The Indiana Carrier Deal: State Cronyism Shouldn’t Be Nationalized
This Tuesday Indiana state officials announced that a Carrier manufacturing plant located there would not shut down after all, despite months of threats from the company to do just that. Current Indiana governor (and vice president-elect) Mike Pence had made the company's retention a top priority, and as one might imagine, the final deal was cut with Pence's running mate, President Elect Donald Trump, waiting in the metaphorical wings. Instantly, it was heralded as good policy, and a policy victory, for the incoming administration.
That view is wrongheaded on both counts, and I certainly hope the Carrier "deal" doesn't presage future deals the President Elect will be cutting over the next four years. The reason is straightforward. In return for not following through on its threat to move, Carrier will receive $700,000 per year from the state of Indiana, for at least 10 years. If that kind of cronyistic deal sounds familiar to you, it should; the Carrier agreement is like many of the "deals" to "save or create jobs" that have been made, and that we have criticized for years, here in Missouri. As one economist observed after the Carrier deal was announced, "[e]very savvy CEO will now threaten to ship jobs to Mexico, and demand a payment to stay." Yup.
Even with the financial gift from Indiana, it doesn't sound like every job will be staying at the plant anyway, or at another nearby facility that was also slated to be closed. In return for the money, Carrier said it will keep about 1,000 jobs in Indiana, but that about 1,300 Indiana jobs were going to be sent to Mexico anyway, despite the public giveaway.
We have to reiterate: It is not the role of the government to pick winners and losers in the tax code, whether the tax code in question is at the local, state or federal level. More to the point, allowing powerful companies to issue threats as a way to compel public financial support for their private operations is a road policymakers should not go down. Most employers could never dream of getting such generous concessions, and if the tax burden needs to be reduced to make one big company profitable, policymakers, whatever their level of government, should instead work to reduce the tax burden for all companies—large and small, politically connected or not.
Indiana should not export its corporate welfare to Washington DC. If it does, it will be to the detriment of the American public and taxpayer interests.