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Corporate Welfare is not OK

Largely buried under the constant barrage of COVID-19 news and the baffling decision by the Supreme Court to declare half of Oklahoma "Indian Country," was Oklahoma’s and Tulsa’s attempt to bribe Tesla to locate a new facility in that city. Tesla chose Austin, Texas instead, a decision Tesla likely made months ago, but for the opportunity Oklahoma's bid provided for milking as much as possible in concessions (bribery) from Austin. Thus, it may well be a blessing in disguise that Tesla chose Austin over Tulsa. After all, Oklahomans aren't on the hook to pay off a big corporation that is perfectly capable of financially taking care of itself. What's more, consider what might have happened if the deal had been made and ground had been broken before the McGirt decision. Tesla likely would have had to pull out of the deal, and might well have sued the state for bad faith negotiating, which have reflected poorly on Tulsa and Oklahoma. 

One study estimates corporations receive at least $30 billion a year in tax incentives from state and local governments nationwide. Oklahoma ranks 9th in the amount of corporate welfare it gives out as a percent of GDP. This is higher than California. While we want to be a top 10 state, this is a poor measure for achieving top 10 status. Bribery money for corporations could better be used to shore up budgetary needs, such as Oklahoma’s unfunded pension obligations, or just left in the taxpayers’ pocket.

The 1889 institute defines corporate welfare as “any financial benefit purposely granted by government to a specific business or class of business and that is not generally available to all businesses and taxpayers.” This leads to distortions in the market that can oftentimes allow businesses that should rightfully be bankrupt with their doors shuttered continue to survive. They are not forced to innovate to attract new customers. Rather, they are kept afloat through government granted privilege. This only benefits the well-connected who have the ability to lobby for these benefits.

While Tulsa has signed a non-disclosure agreement with Tesla, city officials say they had offered an incentive package comparable to that of Austin, Texas. The fact that the city was able to hide the details of its crony deal behind a non-disclosure agreement is extremely concerning. Nobody would know what was being given away until the deal was finalized, at which point it would be too late for citizens to voice their concerns. Tulsa also likes to brag their tax incentives are baked into state law, rather than something the city council has to vote on. This is not a good thing. It just makes it easier for corporations to mooch off taxpayers. One of these tax incentives is the Automotive Engineer Workforce Tax Credit, which would have granted Tesla a tax credit equal to 5% of the total compensation paid to an engineer, and 10% if that engineer is a graduate of an Oklahoma university. Tesla would have also been privy to a career tech program that offers free employee training.

Corporate welfare gives companies the ability to play states off each other in a race to the bottom to see which state gives up the most. States and cities fear losing business to other states, making it hard for them to cut subsidies and corporate welfare when other states still offer it. In the case of Tesla, Texas gave up the most. Honestly, it is highly likely that Tesla kept Tulsa in the running for so long so that the company could squeeze a few more concessions out of Austin before announcing the decision they’d already made. This form of competition is bad partly because it isn’t really competition at all.

Tesla is not the only example of attempted cronyism in Oklahoma this year. The Oklahoma City Council has promised Costco $3 million in exchange for opening a call center in their city. Supposedly this will bring 1,500 jobs to Oklahoma City, but the history of corporate welfare suggests otherwise. In 2010, Washington D.C. granted a developer $46 million to create 300 construction jobs there, but by 2016 the developer had only created 90 jobs. While Oklahoma City’s offer seems downright frugal compared to what D.C. did, it is still wasteful cronyism at its worst, especially considering that Costco could easily move its call center to another country after receiving the taxpayer money. It’s likely the Tesla factory would have fallen short on the number of jobs it promised too.

The best way to end crony corporate give-away schemes is for the states to agree to an interstate compact to stop handing corporations special favors and taxpayer money in exchange for broken promises. That’s because the most common excuse for corporate welfare is that “If we don’t do it, someone else will, and we’ll miss out.”

The 1889 Institute has drafted such legislation. This interstate compact provides a concrete definition of corporate welfare that member states cannot engage in and prevents any state that signs off on it from withdrawing from the compact. The provisions of this legislation would only go into effect once enough states signed on. The benefits would be immense. Large corporations would be forced to compete fairly in a free market, with little to no power derived from how big their lobbying budget is. Instead of the source of competition between states being based on how many subsidies and tax breaks, they can hand out, states would have to compete with their regulatory environment, tax policy, and culture. Tulsa may have beaten out Austin for the Tesla expansion on this kind of level playing field, given the former's enthusiasm and the latter's hostility.  


Spencer Cadavero is a Research Associate at the 1889 institute and can be reached at scadavero@1889institute.org.


The opinions expressed in this blog are those of the author, and do not necessarily reflect the official position of 1889 Institute.


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