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2005-07-22

The Great American Jobs Scam: Corporate Tax Dodging and the Myth of Job Creation

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We speak with Greg Leroy, author of the book "The Great American Jobs Scam: Corporate Tax Dodging and the Myth of Job Creation" that shows how–in case after case–false promises of good jobs and higher tax revenues by large corporations land them huge tax breaks and other subsidies from state and local governments. [includes rush transcript]

What do Wal-Mart, Dell, Fidelity Investments and Boeing have in common? They’re all part of a $50 billion dollar-a-year scam in which corporations play states and cities against each other to win hefty taxpayers subsidies in the name of job creation.

But do they provide more jobs, higher wages or improved living standards? A new book says otherwise. We are joined now by Greg Leroy, author of "The Great American Jobs Scam: Corporate Tax Dodging and the Myth of Job Creation." He is director of the non-profit Good Jobs First.

  • Greg Leroy, author of "The Great American Jobs Scam: Corporate Tax Dodging and the Myth of Job Creation" and director of the non-profit Good Jobs First.

Transcript

This is a rush transcript. Copy may not be in its final form.

AMY GOODMAN: We are joined by Greg Leroy, author of The Great American Jobs Scam: Corporate Tax Dodging and the Myth of Job Creation. He’s Director of the non-profit Good Jobs First. We welcome you to Democracy Now!

GREG LEROY: Thanks, Amy. Thanks, Juan.

AMY GOODMAN: It’s great to have you in our Washington studio. Why don’t you lay out the premise of your book?

GREG LEROY: Sure. As you mentioned, it’s a $50 billion a year scam. That’s total spending by states and cities in the name of jobs. The average state subsidizes jobs more than 30 different ways now, and those subsidies are often granted by local bodies of government. The trouble is nobody’s watching the store in too many cases. Companies get huge subsidies, in many cases to do exactly what they were going to do anyway, to go where they wanted to go, to lay off people, or to outsource, or to pay poverty wages, or bust a union, or privatize work anyway. And governments don’t even enforce the promises made originally when companies say they’re going to create x number of jobs or create x amount of additional tax revenue. So taxpayers are often losing twice or three times by losing jobs, not getting as much tax revenue as they promised, and losing tax revenue that could be really used to create good jobs through other means.

JUAN GONZALEZ: Well, how has it gotten to this stage, Greg? Many of us are familiar with the usual reports, x company was offered these job incentives because they were considering leaving to move somewhere else and, as a result of the job incentives, not only will the x number of jobs be created, but there will be multiplier effects that will create other jobs. But no one ever checks back five years later or ten years later to find out what actually happened, right?

GREG LEROY: Yes. Certainly the whole job blackmail dynamic you just described there is epidemic in many parts of the country. It’s especially true in New York City, where dozens of companies, media companies, financial companies, insurance companies have threatened to leave the city and shaken down the city for eight and nine-figure packages. By threatening to run away to places like Jersey City or Greenwich, Connecticut.

The trouble is, when you go back and read the fine print of the contracts written by the city, giving the big tax breaks to allegedly retain the companies, you find that the contracts are Swiss cheese, that they give the companies lots of latitude to lay people off before triggering any kind of penalties. And the city isn’t doing a good job monitoring, has historically not done a good job monitoring the outcomes.

But it’s hardly unique to New York City. Companies like Raytheon did it to Massachusetts, ConAgra to Nebraska, Sears did it to Illinois. And then there’s other dynamics, too. Pirating jobs with taxpayer money or moving jobs around with taxpayer money, like the case of Dell getting a massive package from the state of North Carolina, a package that could approach $300 million for a facility that will only cost about $100 million. The system has grown up over 50 years.

There’s a whole industry of site location consultants who specialize in keeping the process secret. At its core, the problem is that the corporate decision-making process really is a black box. We’re not allowed to really understand how companies make their decision. Public officials are kept out of the process. They’re deliberately kept in the dark so that public officials cannot cooperate in the interest of taxpayers. Governors cannot cooperate. Mayors cannot cooperate. And therefore, governments are played against each other. They’re whipsawed, and we’re all taken to the cleaners as taxpayers.

AMY GOODMAN: Greg Leroy, can you talk about Wal-Mart and the examples of how it has benefited by this, what you call, the Great American Jobs Scam?

GREG LEROY: Sure. Taxpayers subsidize Wal-Mart at least two different ways, both through the front door and through the backdoor. The front door, I mean bricks-and-mortar subsidies. We at Good Jobs First last year identified more than $1 billion of bricks-and-mortar subsidies given to Wal-Mart stores and warehouses: loans, grants, cheap land, infrastructure, so-called tax increment financing, other training grants, things like that. And then in the backdoor, other sources, including Congressional U.S. staff in the U.S. House of Representatives have identified massive subsidies given to Wal-Mart employees through safety net programs. That is, Medicaid, children’s health insurance, free school lunches, Section-Eight housing assistance, earned income tax credits given to workers at Wal-Mart and their family because the company pays poverty wages. So we as taxpayers are subsidizing the company heavily coming and going.

JUAN GONZALEZ: What kind of examples have you uncovered of communities who successfully resisted these kinds of efforts or that actually held companies accountable for their promises?

GREG LEROY: Well, that’s the exciting part of the movement today. At the grassroots level, both at the state and local level, a growing number of groups are fighting back, demanding accountability. Twelve states now have some form of annual company specific disclosure. States like Minnesota and Maine and Illinois and Washington state coming online soon, so the taxpayers can see the cost and benefits of every deal. And when that happens, a lot of bad deals tend to go away. That’s what history teaches us.

A number of states and cities are enacting what are called claw-backs, literally money back guarantee language to hold companies accountable and saying if you fall short on job creation, we get some of our money back. More than 40 states and more than 40 cities around country are attaching wage standards to their subsidies saying to Wal-Mart or anybody else, if you get a subsidy from us, you’ve got to pay a better wage, a living wage, the jobs have to be full-time, you have to have health care. That’s becoming a very common standard attached to subsidies.

And then, at the local level you’ve got very exciting projects-specific campaigns like those especially led by the Los Angeles Alliance for a New Economy around projects like the Staples Center expansion or the modernization of the LAX airport, where they attach many strings to the deals to make sure that local residents in the neighborhood get first crack at the jobs, get living wages, get environmental and housing benefits, so that local people are not just road kill for the project.

JUAN GONZALEZ: Did your book get at all into the whole issue of sports stadiums and sports arenas as job — supposed job development projects? Because it seems that every city in America is building a new arena, sometimes more than one, for either basketball or hockey or football or baseball.

GREG LEROY: Yes. We went after stadiums. The chapter is called, "Loot, loot, loot for the home team." And you know, there is just an enormous body of evidence, quite unanimous from many different perspectives, that professional sports stadiums are not good economic development. The most they do is move dollars around. You and I do not have more leisure time, and you and I do not have more money to play with just because we have a new place to go, a new stadium to go to. So really what stadiums do is just move leisure time dollars and leisure time around. But they don’t create economic development. Arenas and convention centers, especially convention centers, are grossly overbuilt now. The convention center business has actually been faltering for ten years. It began to falter long before 9/11. And despite that, cities continue to massively subsidize new convention center space, which you basically got way too much capacity chasing fewer and fewer dollars.

AMY GOODMAN: How do you build a new consensus for reform?

GREG LEROY: Well, I think disclosure is the bedrock of that. Once people see who’s getting the money, where it’s coming from, and what we’re getting in return, things change. Claw-backs, as I mentioned before, or money back guarantee language, job quality standards to get the poverty wage subsidy deals out of the pipeline. There’s a whole system of land reforms, land use reforms, smart growth reforms we also suggest. You know, the average corporate relocation in this country is not across state lines. It’s actually from a core urban area, an older area, to the fringe, often chewing up land and causing more sprawl. For instance, we document the fact that not one single state requires that job subsidies, even preferentially, go to much less — are mandated to go to places that are accessible by public transportation. So low-wage families that don’t own a car don’t get access to many of the new jobs being subsidized by taxpayers. We think that’s nuts. At least in urban areas that have good transportation systems we should be steering those jobs to places that are accessible by public transportation to create more opportunity for low-wage families, to give more people a choice about how to get to work, to clean up the air and reduce traffic congestion.

JUAN GONZALEZ: Let me ask you, of all the examples that you came across in your research, could you give our readers an example of one of the worst in terms of the size and the ridiculousness of the kind of taxpayer subsidy?

GREG LEROY: We go into a particular kind of loophole called "single sales factor." This is a sweetheart deal, especially for big manufacturing companies in a number of states. And we look at the cases, especially of Massachusetts and Illinois, both of which enacted it in the 1990s. Massachusetts under the threat of losing a big manufacturing company called Raytheon, by basically rewriting the way a multi-state company determines how much of its income gets taxed in each different state. This loophole, this gimmick, called "single sales factor," radically reduces the amount of income tax that many companies pay in states where they’re headquartered or where they have their biggest factories and warehouses.

The trouble is there’s absolutely no accountability attached to it. There’s no requirement that the companies create any new jobs or even retain any jobs. And what we found in cases like Illinois is that even despite the promises and projections made at the time the bill was enacted, the state has actually continued to bleed manufacturing jobs at a terrible rate, and the public coffers have lost a huge amount of money because a small number of companies have gotten enormous corporate income tax breaks. We actually reveal the fact that in many states now, the value of corporate income tax credits is so huge it means that for new factory investments, many companies and many states pay no corporate income tax for years. Some states even allow companies now to buy and sell economic development credits to each other because they’ve gotten so overgrown and so irrelevant, they don’t know what to do with them, so they want to trade them among each other.

You talk about outrageous deals. I also mention again the Dell deal in North Carolina, just unfolded last winter. The company basically wanted to pay no income tax at all, and it got a package worth more than $200 million from the state. And then it played localities against each other within the state for another $37 million. So the whole package altogether may approach $300 million for a factory that the company says will cost between $100 million and $115 million to build. This is a highly unusual situation where the value of the subsidies is going to actually exceed the cost of constructing the facility. It’s really off the charts.

AMY GOODMAN: Greg Leroy, I want to thank you very much for being with us, author of The Great American Jobs Scam: Corporate Tax Dodging and the Myth of Job Creation.

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