates for all businesses.
With its history of failure, why is corporate welfare so prevalent? In short, optics. Headlines and ribbon cutting ceremonies give the appearance of growth. But this artificial economic development concentrates power, promotes cronyism, and siphons money from working people across the state. When government officials divert dollars to their preferred economic projects, the net result is stagnation, not growth.
Thankfully, there’s a better solution. Pennsylvania has one of the highest business tax rates in the industrialized world. Instead of giving tax breaks and subsidies to select businesses, lawmakers should cut corporate welfare and use the savings to reduce tax rates for all businesses. This will attract investment, create jobs, and help reverse the trend of Pennsylvanians fleeing the state for job prospects elsewhere.
Pennsylvanians deserve better than a system that favors the politically connected. Creating an environment where people can advance based on merit, not lobbying prowess, is a recovery plan that will put cities like Scranton back on the path toward growth and opportunity for all.
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Bob Dick is a senior policy analyst with the Commonwealth Foundation,
Pennsylvania’s free-market think tank.