Imagining an alternative to State-eat-State

Two area chambers of commerce share the responsibility of handling economic development throughout the region. As a result of a 2007 agreement, they are pledged not to pressure elected officials to entice existing companies to relocate by dangling tax incentives, unless the move entails a net growth in jobs.

“We have the ability to recommend what these incentives are,” said Joseph F. Reagan, president and chief executive officer of Greater Louisville, Inc., the metro Louisville chamber of commerce. “The governments could overrule us if they want to. We tell them, ‘We think it’s in your best interest not to use taxpayer money to move dollars around in the region, because it’s not adding jobs to the region.’”

Reagan says the cooperative approach is working. He recalled a biotech startup that chose to set up operations in the region. Rather than officials on the Indiana side of the border urging the company to deal only with specialists at Purdue University, with those on the Kentucky side urging contact only with the University of Louisville, the joint approach presented the company with the access to the complementary areas of expertise of both universities. “If we were looking at it the traditional way, with each of us in our silos, we would have missed those opportunities,” Reagan said. “The real key is a lot of relationship building, and seeing what unites rather than divides us, whether its shared research or infrastructure.”

In another exception to states fighting between and among themselves, the Multi-State Tax Commission brings together fiscal experts from many states to ensure that corporations with offices in more than one state do not hide assets or conceal earnings. 18 member states pool their resources to conduct joint audits of multi-state corporations.

A way forward

What might the benefits of a less cutthroat approach to job creation look like?

The largest and most prominent example is found in the approach of the European Union. In addition to the fact that significant elements of trade, environmental, and monetary policy are now determined centrally, there is strong social pressure for member states to avoid “smokestack chasing,” said Tannenwald, of the Center on Budget and Policy Priorities.

It is largely unheard of, Tannenwald noted, for members to offer tax incentives or subsidies to persuade a firm in one country to pull up stakes and relocate to another. “If a country were to do that it would be shunned,” Tannenwald said. “There’s no European Union police or army that would go after you or that would prosecute you, but you would be persona non-grata, or country non-grata.”

Stephen D’Amico, a former state legislator from Massachusetts, led the charge against tax credits for the film industry, branding it “the worst case of corporate welfare.” If states could broadly avoid the “race to the bottom” by entering into interstate agreements, he said, they would recoup tax revenues that could could be used to fill budget deficits, and improve education, and modernize infrastructure. He estimated the savings at $50 billion a year, citing the 2007 book, “Free Lunch,” by David Cay Johnston. (Disclosure: Johnston is a contributing writer for Remapping Debate.)  

Such agreements would also offer crucial political cover for the state leaders as they rebuild their revenue base, D’Amico noted. For the moment, any state that cuts tax incentives to industry or that raises corporate taxes, as Illinois did, is vulnerable to a cross-border job raid from its neighbors. “If that threat goes away, the whole thing unravels,” D’Amico said.

Morrison, of Purdue University, agreed, and says that there was another more essential benefit to cooperating rather than competing. In the global marketplace, he contends, social networking and the ability to pool resources without regard to borders are key. Rather than subsidizing individual companies, states and cities could use those revenues to expand the capacity for broad groups of citizens and companies to compete more effectively on the global stage. “You could invest it on broadband infrastructure, on creating hot spots where people could come together easily to work, on entrepreneurship training for middle and high school students, and internships for community college students.”

“Regions that don’t collaborate will die,” Morrison said. Those that do master collaboration will attract bright minds and cutting-edge entrepreneurs. These regions, he said, “will not only survive. They’re going to thrive.”

“It’s completely antithetical to this dog-eat-dog way of seeing the world,” Morrison said.