NPR's "Marketplace" reported Monday that the European Union planned to impose a tax on bank deposits in Cyprus of up to 10% to bail out the country's banks. This unprecedented action threatens to undermine confidence in banks throughout the eurozone periphery, Greece, Italy, Spain, Portugal, and Ireland. As Louise Cooper told Marketplace, “(This move) says that your savings are not necessarily safe in a bank. What this risks is bank runs." Indeed, we could be literally hours from seeing bank runs in one or more of them.
What's the motivation for introducing such a risky policy? Cyprus is a tax haven; in fact, it's a favorite destination for the Russian mafia. Therefore, it's not enough to simply impose austerity on Cyprus; ordinary Cypriots have to give up some of their bank savings, too. So says the EU.
Methinks they doth protest too strongly. It's not like there aren't already tax havens in the EU, starting with the City of London and Luxembourg. Plus, for varying purposes, Austria, Belgium, the Netherlands, and Ireland. This is not to discount Germany's efforts to pierce Swiss banking secrecy, which the United States should emulate (i.e., it should pay more informants to cough up information on U.S. tax evaders). Nor do I underestimate the difficulty the EU has had in getting its Savings Tax Directive passed in order to help stamp out intra-EU tax evasion, and the long way it still has to go.
Here's the thing: Cyprus was already a tax haven when it joined the EU in 2004. Germany, and the other 14 members of the EU at the time, knew this when they voted to approve Cyprus' membership (new members require a unanimous vote). If they didn't want to mess with another tax haven in their ranks, any one of them could have stopped it. But they didn't, so they are in no position to claim innocence now. Instead, they are going to try to extract money from ordinary Cypriots (potentially exempting the first 100,000 euros for each depositor) rather than going after the bankers like Iceland did.
Let the bank runs begin!
Cross-posted at Angry Bear.
Tuesday, March 19, 2013
Sunday, March 3, 2013
Job Piracy Marches On in Alabama (Updated)
Unmentioned in the recent Good Jobs First report on job piracy, it turns out that both relocation subsidies and retention subsidies are commonplace in Alabama. Greg Varner (@varnergreg) directs me to this report on how a Birmingham auto dealership, Serra Automotive, is demanding a multimillion incentive deal to keep it from relocating to another municipality in the metro area. As Birmingham News columnist John Archibald tells the story:
And I should emphasize, as the most recent Good Jobs First study does, that the state of Alabama knows how to put anti-piracy provisions in state subsidy programs. The very first entry on p. 45 of The Job Creation Shell Game shows Alabama's Enterprise Zone Credit program as containing no-raiding language. Since cities are legally the creation of states, it's time for Alabama to clip its cities' wings and force them to stop this completely indefensible intra-state job piracy. The same holds true in many other states.
UPDATE March 7th: Greg Varner writes to tell me that two more Birmingham car dealerships have gotten deals for retention subsidies. Though their names have not yet been announced, the new article has more details on the Serra retention package. In addition to staying put in Birmingham, the dealership will add 35 jobs to its current 210, at a cost of $5.27 million over 7 years, a nominal cost of $150,000 per job. For $150,000/job, you can get auto assembly plant jobs, so this is not very impressive as an expansion subsidy. Again, it is the threat to move that is paying off handsomely.
Cross-posted at Angry Bear.
Across the Birmingham area cities spend tens of millions of dollars on incentives. Sadly, it is rarely to draw new opportunity or gain new blood. Instead we spill blood, as competition for existing businesses in the region pits city against city.Here we have an example of the intra-metro area job piracy that Good Jobs First covered in its 2011 report on the Cleveland and Cincinnati metro areas, Paid to Sprawl. It would be interesting to see if Birmingham shows the same tendencies as those two regions, where most moves, even from one suburb to another, put facilities further from the city center. My guess is that's exactly what we would find.
It happens all the time.
Birmingham commits millions to steal a hospital from Irondale, and St. Clair sweetens a deal to lure a coffee maker out of Jefferson County. Birmingham outspends the suburbs to take a Walmart, and the escalation continues.
We love the smell of industrial recruitment in the morning. And it gets us frustratingly nowhere.
We beat each other senseless. For a zero-sum game.
Because the city – the cities across the Birmingham area – pay to keep what they already have. Taxpayers lose and the region gains no jobs.
And I should emphasize, as the most recent Good Jobs First study does, that the state of Alabama knows how to put anti-piracy provisions in state subsidy programs. The very first entry on p. 45 of The Job Creation Shell Game shows Alabama's Enterprise Zone Credit program as containing no-raiding language. Since cities are legally the creation of states, it's time for Alabama to clip its cities' wings and force them to stop this completely indefensible intra-state job piracy. The same holds true in many other states.
UPDATE March 7th: Greg Varner writes to tell me that two more Birmingham car dealerships have gotten deals for retention subsidies. Though their names have not yet been announced, the new article has more details on the Serra retention package. In addition to staying put in Birmingham, the dealership will add 35 jobs to its current 210, at a cost of $5.27 million over 7 years, a nominal cost of $150,000 per job. For $150,000/job, you can get auto assembly plant jobs, so this is not very impressive as an expansion subsidy. Again, it is the threat to move that is paying off handsomely.
Cross-posted at Angry Bear.
Tuesday, February 26, 2013
Europeans Dreaming Up New Ways to Destroy the Global Economy; Republicans Follow Suit
While we are busy paying attention to the 550th edition of Republican-caused fake crises (aka the sequester), a much more real crisis is brewing in the Eurozone. Richard Field at Trust Your Instincts flags a Reuters report that that Eurozone regulators are strongly considering a proposal to make not just investors in Cyprus banks pay for part of their bailout, but bank depositors as well.
Cyprus is a tax haven, and deposits in the banks there come to some 70 billion euros, more than 3 1/2 times the tiny country's 18 billion euro gross domestic product. One proposal under consideration would be to hold all deposits over 100,000 euros in escrow -- for up to 30 years! Another proposal, says Reuters, would "impose a retroactive tax on all deposits over 100,000 euros..." If either of these options looks like it is close to being approved, it is likely to cause a run on banks in Cyprus. As Field argues, if one of these plans is established, depositors will likely wonder if it could be applied to other debtor countries like Spain or Italy, causing even more turmoil. (Note: 100,000 euros is the maximum that can be covered by deposit insurance programs similar to the FDIC in the U.S.)
While European leaders seem to want to blunder into a new way of creating a euro crisis, the evidence continues that their preferred austerity policies are failing. The European Commission has announced that the eurozone will remain in recession throughout 2013, according to a separate report by Reuters. Previously, the Commission had predicted that the recession would end this year. As Paul Krugman shows, the countries that have had the severest austerity have had the largest contractions in their economy. Based on International Monetary Fund estimates of the policy change in a number of European countries, he plots this against the change in their real gross domestic product from 2008 to 2012:
Source: Paul Krugman (link above). Key: AUT-Austria; BEL-Belgium; DEU-Germany; ESP-Spain; FIN-Finland; GRC-Greece; IRL-Ireland; ITA-Italy; NLD-Netherlands; PRT-Portugal
So, for example, Greece has imposed austerity equal to about 15% of potential GDP, and seen its actual GDP shrink by about 18%.
Despite the clear failure of austerity policies in the eurozone and Great Britain (where 9 months of recession were followed by one quarter of growth but a renewed slump in the last quarter of 2012, and Moody's just downgraded the country's debt), Republicans are still trying to impose budget cuts on the country that we voted against in November. As I discussed then, the sequester's discretionary budget cuts will be unambiguously bad for the middle class. Now, Republicans are trying to convert the defense cuts of the sequester into further slashing into middle class programs, while President Obama has offered to convert Social Security's inflation adjustment to so-called "chained CPI," which will slowly but relentlessly cut into benefits year after year through the magic of compounding. According to Dean Baker at the link above, the reduction would be about 0.3% per year, so benefits will be 3% lower after 10 years, 6% after 20 years, etc.
Considering how bad middle class retirement prospects are already looking, the President's offer would be disastrous for millions if implemented. The right course of action is simple: cancel the sequester, forget about cutting Social Security (which is not part of the so-called debt problem anyway), and focus on jobs and growth. As Paul Krugman says, "End this Depression Now!"
Cross-posted at Angry Bear.
Cyprus is a tax haven, and deposits in the banks there come to some 70 billion euros, more than 3 1/2 times the tiny country's 18 billion euro gross domestic product. One proposal under consideration would be to hold all deposits over 100,000 euros in escrow -- for up to 30 years! Another proposal, says Reuters, would "impose a retroactive tax on all deposits over 100,000 euros..." If either of these options looks like it is close to being approved, it is likely to cause a run on banks in Cyprus. As Field argues, if one of these plans is established, depositors will likely wonder if it could be applied to other debtor countries like Spain or Italy, causing even more turmoil. (Note: 100,000 euros is the maximum that can be covered by deposit insurance programs similar to the FDIC in the U.S.)
While European leaders seem to want to blunder into a new way of creating a euro crisis, the evidence continues that their preferred austerity policies are failing. The European Commission has announced that the eurozone will remain in recession throughout 2013, according to a separate report by Reuters. Previously, the Commission had predicted that the recession would end this year. As Paul Krugman shows, the countries that have had the severest austerity have had the largest contractions in their economy. Based on International Monetary Fund estimates of the policy change in a number of European countries, he plots this against the change in their real gross domestic product from 2008 to 2012:
Source: Paul Krugman (link above). Key: AUT-Austria; BEL-Belgium; DEU-Germany; ESP-Spain; FIN-Finland; GRC-Greece; IRL-Ireland; ITA-Italy; NLD-Netherlands; PRT-Portugal
So, for example, Greece has imposed austerity equal to about 15% of potential GDP, and seen its actual GDP shrink by about 18%.
Despite the clear failure of austerity policies in the eurozone and Great Britain (where 9 months of recession were followed by one quarter of growth but a renewed slump in the last quarter of 2012, and Moody's just downgraded the country's debt), Republicans are still trying to impose budget cuts on the country that we voted against in November. As I discussed then, the sequester's discretionary budget cuts will be unambiguously bad for the middle class. Now, Republicans are trying to convert the defense cuts of the sequester into further slashing into middle class programs, while President Obama has offered to convert Social Security's inflation adjustment to so-called "chained CPI," which will slowly but relentlessly cut into benefits year after year through the magic of compounding. According to Dean Baker at the link above, the reduction would be about 0.3% per year, so benefits will be 3% lower after 10 years, 6% after 20 years, etc.
Considering how bad middle class retirement prospects are already looking, the President's offer would be disastrous for millions if implemented. The right course of action is simple: cancel the sequester, forget about cutting Social Security (which is not part of the so-called debt problem anyway), and focus on jobs and growth. As Paul Krugman says, "End this Depression Now!"
Cross-posted at Angry Bear.
Sunday, February 17, 2013
Minimum Wage a Winner Both Politically and Economically
President Obama's proposal to raise the minimum wage to $9.00 per hour puts the Republicans between a rock and a hard place politically. Paul Krugman echoes the point that a big majority of the population supports a minimum wage increase, including a majority of Republicans (his linking to the original poll source appears to have crashed that website, but I will update later). Yet the Republican leadership remains trapped because it opposes this increase as well as any alternative policy that might make the poor better off, such as increasing the Earned Income Tax Credit or endorsing a Guaranteed Minimum Income (points Matthew Yglesias makes in the link above). As further evidence, the minimum wage increase Proposition B in Missouri in 2006 passed 76-24, probably helping Senator Claire McCaskill to her first Senate victory with under 50% of the vote.
Moreover, much recent research (via Think Progress) shows no "job killing" effects from raising the minimum wage. As originally shown by David Card and Alan Krueger, there was strong evidence of "publication bias" in the studies underlying the former economists' consensus that the minimum wage reduced jobs. That is, economics journals tended to prefer to publish studies with statistically significant results and not publish those showing no effect from the minimum wage. Researchers thus adjusted their statistical specifications until they achieved statistical significance, thereby generating a mass of studies that all barely reached statistical significance despite larger volumes of data which should have produced stronger results. As the Schmitt paper emphasizes, more recent studies of studies ("meta-analysis") continues to support the conclusion that the purported job killing effect was a mirage.
As I have pointed out before, cross-national comparisons of the minimum wage and unemployment rates also do not support the view that the minimum wage is the job killer Republicans claim it is. Indeed, as in my September 2011 post, nine OECD countries have higher minimum wages rates than the U.S. does on a purchasing power parity basis that adjusts for the cost of living, yet only two have higher unemployment rates (France and Ireland), while the U.K.'s unemployment rate is the same. The table below illustrates this and underscores the point that the minimum wage is a winner for the middle class.
Moreover, much recent research (via Think Progress) shows no "job killing" effects from raising the minimum wage. As originally shown by David Card and Alan Krueger, there was strong evidence of "publication bias" in the studies underlying the former economists' consensus that the minimum wage reduced jobs. That is, economics journals tended to prefer to publish studies with statistically significant results and not publish those showing no effect from the minimum wage. Researchers thus adjusted their statistical specifications until they achieved statistical significance, thereby generating a mass of studies that all barely reached statistical significance despite larger volumes of data which should have produced stronger results. As the Schmitt paper emphasizes, more recent studies of studies ("meta-analysis") continues to support the conclusion that the purported job killing effect was a mirage.
As I have pointed out before, cross-national comparisons of the minimum wage and unemployment rates also do not support the view that the minimum wage is the job killer Republicans claim it is. Indeed, as in my September 2011 post, nine OECD countries have higher minimum wages rates than the U.S. does on a purchasing power parity basis that adjusts for the cost of living, yet only two have higher unemployment rates (France and Ireland), while the U.K.'s unemployment rate is the same. The table below illustrates this and underscores the point that the minimum wage is a winner for the middle class.
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| Source: http://stats.oecd.org/index.aspx | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| For 2011 real minimum wage at PPP, click on "statistics by theme," then "labour," then "Real hourly minimum wages," then adjust the series to "In US$ PPP." For unemployment, click on "statistics by theme," then "general statistics," then "key short-term indicators," then "harmonized unemployment rates." | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Cross-posted at Angry Bear. | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Wednesday, February 6, 2013
Solutions to the Middle Class Retirement Crisis
As I have noted in three recent posts, retirement security for those currently or recently in the middle class is no sure thing. 49% of the private work force has neither defined benefit (traditional pensions) or defined contribution (401(k)) retirement plans, while public sector pensions are coming under increasing attack. The United States has the highest elder poverty rate, 25% (measured as 50% of median income), of any industrialized nation bigger than Ireland. An estimated $6.6 trillion shortfall in retirement savings shows how the shift from traditional pensions to 401(k) plans has been totally inadequate to meet people's future needs.
Yet what passes for wisdom among the Very Serious People (VSP) is that we need to make a stealth cut to Social Security via a less generous inflation adjustment, while Republican plans for Medicare would shift an astounding $34 trillion in medical costs on to seniors whose income would be falling in real terms. This is a recipe for disaster.
So what do we really need to do now? Several different proposals are currently in the mix, all of which would address the income shortfall to varying degrees.
Iowa Senator Tom Harkin, chair of the Health, Education, Labor and Pensions (HELP) Committee, released a report in July 2012, "The Retirement Crisis and a Plan to Solve It." It proposes a fairly small increase to Social Security benefits (about $60 monthly to the lowest earners) and replaces the current inflation factor (CPI-Urban wage earners) not with the chintzy "chained CPI" the VSP want, but with the more generous CPI-Elderly, which recognizes that seniors consume a larger share of rapidly rising cost products, most obviously health care. The other innovation in the Harkin plan is the introduction of "USA" (Universal, Secure, and Adaptable) retirement funds which would require both employer and employee contributions, with special tax credits for low-income workers. These funds would provide what might be called a "semi-defined benefit" that could be adjusted downward if there were a prolonged stock market slump, but otherwise would provide a predictable level of benefit to its recipients.
As pension expert Jane White contends, this proposal is vague when it is not simply inadequate. She argues for a plan like the Australian "Superannuation" plan, where employers are required to put in 9% of the worker's income. Her proposal for the U.S. would be a 9% contribution for large companies and 6% for small firms. It would be portable among companies, and employees would immediately own their employer's contribution (vesting), in contrast to the current situation where that can take years. She argues that the big problem with U.S. pensions isn't that not enough people have 401(k)'s (though with 49% of private workers not having one, I'm not sure I'm persuaded), but that the employer contribution is so small. By contrast, Harkin's USA plan does not specify a level of employer contributions, which is definitely a drawback when the savings shortfall is so severe.
Of course, White's proposal still subjects retirement funds to market risk that Social Security does not, and gives Wall Street a huge new pool of funds to play with. One logical alternative is simply a dramatic expansion of Social Security. Obviously, it is already portable between employers, and companies already have to deduct FICA and Medicare taxes, so there would be no difference administratively from what firms already do.
The funding would come from an end to the cap on earnings subject to the Social Security tax, currently $113,700 for 2013. A little-known fact is that while the payroll tax is regressive (flat to the cap, then 0), the payout structure counteracts this by reducing the share of earnings replaced in retirement the greater the person's income. As the Harkin report explains:
This suggests an obvious solution: increase the replacement factor substantially for middle-income people. While the numbers would need to be worked out precisely, middle class workers would be much more secure with, for example, 100% replacement of their first $2000 per month in income, 50% replacement of their next $2000 per month in income, 25% for the rest up to the current cap, and then Harkin's proposed 5% over the current cap.
When I say "obvious," that's not to say that it will be easy. Republicans still want to gut Social Security, even though it is supported by most Americans. But a deeper problem is that few people realize just how severe the retirement crisis will be, first for younger Baby Boomers, but much more so for their children and grandchildren. As a first step, you should follow White's suggestion to contact Harkin's committee asking for hearings on the coming crisis. The email is Retirement_Security@help.senate.gov
But we will need many more steps to ensure that the crisis is solved in our lifetimes.
Cross-posted at Angry Bear.
Yet what passes for wisdom among the Very Serious People (VSP) is that we need to make a stealth cut to Social Security via a less generous inflation adjustment, while Republican plans for Medicare would shift an astounding $34 trillion in medical costs on to seniors whose income would be falling in real terms. This is a recipe for disaster.
So what do we really need to do now? Several different proposals are currently in the mix, all of which would address the income shortfall to varying degrees.
Iowa Senator Tom Harkin, chair of the Health, Education, Labor and Pensions (HELP) Committee, released a report in July 2012, "The Retirement Crisis and a Plan to Solve It." It proposes a fairly small increase to Social Security benefits (about $60 monthly to the lowest earners) and replaces the current inflation factor (CPI-Urban wage earners) not with the chintzy "chained CPI" the VSP want, but with the more generous CPI-Elderly, which recognizes that seniors consume a larger share of rapidly rising cost products, most obviously health care. The other innovation in the Harkin plan is the introduction of "USA" (Universal, Secure, and Adaptable) retirement funds which would require both employer and employee contributions, with special tax credits for low-income workers. These funds would provide what might be called a "semi-defined benefit" that could be adjusted downward if there were a prolonged stock market slump, but otherwise would provide a predictable level of benefit to its recipients.
As pension expert Jane White contends, this proposal is vague when it is not simply inadequate. She argues for a plan like the Australian "Superannuation" plan, where employers are required to put in 9% of the worker's income. Her proposal for the U.S. would be a 9% contribution for large companies and 6% for small firms. It would be portable among companies, and employees would immediately own their employer's contribution (vesting), in contrast to the current situation where that can take years. She argues that the big problem with U.S. pensions isn't that not enough people have 401(k)'s (though with 49% of private workers not having one, I'm not sure I'm persuaded), but that the employer contribution is so small. By contrast, Harkin's USA plan does not specify a level of employer contributions, which is definitely a drawback when the savings shortfall is so severe.
Of course, White's proposal still subjects retirement funds to market risk that Social Security does not, and gives Wall Street a huge new pool of funds to play with. One logical alternative is simply a dramatic expansion of Social Security. Obviously, it is already portable between employers, and companies already have to deduct FICA and Medicare taxes, so there would be no difference administratively from what firms already do.
The funding would come from an end to the cap on earnings subject to the Social Security tax, currently $113,700 for 2013. A little-known fact is that while the payroll tax is regressive (flat to the cap, then 0), the payout structure counteracts this by reducing the share of earnings replaced in retirement the greater the person's income. As the Harkin report explains:
The replacement factor for a person’s first $767 of Average Indexed Monthly Earnings (“AIME”) is 90%. The replacement factor drops to 32% for AIME between $767 and $4,624 and 15% for AIME between $4,624 and $8,532.The report goes on to propose a replacement factor of just 5% for income over the current cap. It further reports that Social Security only replaces an average of 40% of people's pre-retirement income, rather than the 65-85% that is widely recommended for retirees.
This suggests an obvious solution: increase the replacement factor substantially for middle-income people. While the numbers would need to be worked out precisely, middle class workers would be much more secure with, for example, 100% replacement of their first $2000 per month in income, 50% replacement of their next $2000 per month in income, 25% for the rest up to the current cap, and then Harkin's proposed 5% over the current cap.
When I say "obvious," that's not to say that it will be easy. Republicans still want to gut Social Security, even though it is supported by most Americans. But a deeper problem is that few people realize just how severe the retirement crisis will be, first for younger Baby Boomers, but much more so for their children and grandchildren. As a first step, you should follow White's suggestion to contact Harkin's committee asking for hearings on the coming crisis. The email is Retirement_Security@help.senate.gov
But we will need many more steps to ensure that the crisis is solved in our lifetimes.
Cross-posted at Angry Bear.
Tuesday, January 29, 2013
Billions for Job Piracy Despite State Budget Cuts
According to Center on Budget and Policy Priority data cited by Louise Story, in 2011 the states enacted $156 billion of austerity measures, between budget cuts and tax hikes. Despite their budgetary woes, however, this did not stop them from throwing billions of dollars a year into the worst kind of corporate subsidy, relocation incentives that move existing facilities from one state to another without creating any new jobs. A new report from Good Jobs First documents their widespread use, which is far more common than most people would imagine.
One great aspect of this report is that it goes beyond the two examples of interstate border wars we hear the most about, New York-New Jersey-Connecticut and Kansas-Missouri. We learn about Texas and Georgia vs. the world, North Carolina-South Carolina (especially in the Charlotte metro area), Tennessee-Mississippi (particularly with Memphis as target), and Rhode Island-Massachusetts. In addition, we learn more about the flip side of job piracy, retention subsidies, of which Sears' two in Illinois are the most egregious.
For example, Continental Tire moved its North American headquarters and 320 jobs from Charlotte to Lancaster County, South Carolina, in 2009. Georgia gave Ohio-based NCR Corp. (formerly National Cash Register) $109 million to relocate that same year. In 2010, Hamilton Beach received at least $2 million to move from Memphis to Olive Branch, Mississippi, while in 2009 McKesson received $4 million from Mississippi in addition to local incentives to move from Memphis to neighboring DeSoto County. Rhode Island, in a widely publicized move, gave Boston Red Sox pitcher Curt Schilling's video game company 38 Studios a $75 million loan to move from Massachusetts in 2009, only to see the firm go bankrupt in 2012. There are many more examples in the report, but you get the idea.
The existence of relocation subsidies makes it possible for companies to demand incentives to stay in a particular state, i.e., retention subsidies. Two of the three largest ones went to Sears in Illinois, $168 million in 1989 and another $275 million in 2012 when the 1989 deal expired. The second largest was $250 million to Prudential Insurance from New Jersey in 2011. But many more states have had to shell out retention subsidies on a regular basis.
The report notes that at least 40 states know how to write no-raiding language into their subsidy programs, because they already have such language banning intra-state relocations from receiving subsidies under various programs. However, as far as I know, far fewer states prevent their cities from giving relocation subsidies to in-state firms, though the report shows that Maine's Employment Tax Increment Financing rules do provide that.
What is necessary, the report argues and I wholeheartedly agree, is that states need to tweak their program language to stop rewarding interstate job relocation as well. They need to stop efforts to directly poach existing firms, something Texas is heavily engaged in. The report says there is a "possible" federal role here, to withhold some Department of Commerce monies from states that engaged in job piracy. I, on the other hand, think that federal action is the only way it will happen. As I've written before, voluntary state efforts in the 1980s and 1990s to end job piracy have been utter failures, and the states clearly need an outside enforcement mechanism, which can only be provided by the federal government.
With such extensive documentation of how widespread relocation and retention subsidies are, hopefully more people can be mobilized to get the federal action we need.
Cross-posted at Angry Bear.
One great aspect of this report is that it goes beyond the two examples of interstate border wars we hear the most about, New York-New Jersey-Connecticut and Kansas-Missouri. We learn about Texas and Georgia vs. the world, North Carolina-South Carolina (especially in the Charlotte metro area), Tennessee-Mississippi (particularly with Memphis as target), and Rhode Island-Massachusetts. In addition, we learn more about the flip side of job piracy, retention subsidies, of which Sears' two in Illinois are the most egregious.
For example, Continental Tire moved its North American headquarters and 320 jobs from Charlotte to Lancaster County, South Carolina, in 2009. Georgia gave Ohio-based NCR Corp. (formerly National Cash Register) $109 million to relocate that same year. In 2010, Hamilton Beach received at least $2 million to move from Memphis to Olive Branch, Mississippi, while in 2009 McKesson received $4 million from Mississippi in addition to local incentives to move from Memphis to neighboring DeSoto County. Rhode Island, in a widely publicized move, gave Boston Red Sox pitcher Curt Schilling's video game company 38 Studios a $75 million loan to move from Massachusetts in 2009, only to see the firm go bankrupt in 2012. There are many more examples in the report, but you get the idea.
The existence of relocation subsidies makes it possible for companies to demand incentives to stay in a particular state, i.e., retention subsidies. Two of the three largest ones went to Sears in Illinois, $168 million in 1989 and another $275 million in 2012 when the 1989 deal expired. The second largest was $250 million to Prudential Insurance from New Jersey in 2011. But many more states have had to shell out retention subsidies on a regular basis.
The report notes that at least 40 states know how to write no-raiding language into their subsidy programs, because they already have such language banning intra-state relocations from receiving subsidies under various programs. However, as far as I know, far fewer states prevent their cities from giving relocation subsidies to in-state firms, though the report shows that Maine's Employment Tax Increment Financing rules do provide that.
What is necessary, the report argues and I wholeheartedly agree, is that states need to tweak their program language to stop rewarding interstate job relocation as well. They need to stop efforts to directly poach existing firms, something Texas is heavily engaged in. The report says there is a "possible" federal role here, to withhold some Department of Commerce monies from states that engaged in job piracy. I, on the other hand, think that federal action is the only way it will happen. As I've written before, voluntary state efforts in the 1980s and 1990s to end job piracy have been utter failures, and the states clearly need an outside enforcement mechanism, which can only be provided by the federal government.
With such extensive documentation of how widespread relocation and retention subsidies are, hopefully more people can be mobilized to get the federal action we need.
Cross-posted at Angry Bear.
Friday, January 25, 2013
News of Note: Job Piracy, Tax Havens, Filibuster Reform
A lot has happened during my busy first week of classes, so I want to flag a couple of the most important pieces of news from the week.
1. Good Jobs First has a blockbuster report on relocation subsidies. I will have a full post on this report as soon as I have time to digest it.
2. Tax Justice Network's January Taxcast is out, with reports on Dell in Spain, an EU threat to blacklist Switzerland, and a look at "Google Capitalism."
Hear it here.
3. Filibuster reform was less than hoped. Recall how overrepresented rural states are in the Senate in the first place. Here are Ezra Klein's pessimistic take and Chris Bower's somewhat more optimistic take on the changes.
1. Good Jobs First has a blockbuster report on relocation subsidies. I will have a full post on this report as soon as I have time to digest it.
2. Tax Justice Network's January Taxcast is out, with reports on Dell in Spain, an EU threat to blacklist Switzerland, and a look at "Google Capitalism."
Hear it here.
3. Filibuster reform was less than hoped. Recall how overrepresented rural states are in the Senate in the first place. Here are Ezra Klein's pessimistic take and Chris Bower's somewhat more optimistic take on the changes.
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