The Costs of Corporate Welfare

Over the last four and a half decades, government spending in the Keystone State has risen dramatically. Consequently, Pennsylvania workers now labor under one of the highest tax burdens in the country. Of the last 46 state budgets, only one did not increase total spending. This explosion has been fueled in part by special subsidies doled out to select businesses, creating an economic system favoring the privileged few at the expense of everyone else.

Matt Mitchell, in his 2012 paper, Pathology of Privilege, explains the danger of such government favoritism:

Privileges limit the prospects for mutually beneficial exchange—the very essence of economic progress. They raise prices, lower quality, and discourage innovation. They pad the pockets of the wealthy and well-connected at the expense of the poor and unknown. When governments dispense privileges, smart, hardworking, and creative people are encouraged to spend their time devising new ways to obtain favors instead of new ways to create value for customers. Privileges depress long-run economic growth and threaten short-run macroeconomic stability.

The evidence in this paper mirrors many of Mitchell’s findings. Government favoritism stunts economic growth, misallocates resources, and leads to higher tax bills. By ending government favoritism and moving toward a tax system devoid of special treatment for moneyed interests, lawmakers can improve the state’s business climate and create opportunities that will lead to better lives for all Pennsylvanians.

For reformers, the best place to begin is with the $700 million in special subsidies identified in the 2015-16 budget. Regrettably, Gov. Wolf wants to increase this amount, even as he argues for higher taxes on low- and middle-income people. This would move Pennsylvania in the wrong direction, further concentrating economic power in the hands of a few.

The Costs of Corporate Welfare focuses on the failure of these subsidies, along with other seemingly popular economic development tools, which have led to the misuse of funds and made the state economically and financially worse off.