2009 Archives

Dell proves high cost of tax giveaways

Excerpt

The following is from the October 17, 2009, edition of The Houston Chronicle. Bernard "Bud" Weinstein, an economist and associate director for SMU's Maguire Energy Institute, provided expertise for this story.

October 19, 2009

By LOREN STEFFY

Remember Winston-Salem.

That should be the new rallying cry every time a politician starts talking about the need for tax breaks or other incentives to lure jobs.

This month, Round Rock-based Dell announced plans to close its factory in the North Carolina city by January, less than five years after it opened. In the process, it's eliminating about 900 jobs as it cuts costs by shifting manufacturing overseas.

In wooing the plant, North Carolina officials offered Dell more than $240 million in tax breaks over 15 years, touting the possibility that the plant could someday employ 8,000.

Instead, the soon-to-be-shuttered factory stands as a monument to the dangers of overzealous economic development, when local governments give away revenue in exchange for the long-term promises of jobs that can't be kept.

“This is just another example of the risk that a state and local government is taking when it gives a tax break,” said Bernard Weinstein, an economist at Southern Methodist University and a longtime critic of such tax abatement programs. “It makes no sense in economics, but I do understand the politics. Politicians want to be seen as delivering jobs to their communities.”

The process has become institutionalized, with legions of consultants that herald every corporate relocation, bidding one city against another.

“It really becomes a game of who can give away the most,” Weinstein said.

The game becomes an economic trap. Governments give away tax revenue to attract jobs, even as those jobs increase demand for services, which requires additional tax revenue.

“This game is actually getting more competitive every year, particularly in a period of economic downturn,” Weinstein said.

Read the full story.

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