Trump's Carrier deal confuses corporate welfare with free markets

Because market freedoms create an environment for economic growth, thriving businesses and job creation, many people confuse "pro-market policies" with "pro-business" favors.

But they aren't the same thing, and President-elect Trump hurts his own agenda when he conflates the two. He did so at the Indiana Carrier plant Thursday, when he announced a deal to keep some Mexico-bound Carrier jobs in Indiana.

The deal is bad policy because it is loaded with at least $7 million in corporate welfare. It's bad politics because it rhetorically demolishes the crucial distinction between free-market policy on one hand, which benefits all businesses and thus the whole economy, and corporatism on the other, which benefits the big and well-connected.

Trump is fortunate that his vice president-elect, Mike Pence, also happens to be Indiana's governor. Carrier is lucky, too. Pence extended a $7 million tax break to the manufacturer this week. This is a subsidy. It is what Republicans spent the past eight years blasting as corporate welfare and crony capitalism.

House Speaker Paul Ryan in 2012 rightly criticized President Obama's industrial policy, which the president peddled as "investment."

Ryan objected, saying, "It's borrowing money and spending money through Washington, picking winners and losers. Spending money on favorite, you know, people like Solyndra or Fisker. Picking winners and losers in the economy through spending, through tax breaks, through regulations does not work."

Ryan was correct. A tax break for Carrier is not laissez-faire economics. Every other company and family in Indiana has to bear a greater share of the state's tax burden. Every company competing with Carrier for sales, capital and other resources, is at a disadvantage because they're paying for the favor Trump and Pence have given Carrier.

When you pick a winner, you automatically pick a thousand losers: smaller companies who lack Carrier's clout, less-connected companies not close to Pence and so on. The economy loses because corporate welfare means politicians rather than markets are deciding the allocation of money and resources. It's the opposite of free market economics.

There is also moral and political cost. Every corporation big enough to throw around some weight can threaten to leave the country and expect to get some government goodies to placate them. Trump explicitly welcomed other big companies to "negotiate good deals with the different states and all of that." This corrupts both business and government.

If we get four years of this sort of Trumponomics, we'll increasingly see companies with clout playing by one set of rules while the regular guy competes under a stricter rule book.

Pence on Thursday glossed over the $7 million subsidy. He said Carrier was persuaded to stay by Trump's "plans to make America more competitive. To reduce taxes. To roll back regulations."

"These companies aren't going to be leaving anymore," Trump said Thursday, because "we're going to do great things for businesses." He pledged to reduce the corporate income tax from 35 percent to 15 percent.

These promises are indeed great. This is the formula for economic growth: low taxes, low regulation, good schools and good infrastructure. They are "pro-business" by being "pro-market," not anti-market because by being a favor for a particular business.

Liberals will bash Trump and Pence's proposed tax cuts and regulation reform as "corporate welfare" and "crony capitalism." The Left doesn't distinguish between a reform that gets government out of the way of business and an intervention that puts government power in the service of business.

With this deal and his victory lap about it, Trump is buying into that pernicious left-liberal thinking that regards broad-based tax cuts and deregulation as special favors for business.

Trump pleasingly has promised tax and regulatory reform. He should stick to those broad, economy-wide changes that benefit everyone. Pleased though he is with his first deal to save a few hundred jobs, he needs to understand that it militates against his larger plans to help the entire economy. We urge him not to repeat this misguided process.

RE: Idiots! Can you elaborate please?

The writer is an idiot and takes us for being idiots as well. It hard to know where to start, but let's begin with the obvious. Is saving 1,000 jobs a good thing or a bad thing? Is encouraging an owner to modernize its plant a good thing or a bad thing? Is keeping those jobs and that new plant in this country a good thing or a bad thing? These are all good things, of course. But the writer wants us to believe these obviously good things are bad because "A tax break for Carrier is not laissez-faire economics. Every other company and family in Indiana has to bear a greater share of the state's tax burden. Every company competing with Carrier for sales, capital and other resources, is at a disadvantage because they're paying for the favor Trump and Pence have given Carrier.".

There are so many unexamined and illogical assumptions in that argument, it is hard to know where to begin, but let's start with who says jobs fleeing to Mexico via NAFTA is a product of laissez-faire, and beside that who cares? Certainly not the workers who now have jobs, as opposed to a writer looking for any opportunity to criticize Trump, and who knows in his bones that he's far smarter than the multi-billionaire real estate developer who somehow managed to win the election from "The smartest woman on Earth".

Next, who says preserving jobs and encouraging economic development make Indiana poorer? It doesn't. It creates wealth, not diminishes it. Those 1,000 workers, are taxed, they spend their wages, buy things, stimulate demand for more products and create more wealth.

You can just go on an on, but I'm tired of writing, and you're tired of reading, so I'll just sum it up by saying once again, idiots!

RE: Is saving 1,000 jobs a good thing or a bad thing?

Of course it is a good thing, however, let’s look at what is NOT seen. What if other companies see this and use the threat of moving abroad to extract their own tax concession?

There are tens of thousands of companies like Carrier, big and small, some will threaten to move, some won’t. Are we then going to favor those that threaten to move with tax breaks and ignore the others that don’t?

Which companies does government pick and choose to favor with tax breaks and which does it ignore?

RE: Is encouraging an owner to modernize its plant a good thing or a bad thing?

Not sure what this has to do with Carrier.... modernizing a plant is the job of the owners and the managers. If they see that it will be to their advantage to do it, they will do it. Why is it government’s job to “encourage” this? Learn to compete or else.

RE: but let’s start with who says jobs fleeing to Mexico via NAFTA is a product of laissez-faire, and beside that who cares? Certainly not the workers who now have jobs, as opposed to a writer looking for any opportunity to criticize Trump

Motives of the writer aside ( and I do not think for a moment that the writer is reflexively anti-trump ), The ethical question is more complicated than the we’d like to let on, too.

Our government runs deficits, which means that a federal tax credit of $1 million given to Smith is $1 million in taxes that eventually will have to be paid — by Jones, and Wilson, and others — with interest.

Carrier is a division of United Technologies (the Otis elevator and Pratt & Whitney engines people), which is first and foremost a government contractor, a firm that derives at least a quarter of its revenue from government contracts, and 10 percent of it from Pentagon contracts alone. It is a company that has competitors — competitors who employ Americans and pay taxes, just as Carrier does. These firms and their employees are put at an economic disadvantage by the subsidies paid to Carrier thanks to Trump and Pence. That means that some of these companies probably will be less profitable, and that they will not hire people they otherwise would have hired.

But you’ll see no press conference celebrating that. This is a case of Frédéric Bastiat’s problem of the seen vs. the unseen. The benefits are easy to see, all those sympathetic workers in Indiana. The costs are born by sympathetic workers, too, around the country, and by their families and by their neighbors. But those are widely dispersed, so they are harder to see and do not hit with the same dramatic impact.

Let’s look at it a little closely.... The initial claim for the negotiations that Trump held with Carrier was that 1,100 jobs would be saved. That was already far from the 2,100 jobs supposedly threatened.

The full total saved, however, was smaller because 300 of the jobs were white-collar positions that were never going to be relocated. The total number of jobs saved was 800, or about 44 percent of the total 1,800 that would otherwise have been lost. Far from all the jobs were saved, although it still means many people would keep working. But at what cost?

The quid for the pro quo of saved jobs was $7 million in tax breaks from Indiana to be paid out over ten years. However, the number should make those who think abut it suspicious.

Let’s break it out:

The breaks come down to $700,000 per year.
Divided by 800 workers, it’s $875 per worker per year.

The total is $16.83 per week per user, or $3.37 per day.
The sum is ridiculously small when comparing labor rates in Mexico. That isn’t enough money to keep a company in the country because labor in Indiana would still be more expensive.

Former Indiana lieutenant governor John Mutz, who sits on the board of the Indiana Economic Development Corporation, told Politico that the driver for the change was more likely fear on the part of Carrier’s parent, United Technologies, that Trump would interfere with part of the $6.7 billion in federal contracts it held.

Other experts disagree and say that no one could steer contracts to or from United Technology and that any attempt to do so would be highly illegal. Instead, they say the carrot must have been a promise to improve the tax and regulatory environment for manufacturers.

How much are jobs worth?

Of course Jobs have an important value for the workers who might lose them. The political value for those in elected office is even higher.

No one in office wants to be associated with job losses. For that reason they arrange subsidies in the form of tax abatements, cost rebates, taxpayer-funded infrastructure improvements, low-interest loans, and other valuable consideration. But the price tags per job are often massive.

A Good Jobs First analysis (see here: http://subsidytracker.goodjobsfirst.org/prog.php?parent=united-technologies ) showed that since 1993, United Technologies has received 819 state and federal subsidies worth a total of $881 million, or about $38.1 million a year for 23 years.

That doesn’t count 10 major loans worth $46 million over the same time. And that’s just one company.

The result is that, on the local, state, and international level, governments bid to keep to gain jobs. They all want the positions so desperately they offer ever increasing competitive largesse that drives down the tax revenue companies are expected to pay.

The value of the deal is questionable even if you aren’t a fan of free market absolutism. Resources needed elsewhere are transferred to large corporations, who will then look for the next round of giveaways.

Good jobs are imperative for a healthy economy. Making them hostage of expected pay-offs is bad policy and ultimately self-defeating.

Trump and Pence would do better by simply implementing what they have already promised ACROSS THE BOARD without favoring any company -— CUT TAXES AND REGULATIONS ON ALL INDUSTRIES TO A POINT WHERE MOVING BECOMES LESS FINANCIALLY ATTRACTIVE.

As the article said -— this looks good from an advertising/marketing point of view. But let’s hope this is the last of its kind that we see.

It is utterly amusing to me to see supposed “Libertarians” and self styled “True Conservatives” busy mouthing the Marxist economic dogma that all economic output is property of the State and any time the state takes less it is a “Government subsidy”.

That is the base for this absurd “crony capitalism” argument. This dogma that any reduction in government taxation MUST be “paid for” by increased taxation on others is utterly absurd nonsense completely at odds with our system of Government.

No you foolish children. In our system, the State is granted revenues by the people as a collective good. It is their property granted TO the Government not vice versa. It is up to the voters in IN to render the judgment on their Representatives at the voting booth if this was a wise move or a foolish move for the collective to reduce tax burdens on Carrier in exchange for the collective good of keeping the 1100 jobs.

The other glaring error in this absurd argument is the assumption that the economy is a zero sum game. Thus a reduction here means an addition in taxes there. NO children it does not.

The Five on Fox ran the numbers. By keeping the 1100 jobs the State gets a net gain of $2.5 million in taxes from the 1100 jobs maintained. In addition, the State does NOT have to pay out mandated retraining, unemployment and welfare costs of having 1100 productive highly paid workers taken out of the the work force. The economy is a dynamic force not static as you try to make it be in your “Crony Capitalism” argument.

The final lesson here is, again, we see the reason the “Movement Conservatives” have been the least effective political force in US History.

Letting people keep their OWN money rather then taxing it way from them is GOOD. It is the heart of Conservatism.

We are not going to undo 100 years of creeping socialism by stamping out feet and holding our breath demanding ideologically perfect political dogmas. Yet here we go again with the usual “Movement Conservatives” trying desperately to spin a win as a defeat because it does NOT fit their ivory tower dogmatically pure political fantasies.

That mindset is EXACTLY why “Movement Conservatives” have been the most political ineffective group in US History. They all are so busy whining about everything not being dogmatically ideologically perfect they have accomplished nothing politically since 1980.

Rather the cling to these day dreams of some mythical perfectly ideologically pure fantasy land, it time Movement Conservatives learn to live in the REAL world of poltical incrementalism rather then their ideologically pristine ineffective bubble world.

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