I often discuss on PolicyMic that government subsidies are terrible policy, in theory and in practice. Here's another problem with state-driven economic development: Companies that lay off workers are often still eligible for job-creation tax credits.
According to reporting by Missouri Journal, Ford Motor Co. laid off 1,222 workers from at its Claycomo plant near Kansas City in order to upgrade it. Recently, Ford received $150 million in tax credits over 10 years for the purpose of job creation, and it may still be on track to get the subsidy.
If Ford gets tax credits for job creation despite laying off workers, it would not be an isolated case. Consider the case of Liberty Mutual. Missouri Gov. Jay Nixon announced in October 2010 that Liberty Mutual would receive $3 million in state tax credits for creating 100 new jobs, and shortly thereafter the company gave pink slips to 45 employees. The company told the affected employees that they could apply to lower-paying and lower-level positions. Despite the layoffs, Liberty Mutual is on track to receive $1.6 million in tax credits through the Missouri Quality Jobs Program, because it can show — at least on paper — that these “new” jobs exist at its Safeco service center in Fenton, Missouri.
Evidence from the states demonstrates that tax credit projects routinely fail to deliver their promises. Ford and Liberty Mutual aren't just isolated examples; this represents a wider problem in state policy. The Mackinac Center for Public Policy studied the promises and outcomes of the Michigan economic development agency, and it found that only 7.9% of projects were completed on time and produced the number of jobs promised.
Tax credit programs are a form of corporate welfare. If policymakers were serious about growing the economy, then they should support that encourage strong, viable companies that don't need to be propped up with taxpayer dollars.
State economies would be better off if the government stopped trying to plan the economy. As a basic principle of reform, policymakers should broaden the base and lower tax rates instead of continuing to handouts to failing companies.