I was reading a recent report in the New York Times on how many tax incentive dollars states have expended to lure auto manufacturers. The article was based on data from Good Jobs First, the tax incentive watchdog. Over the past 40 years, states have spent over $17 billion on auto incentives. Those familiar with my writing know that I am no fan of incentives from a policy perspective. We would be better off having a tax system that did not require us to bribe companies. But I am going to spare all that. The truth is that incentives are here to stay. In the past month, I have had a legislator ask me if I was nuts when I suggested curbing their use. It wasn't the first time.
But let's talk cars. It seems to me that if you are going to hand out tax dollars, the auto industry is a good target. Auto plants remain synonymous with prosperity. Factories mean jobs and ancillary investment. For most of the 20th Century automobile manufacturers helped create a vibrant middle class. There is something quintessentially American about cars—even Mercedes made in Alabama. Perhaps we should not be surprised that auto manufacturers received far more incentives than any other industry.
Pennsylvania started it all with a $100 million incentive package for Volkswagen back in 1976. That didn't work out too well. Things worked out in Alabama, though—Mercedes Benz. And they worked out in Mississippi and Tennessee which gave Toyota, Nissan, and Volkswagen billions in incentives. It's too early to tell how more recent tax incentivized economic development efforts in Nevada (Tesla and Faraday) will work out. And, by the way, traditional U.S. manufacturers Ford, General Motors, and Chrysler received nearly $8 billion from Michigan alone since 1984.
To be sure auto plants don't employ people like they did in 1959. Automation greatly reduced the labor needs over the years. But a major factory still creates a lot of jobs, usually at above average wages. And as importantly, they create investment and jobs from suppliers.
I remain skeptical about the efficacy and efficiently of tax incentives. But if they are inevitable, it is not surprising that states have aimed their efforts at cars.
Good Cause, Bad Policy
There is not much debate that the nation faces an opioid crisis. And there are few places more in crisis than West Virginia. The state has among the highest rates of opioid addiction, overdoses, and deaths. Governor Jim Justice has a plan to address the problem and he should be applauded, but he needs money to carry it out. Unfortunately, the governor has a, well, cockamamie plan to raise money.
The governor wants to impose a 5% tax—he's calling it a fee—on state contractors on winning road construction project bids. Basically, if you are a contractor and submit a winning bid on a contract for $100,000—you would have to pay the state $5,000. Governor says he will raise more than $150 million which he will use to fund his opioid plan. This is a terrible idea.
First, what in the world do state construction contracts have to do with opioids? Nothing. Why is the governor asking a particular industry to pay for this? Isn't the opioid crisis important enough to address with real taxes, i.e., broad based taxes on income, sales, and property? Second, this tax will directly effect how companies bid on government contracts. The governor is a successful businessman; I am shocked he did not think of this. The fee will eventually be included in the bids of every contractor. So the state will pay more for the contracts. The governor should come up with another plan to fund his opioid policy.
Seattle Gun Tax Upheld
The Washington Supreme Court recently upheld Seattle's ludicrous gun tax. The city imposed a $25 per firearm and 5¢ per round of ammunition on sales within the city. I have written about this control disguised as tax policy law a lot. Opponents challenged the law as because, they asserted, it was preempted by the state authority to regulate firearms. The city argued that this was not a gun control ploy but rather a tax—like any other tax.
Unfortunately, the state high court agreed with the city. The court opined that the opponents did not prove that the law had a regulatory purpose. Yet everyone knew when it was passed that the law would raise no money. It was designed to reduce gun sales in the city. And it did. Gun stores moved to the suburbs.
Oklahoma Cigarette Tax Shot Down
Once in a while you read a case and wonder. The Oklahoma Supreme Court ruled recently that the newly enacted cigarette “fee” (S845) is unconstitutional (Naifeh v. Oklahoma). The Oklahoma Constitution requires revenue laws be passed by ⅔ of the legislator. The cigarette fee—$1.50 per pack—is really a tax. In fact, it is like every other cigarette tax in the country. The intrepid solicitor general tried to make chicken salad by arguing that the “fee” was about reducing smoking. It was a regulatory action not a revenue raiser. Sometimes lawyers don't have much to work with. The Supreme Court held it was a revenue law and thus enacted illegally. The court was clearly right. How do I know? The court's decision has caused a fiscal crisis. The new tax was going to raise $200 million needed to balance the budget.
A Good Idea in Texas
When you tax something you get less of it. That is a truism. A legislator in Texas is proposing to reduce the personal property tax on small businesses. The law (H350) would exempt businesses with less than 500 employees from personal property taxes on inventory. This is a very good idea. We should want businesses to invest in inventory. The property tax curbs such investment. I would suggest that the law go further and exempt all inventory. The 500 employee limit will produce its own set of problems. A small business with 505 employees might not invest. Or worse, such a company might lay off workers to avoid the tax. Still, this is a good idea.
It Started in Scranton...
That of course is the start of the Pennsylvania Polka. (YouTube it; It will make you smile). Like Joe Biden, I am from Scranton where there is a bar, funeral home, and Catholic Church within walking distance of everyone. Scranton was the subject of a tax case recently.
A group of citizens sued Scranton claiming that the city illegally collected about $10 million in violation of the Local Tax Enabling Act. The citizens assert that under the equalization board's formula, Scranton should have collected $27.3 million in certain taxes in fiscal 2017. Instead, the city collected $38 million. I am going to stop here. A relative in Scranton sent me a newspaper story about the case. Frankly, I could not understand the issue. Basically, I am mentioning it only because I wanted to mention Scranton. If you are from Scranton, let me know. Oh, the case isSt. Fleur v. City of Scranton.
Trivia Back to cars. I learned to drive in a 1972 Ford Galaxy 500 which had a giant, carbon fuel devouring V8. My current drive is a 2014 Chrysler 300 which has a giant, carbon fuel devouring V8. The biggest tax incentive to a car company occurred this century. Name the state and the recipient. First person who answers correctly will receive an autographed copy of the greatest story ever told—my State Tax Policy book.