Economic Development Subsidies:
Big Costs to Taxpayers,
Bad Deals for our Communities
In virtually every community in America, politicians and bureaucrats are handing out special tax breaks, grants, loan guarantees and other forms of economic development subsidies to well-connected companies.
From billion-dollar boondoggles for massive companies such as Amazon, Intel, Foxconn and Tesla; to massive stadium subsidies for professional sports teams; to small local subsidies that rarely make the news, these deals come with a very real price tag attached. There’s no such thing as free money, and this means that governments engaged in these deals increase the burden on other taxpayers in order to fund public services such as fire departments, ambulance services, roads, schools and more.
The total price tag is mind-boggling: The best estimate is that we could fund 11 entire state budgets with the total amount of money spent by state and city economic development programs every year. These have quietly grown into major influences on state and local budgets: Many cities hand out more in tax breaks than they spend on their fire departments, and state economic development programs regularly end up with more of an impact on state budgets than major agencies such as agriculture departments or environmental protection agencies.
Worst of all, these subsidies don’t work.
The evidence is clear that targeted economic development subsidies don’t create jobs. They don’t improve economies. They don’t leave our communities better off than before. Just like so many other efforts throughout human history to use government to manage the economy, these programs end up benefiting a few powerful people at the expense of everyone else.
We know it to be true thanks to a mountain of academic evidence from researchers from across the political spectrum. Those research findings confirm the real-world evidence of history, where we’ve watched cities and states fail over and over again to subsidize their way to prosperity. There’s no connection between how much money a city or state spends on subsidies and any meaningful measure of jobs, wages, economic growth or other measurement of prosperity.
So if we know all this, then why do subsidy deals keep getting bigger and more expensive, year after year? The answer is simple:
Economic development subsidies don’t exist to create jobs. They exist to make you believe that politicians are responsible for creating jobs.
There’s plenty of evidence that economic development deals are political tools, not economic tools: Politicians that claim to have “created jobs” by spending taxpayer money on subsidies do measurably better on Election Day than their opponents. Companies that make political campaign donations are four times more likely to receive subsidies than those that don’t. Governors running for reelection are more likely to make big splashy subsidy announcements than they are in non-election years.
This all happens because the average person believes that these incentive deals are good for our communities. After all, that’s what their elected officials, the companies that receive subsidies and the bureaucrats employed by the hundreds of economic development agencies across the country have been telling us all for decades.
That’s where we come in:
The Center for Economic Accountability promotes transparency, accountability and free-market-based reform of state and local economic development initiatives.
At the CEA, we work to educate Americans on the harmful and wasteful nature of economic development subsidies, and work with partners across the country to call attention to harmful deals and programs. We promote inclusive free-market methods of creating an environment for sustainable and broad-based economic prosperity.
We’re an independent, nonpartisan and nonprofit organization. We work with leading experts across the country to base our work in real evidence and hard facts, and we tell you the truth no matter how many politicians, CEOs, bureaucrats or lobbyists wish we wouldn’t.