One Kansas community has bucked the tax break trend catching on in states like Nevada, Washington, New York, and Wisconsin. While politicians in these states handed out millions in tax breaks to large corporations — and countless officials are now vying to attract Amazon — Kansas moved to close the door on a corporate welfare deal. A movement that began in Tonganoxie led Leavenworth County commissioners to rescind an offer to Tyson Foods.
The “No Tyson in Tongie” movement contained an assortment of arguments against the deal. Fortunately for taxpayers, the combined impact has prevented a handout to another corporation at a time when corporate welfare is the new norm.
County commissioners originally offered more than $500 million in benefits to Tyson Foods. The Brownback administration chipped in with tax breaks of an undisclosed amount, as the state keeps their deals confidential until contracts are signed. On top of the $500 million in industrial revenue bonds for the development, the county and city planned to expand utilities and sewer lines to the plant location. In return, the company had plans to construct an entirely new facility worth $320 million and employ 1,600 workers. The state estimated it would see a $150 million annual benefit from increased economic activity.
After the proposal, known as “Project Sunset,” was announced, citizens began to protest. People voiced concerns about groundwater contamination and air quality, animal welfare, possible conflicts of interest between city officials and the company, and lack of transparency. Public scrutiny mounted, and in mid-September nearly 2,500 people from the area met to express their discontent at Tonganoxie’s city park. That’s an impressive turnout in a town of just 5,326 people.
But what most city officials miss is that when deals like these are struck, they lead to a host of economic problems. When states and cities compete against each other for the privilege of paying a business to locate within their geographical bounds, taxpayers lose. Just observe how far some cities are willing to go to attract Amazon: Mayors have converted their offices to war rooms, are sending delegates to walk around Amazon headquarters, and some have expressed an appalling lack of concern that tax incentives might go too far. Cities should attract businesses by creating a business-friendly environment, one with low tax and regulatory burdens across the board — not by offering the largest bribe.
Special tax breaks and subsidies divert scarce government resources away from core services like road maintenance or school improvements. This diversion results in an “invisible” opportunity cost, forgoing the potential benefits of putting those resources to a better use. As additional localities compete for the same company, the time, energy, and resources diverted from their best use increases.
Special provisions also create perverse incentives for firms. In response to tax dollar handouts, firms often waste more valuable time, money, and effort lobbying for more special breaks from government entities. Rather than base location decisions on factors such as ease of access to inputs, quality infrastructure and environment, or skilled labor markets, businesses may instead pay more attention to which city will give them the biggest handout.
When firms do secure targeted tax incentives, they may crowd out other investment or business activity, negating economic gain. None of these occurrences bodes well for the taxpayers, nor for businesses already present in the community that won’t see their tax burden lighten.
The community of Tonganoxie was right to reject government favoritism for Tyson Foods. While motivations may vary, every citizen should agree that the government has no business using taxpayers’ hard-earned dollars to fund what should be private business expenditures. Kudos to Tonganoxie for protecting their tax dollars from the malfeasance of public officials and the rent-seeking behavior of corporations. If your elected officials are playing the handout game, take note.
Erica York is a fifth-generation Kansan pursuing her Masters in Economics at Wichita State University. Her work on state and local tax issues has appeared in the Richmond Times-Dispatch and the Huffington Post.