Many of these incentives go beyond tax cuts. The government will build the buildings, lease it to the corp for free. It will train employees for free, handle the recruiting for free, provide money to the corp for various projects, etc. It's business, sure, but pay to play. And at the end of the day, a lot of these places wind up leaving once their benefits run out.
* It sets a precedent for other companies to leverage the same tax breaks.
* Facilities still use public roads and infrastructure. A road with 50 more trucks per day deteriorates more quickly, but the facility isn't paying for that directly.
Yes, these sorts of "tax incentives" are a negative sum game. As long as they are done, companies will hop around to the best deals, depleting the tax base as they force more and more competition from struggling jurisdictions, forcing local citizens to foot the bill for more and more of the infrastructure and services that make those businesses possible.
Tax breaks are just some of the incentives. E.g. Dubuque also renovated a historic building for IBM, which cost money upfront.
That said, I think tax breaks ultimately cost money, especially when the locals hired earn less than projected (thus, contributing less in income tax to city and less in spending to local industries) while company enjoys little to no tax, makes money and uses other municipal resources without adequate contribution.
I've read in the past of how such deals (of factory/office X choosing to open location Y based on tax incentives) ultimately not benefiting the city involved, especially when the companies pull tactics like closing unexpectedly shortly after receiving incentives and moving elsewhere. Given this, I'm fairly sure that a wide-ranging study of such infrastructural deals would show that many (most?) communities involved are left at a net loss financially.
The incentives were tied to the job creation. So if they bring fewer jobs to the area, they get less money from the government, automatically. It was part of the contract
Its interesting to note I've worked at two companies who were attempting to lure cities into giving them tax breaks for building larger campuses, or other structures. Both times since they didn't get their tax breaks, they dumped the projects.
So no, not all cities or municipalities cow tow to large corporations when it comes to handing out tax breaks or incentives.
The idea is that by offering tax breaks, you get them to build in your city and provide tax-paying jobs to locals. Hopefully the net result is more taxes coming in (and better employment).
Of course, what I think you are probably saying is why allow it anywhere -- if there is a general legal prohibition on giving any specific company preferential tax treatment, then that puts all potential headquarters locations on equal footing.
This kind of stuff has been going on for decades. It's perfectly legit for an elected government to offer incentives to a company thinking of building a plant. But governments get their pockets picked ALL THE TIME. It goes like this:
Company: we want to build a new office / factory. Give us an incentive.
Elected official: yes yes yes. How about lower taxes?
Company: is that your final offer?
Elected official: we'll subsidize construction.
Company: Deal.
Months go by. Gripping and grinning. Official wins re-election for bringing in "jobs." Company builds plant, hires some people...
Company: we're moving to Central America.
Elected official: but, but, but, you said....
Company: business is business, suckahs. We're outta here.
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A possible answer to the problem. Use a formula that gives companies financial incentives to employ people, and terminates government liability when companies stop employing people. It can be as generous as required. But it depends on actual employment.
Company: New plant?
Elected official: yes yes yes. We will refund you 80% of the FICA withholding tax you pay for hourly employees at your new location. We'll send you the money within 30 days of you sending us proof you paid that tax, after each payroll.
typically these massive corporate incentives are just a part of the corporatist strategy of pitting all American cities against each other in order to get a company to set up shop there (look no further than Amazon's scheme from this summer accepting 'applications' (per-se) from different cities for HQ2 - many suspect this is just a scheme to force Seattle into more favorable tax incentives, etc which they previously were unwilling to offer).
Whether the city's leadership truly believe the corporation will aid them is up in the air, most of the time the city loses out, and the corporation leaves when the incentives dry up. If you're optimistic, than many city council members just get unlucky because it is 100% 'beneficial in theory and just not in practice'. If you're a little more skeptical, given this corporatist strong arming happens nationwide constantly, it is just the reality of corporations exploiting cities.
The problem is that the companies get municipalities to compete to provide the best incentives package. With sufficient competition and assuming well meaning, rational government officials, the winning municipality will have to reduce their "margin" (new tax dollars - incentives) down to a very small amount. These incentives often require the government to take out large loans that they will be paying down for decades before realizing any actual new "profit."
Then factor in the fact that their will always be some municipalities with government officials who are willing to overspend (other people's money) for personal political points. When they win an RFP for a big factory, sports team/stadium, movie production, or corporate headquarters they get to have a flashy press conference touting all the jobs. This helps them in their political career which is often over well before the actual net value of the deal can be realized in 20 or 30 years.
Tax breaks in exchange for bringing jobs to a community? I'm sure government largess focuses into the equation. "Free market", haha. Programs originally meant to help people tying them to pyramid-construction projects.
Except that every municipality is trying so hard to recruit them that they're getting more in tax breaks and other incentives than they and their employees would be paying in taxes in the first place.
Talking to many CEO's of mid size companies, it seems to be an extension of point 2. They have received many tax incentives from the cities in which they are located, based on the employees they have there. With WFH, the cities are threatening those tax incentives.
Typically the tax incentives are deductible property tax, except sales tax, or some type of city provided R&D subsidy to help with state level taxes.
We received these back in 2010 with a 175 person game studio and we had 3 different cities pitching for us to move there. I have received outreach on even just a 5 person company. I can only imagine what cities will do with large employers.
I would argue that they are. States competing on deals like this is bad. If no state gave an incentive, they'd have to pick one at full price anyway. Also, if the deal is good with Tesla, why not give similar deals to every company that wants to put up a building? In the end states will just forego corporate taxes altogether and get all their revenue from the people. Is that bad? I'd have to think harder before answering that, but I'm inclined to say yes. Corporations don't retire, people do. People need to be able to get of the monetary treadmill, but companies don't.
Sure, that sounds nice in theory, but probably isn't practical.
Short of serious corruption, most cities are about as nice as their current tax base allows. Giving a company a tax break to incentivize that company to move into their city allows them to grow their tax base and improve their city for everybody. But it's not like cities are just sitting on potential attractors for employers to move in.
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