Manufacturing Mania (That We All Pay For)

Missouri Gov. Jay Nixon announced yesterday that more than 1,600 jobs will be created at a new manufacturing plant in Wentzville. The jobs promised are associated with $360 million in planned investment by General Motors to build a manufacturing plant in Wentzville.

I hope that the job and investment numbers touted will hold up as promised. The St. Louis area could certainly use some more economic activity.

However, given the track record of similar job estimates, we should all be skeptical of such claims. It is very easy to issue a press release touting job estimates. Indeed, politicians do this all the time. It is a way to tell voters that something is being done to address the economic recession, even if no economic activity has actually occurred. It is much more difficult to follow a project through completion and track the actual number of jobs created and the actual amount invested.

Regarding the Wentzville plant, we should all watch carefully. A great deal of state and local taxpayer dollars will go to the project. The St. Louis Post-Dispatch reports that GM has been approved for $36.8 million in tax credits over a 10-year period, and that the company has applied for an unspecified amount of tax credits through the state’s Quality Jobs program.

GM will also get to keep 100 percent of employee withholding taxes for a 10-year period. Additionally, the city of Wentzville has approved the plant property for partial tax abatement, meaning that GM will get a nice break on its property taxes (which aren’t all that high).

And, of course, let’s not forget about all of the federal tax money GM  has received in recent years.

I wonder just how much the final bill to Missouri taxpayers will be.

Nixon and others claim that the state incentives have spurred the promised investment. But how do we know? Given the findings of academic studies of tax credit effectiveness, it is certainly possible that the plant would have located here without the incentives. It is also possible that the plant would have located somewhere else in the United States. In either case, the plant would have been built and cars would be made.

I also wonder what we aren’t seeing. When the state awards this much in tax incentives, it is a tacit acknowledgment that the tax rate everyone else pays is too high. How many small businesses are failing because of a burdensome tax rate? How many companies already located in Missouri are harmed when the state hands millions of dollars to their competitors?

I think one person who commented on a Show-Me Daily blog post hit on the tax incentive problem we face. He wrote: “The problem is that abandoning tax credit legislation means abandoning a lot of campaign donors — and legislators hate doing that.”

Tax dollars should be used responsibly, instead of helping elected officials gain political favors or favorable news coverage. It sounds like the state will be facing some tough budgetary problems next year. Shouldn’t we be focusing on encouraging authentic job creation and funding needed programs instead of pinning our hopes (and millions in taxpayer money) on promises?