Few words evoke a strong response like “welfare.” The idea of handing out taxpayer money simply sits wrong with a lot of people, and that feeling is often completely justified. There is plenty of waste and fraud in our social safety net, and yet, it’s something that our society desperately needs — it’s often the only thing preventing millions of people from living on the streets.
But when you stop talking about people and start talking about organizations — giant, profitable, and immensely rich businesses, for example — attitudes evolve. While some positively abhor and vehemently oppose their tax dollars going to so-called “welfare queens,” we tend to lighten up when it comes to corporate subsidies. These subsidies, in theory, provide the economy and society with some range of benefits, be it jobs, products, or services that we’re all better off having than not.
If you were to look at the list of America’s largest corporate subsidy recipients, however, you’d probably question why we’re giving so much money to organizations that already possess such vast amounts of wealth. Companies like Nike, Boeing, and Shell all receive billions every year.
So, what happens when the amount we’re giving vastly outweighs the returns? For example, if we give company X $1 billion to set up shop in a certain area, to create jobs and kick-start the economy with lackluster results, what do we do? That’s a question many local governments and municipalities are facing when it comes to big tech companies. In some instances, corporate handouts are netting economies jobs at the cost of almost $2 million per position.
Subsidies for jobs
A new report from Good Jobs First has put the spotlight on big tech companies taking large subsidies and providing little in return. In this case, we’re not talking about Boeing or Shell, but rather companies like Microsoft, Amazon, Google, Apple, and Facebook — all of which are among the richest and most successful businesses in American history. But that hasn’t stopped them from taking advantage of subsidies — and who can blame them — that are often doing more harm than good to many communities.
The Good Jobs First report focuses on data centers, which these companies are building all over the country. In order to attract these data centers, states and cities offer up all sorts of incentives to attract the jobs and investment. It’s capitalistic competition at its finest.
But as the report says, these companies are often taking the taxpayers for a ride while providing little benefit. The press release from the study written by Kasia Tarczynska, research analyst at Good Jobs First, explains the dangers of offering subsidies to these data centers that are owned by huge companies.
Profiling just 11 data center “megadeals,” the study finds that Google, Microsoft, Facebook, Apple and Amazon Web Services alone have been awarded more than $2 billion in state and local incentives. The average cost of these “megadeals” is $1.95 million per job. The actual subsidy costs of many deals, however, is much higher but unknown, since some state and local governments still fail to project or disclose aggregate program costs, much less company-specific costs of deals.
Essentially, municipalities are paying these companies to set up shop and create jobs in their communities, but with a price tag of roughly $2 million per job, something seems wildly out of proportion.
“High-profile companies are trading on their fame to win huge tax breaks in poor rural areas, while communities are coming to the rude awakening that data centers create very few jobs, and many of the best jobs are filled by people transferred in,” said Tarczynska. “The best they can hope for is a stronger tax base, but that evaporates when property, sales, and income taxes are abated.”
The report goes on to suggest that governments shouldn’t necessarily abandon the idea of incentivizing investment to create job opportunities, but when doing so, should aim to keep the ultimate cost at around $50,000 per position — which is 40 times less than what we’re currently seeing.
This particular study was only limited to data centers and only looked at a relatively small number of deals. But the findings were eye-opening and provide a great example of the inefficiency and waste that have many people sick and tired of “the system.” Unfortunately, in the near term, there doesn’t appear to be a way to stop or slow it down, other than badgering local representatives when corporate interests show up in your neighborhood.