Honeywell — and its 1,800 jobs — will be staying in New Jersey. The questions is, however, at what cost?
According to Forbes.com,
Cote said the $33 billion company had been seriously considering moving out of New Jersey and taking its 1,800 jobs with it. He said the company was persuaded to stay after getting assurances from Gov. Chris Christie that his administration will work with the Legislature to expand a tax credit program aimed at retaining companies.
So what’s the cost? At $2,225 per job saved — which is what the governor wants the tax Business Retention and Relocation Assistance Grant program expanded to — that amounts to $4 million a year for six years. The compnay, according to its annual report, had state tax liabilities in all the states in which it operates totalling $71 million (combined currrent and deferred obligations) in 2009.
I’m not arguing that the tax credit is bad in this particular instance. The preservation of 1,800 jobs cannot be sniffed at, nor can the property and other taxes generated. The question, however, is whether tax credits like this encourage companies to shop around, to see if they can find communities that are willing to bid down their tax liabilities to get companies like Honeywell to pick up and move and whether the benefits to the state offset the tax costs in the longrun.
New Jersey Policy Perspective has issued several reports on this, including this one on Citigroup in 2007 and this one on Jersey City tax abatements. The upshot, according to NJPP, is that these kind of incentives might be better reserved for small businesses and not tossed at multinationals.
From the executive summary of the Citigroup report:
An analysis of Citigroup’s practices in four states–New York, New Jersey, Kentucky and Texas–suggests that the world’s largest financial institution rarely makes a move without getting taxpayers to help foot the bill.
Using the threat of moving facilities and jobs elsewhere, Citigroup has repeatedly played state against state and locality against locality to attract at least $285.9 million in subsidies in just the four states.
STATE AND LOCAL ECONOMIC DEVELOPMENTSUBSIDIES TO CITIGROUP1989-2007STATE * AMOUNTNew York* $125.5 millionNew Jersey $101.1 millionKentucky* $46.7 millionTexas* $12.6 millionTOTAL * $285.9 millionGiven that Citigroup operates in many states in the US and more than 100 other countries, these findings are in all likelihood just the tip of the iceberg.
In some cases, Citigroup sought special tax deals even though it was not pledging to create any new jobs. Worse, despite the company’s claims at the time that the job subsidies were necessary or that they determined where the company ultimately decided to expand or relocate, our findings also suggest that business basics–such as a skilled work force, affordable housing, good transportation infrastructure and a modern telecommunications system–mattered far more in determining where Citigroup jobs went.1
Giving Citigroup such large subsidies is no guarantee the company will stay or that it will avoid layoffs. The latest proof of that came in April 2007 when the firm announced it will eliminate 17,000 positions worldwide. In that respect, Citigroup is a revealing case study in the perils of granting large, company-specific tax breaks.
Sometimes, Citigroup appears to have taken advantage of rivalry among states, exploiting the “prisoners’ dilemma” dynamic to mislead one government that it is competing against another, when no rival offers actually have been made.
Finally, the idea that Citigroup “needed” the tax breaks is undermined by its willingness in the same years to spend lavishly on global acquisitions, baseball stadium naming rights and executive compensation. For those who argue that economic development incentives are best reserved for small businesses that truly lack access to adequate or affordable capital, Citigroup–with more than a trillion dollars in assets and more than $21 billion in profits last year–presents compelling evidence.
Admittedly, this is an incomplete picture, but what we have here does not paint a convincing picture that these kinds of tax breaks create economic growth — which contradicts the conventional wisdom. At the least, it should offer ammunition to other entities to do a comprehensive study of tax incentives in the state.
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David Cay Johnston documents corporate welfare in his books, Free Lunch: How the Wealthiest Americans Enrich Themselves at Government Expense (and Stick You with the Bill) and Perfectly Legal: The Covert Campaign to Rig Our Tax System to Benefit the Super Rich–and Cheat Everybody Else. He asserts that in many cases, the profits these companies reap are actually our tax dollars. The corporations are in charge, they get the states in bidding wars so they can suck up more tax dollars either directly or indirectly.The NJN news report said that Honeywell will be getting tax breaks and grants. What the hell are the grants? Sorry, maybe I am totally wrong and off base, but I smell some kind of Machiavellian plot/ 3 card Monte scam between Honeywell and Christie. In any case, who will make up the lost tax revenues? Oh wait, we'll just cut more from public education and destroy the pension fund so that the CEO of Honeywell can walk away with tens of millions of dollars when he bails out of NJ.DAVID COTE is a member of that Cat Food commission, the commission that wants to gut, cut, slice and dice Social Security, Medicare and Medicaid to reduce the deficit.Cote, a Republican, has served as Honeywell International chairman, chief executive and president since 2002. He is a member of the U.S.-India CEO Forum, which Obama asked him to co-chair in 2009. He adds a business perspective to Obama's slate of representatives on the panel. It's just sickening.