Trump’s Carrier Deal Carries an Establishment Smell

(This article was first featured with Opportunity lives Here)

How do you eliminate $7 million of tax burden on your company? Threaten to leave your state, that’s how.

A Carrier Corp. facility in Vice President-elect Mike Pence’s Indiana just accepted $7 million in tax cuts over the next 10 years to keep 1,000 jobs from moving to Mexico. Debating the details and circumstances of this particular deal seem miniscule compared with the real assessment of how government intervention in this case distorts opportunity and undermines prosperity.

Here are five questions that must be answered before endorsing this deal:

“Whose money is the $7 million anyway?”

For the sake of argument, let’s assume the $7 million is just tax breaks. Often, these deals include other handouts. If this is a break from taxes normally imposed in day-to-day activity, then Carrier would keep its own money — a wonderful thing. It appears, however, that Indiana and federal officials have decided Carrier will receive preferential treatment. Carrier’s competition will continue to bear the standard tax burden, but now must compete against a company with lower overhead costs.

Even people on the right would argue Carrier is taking taxpayer money, but that assumes all of Carrier’s income belonged to the government in the first place. Not so. To say tax breaks steal tax revenues also assumes the corporate or individual income is not their property but borrowed from the government to use. Most Americans thankfully do not accept this idea.

“If Carrier benefits from a tax break, why wouldn’t others?”

This deal opens up an opportunity to ask, “If Carrier gets a tax break, then why not everyone else?” A tax break good enough for one company should be good enough for all companies. If this tax break is the reason for keeping jobs and production within the United States, then lowering corporate taxes across the board should do so the same.

At the moment, the United States has the third-highest corporate tax rate in the world at 38.92 percent. It should be no surprise companies are leaving the country because of an oppressive tax system. High labor costs, brought on by ever-increasing minimum wage laws and unions, compound the problem of doing business in America. The Carrier deal forces the federal government to acknowledge companies cannot create value for their customers and employees without leaving the country’s tax system.

“How large was this deal in reality?”

Although $7 million over 10 years sounds like a lot, that’s only $700,000 a year. By way of comparison, look at the Chiquita Banana deal in 2011. The company received $22 million in local and state “incentives” over 10 years to spur the company to relocate its headquarters to Charlotte, North Carolina. Four years after accepting the deal in 2015, the company announced it would move its headquarters elsewhere after being purchased by a Brazilian company. Local taxpayers are on the hook for millions of dollars with nothing to show.

I can’t predict the future, but somehow $700,000 a year in tax breaks to a $65 billion company doesn’t seem like much when the company already accepted $5.1 million in tax credits in 2011 and was going to spend tens of millions to relocate.

“What are the unintended consequences?”

Keeping production in the United States may mean these employees and resources won’t be invested or deployed more effectively elsewhere. In this case with Carrier, subsidizing an industry that benefits from moving to Mexico has multiple long term and detrimental effects.

Those jobs kept by Carrier in the United States will raise the cost of other products or services. If there is demand elsewhere for employees tied up at Carrier, customers or employers will have to pay higher rates chasing fewer individuals for no additional expected value. These higher rates equate to higher product and service costs, meaning less disposable income for the consumer to spend.

This scenario pushes down employee incomes, increases the cost of products, or requires more subsidies from government for the business to remain solvent. Since there are unions involved and competitors can produce similar or superior products at a lower cost, Carrier likely will need more subsidies or move eventually anyway.

“Is this just the same politics as usual?”

Trump was elected to “drain the swamp,” but promoting the same policies that muddied the waters in D.C. to begin with will only bring about the same odor and grime that created the swamp in the first place.

Not all Cronies Support Light Rails, but all Light Rail Supporters are Crony

Say you need to get from point A to point B. Taking the shortest distance between the two is typically the one most traveled and most desired. Google Maps tends to think so too, though the app does sometimes offer nonsensical routes. Sometimes I find myself asking Google Maps, “Why would you ask me to drive 30 min out of my way?” Perhaps you have done the same. Which is the reason you and I should be asking the North Carolina legislature why they want to waste our time and money by suggesting slower alternate means of transportation. Unlike Google simply suggesting other routes, the legislature is subsidizing slower routes while preventing faster routes from even existing.

North Carolinians’ taxes are subsidizing “light rail” — billion-dollar alternate routes in CharlotteDurham, and Chapel Hill. The legislature is embracing mass-transit subsidies while at the same time pushing new rules to charge ride-sharing companies such as Uber $5,000 annual fees just to operate.

The contrast is striking: legislators on one hand force taxpayers to subsidize wildly expensive and inefficient light rail lines while imposing charges on wildly popular, affordable, and efficient transportation alternatives developed by free-market entrepreneurs.

Last year, the lawmakers quietly pushed through a bill that codified practices already implemented by the ride sharing industry. Yes, it is exactly as it sounds: North Carolina’s legislators decided to pass laws mandating the same things the free market was already doing. Along with the needless regulations comes the arbitrary $5,000 annual fee. The reason for the fee was never explained, but the obvious effect is to discourage competition.

Standing alone, the law severely limits innovation and creativity for new ride sharing opportunities. It slows, if not prevents start-up competition from entering the market that would otherwise challenge the status quo of Uber and Lyft. Should the two companies ever become just another taxi service through government regulation — which looks more and more to be the case — consumers deserve the opportunity for startups to fill the void. Adding a $5,000 price tag to start a business from scratch eliminates many potential opportunities.

When the ride sharing restrictions are coupled with the state’s insistence on spending billions of dollars on slower, less efficient and more centralized sources of transportation, it is evident that lobbying, cronyism and corruption are involved.

Just last week, a story out of Charlotte highlighted how consumers are choosing ride sharing over light rail due to speed, affordability, and convenience. It should come as no surprise that a service offering freedom from walking along dangerous routes, waiting in the rain, figuring out connectors, and finding your stop is outperforming a behemoth billion-dollar state project that provides none of that.

Charlotte’s light rail service chief executive John Lewis actually advises riders to use Uber as a way to bring people to their light rail stop to wait for the train, then hopping back into an Uber at their final stop to get where they wanted to go all along.

The sad part about this story is that women and families in low-income neighborhoods could benefit directly from the very ride sharing opportunities the government penalizes. These are the same people allegedly helped by light rail, but in reality are shoved out through gentrification. Wherever light rail stations go up, families who depend upon affordable rental homes near their work or schools are displaced further and further away due to rising real estate prices.

Light rail benefits politicians, well-connected developers and construction companies by using billions of taxpayer dollars on feel-good projects. These “businesses” and “jobs created” by light rail would more than likely have been created elsewhere if left to the voluntary choices of consumers and producers.

If light rail were capable of providing a valuable service for commuters at an affordable price, private sector entrepreneurs would invest in the projects. The fact that light rail relies so heavily on taxpayer subsidies tells us that society values light rail services far less than the actual costs of providing the services. Jobs and other scarce resources wasted in building light rail projects should and could have been directed elsewhere by productive businesses and entrepreneurs who provide better value to society than light rail does.

If our state were serious about transportation, it wouldn’t spend tax dollars on billion dollar projects benefiting only the rich. And it would eliminate barriers to affordable and direct transportation North Carolinians are already choosing in spite of government.

To learn more about the history of North Carolina transportation policy dating back to 1985, check out the Civitas Institute’s public policy guide series here.