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How to End State Subsidies

Authors: Edward Alden, Bernard L. Schwartz Senior Fellow, and Rebecca Strauss
May 9, 2014
The New York Times


Gov. Rick Perry of Texas scored a big victory last week in his effort to lure companies from other states to his own, successfully offering $40 million to Toyota to relocate its American sales headquarters (and 4,000 jobs) from California. Texas is also one of five states — along with California, Arizona, New Mexico and Nevada — that are bidding against one another for a new Tesla Motors factory that will employ up to 6,500 people.

Such competition among states is all too common. Each year, state and local governments in the United States spend more than $80 billion, or roughly 7 percent of their total budgets, on tax breaks and subsidies to attract investments from auto companies, movie producers, aircraft makers and other industries. Last year, Washington State granted a subsidy package to Boeing worth $8.7 billion — the largest to a single company in American history — to keep Boeing from moving production to South Carolina.

From a national perspective, this is about as dumb as it gets. Taxpayer money is wasted to pay off companies that would most likely have invested somewhere else in the United States. State governments would be better off if they collectively ended the handouts and competed for business in other ways, such as making investments in infrastructure or education or offering lower overall tax rates. But no state wants to stop first and risk losing jobs if other states don't follow suit.

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