Across America, state and local governments hand out more than a hundred billion dollars a year in special tax breaks, grants, loan guarantees and other forms of economic development subsidies to private companies, all in the name of “economic development.”
From billion-dollar boondoggles for massive companies such as Amazon, Intel, General Motors, Foxconn and Tesla; to massive stadium subsidies for professional sports teams; to small local subsidies that rarely make the news, these deals come with very real price tags attached.
They make it harder for smaller businesses to compete. They increase the burden on other taxpayers. They impose long-term burdens on government budgets that can cause fiscal collapses many years down the road. They put stresses on public services such as fire departments, ambulance services, roads, schools and more. And with so much money changing hands behind closed doors, they create an environment that breeds public corruption.
Worst of all, they just don’t work.
If they did, then common sense tells us that places that do more subsidy deals would be better off than those that do fewer. But in reality, 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.
Economic development subsidies don’t change a region’s economy because they rarely change what companies would have been doing there without the subsidies. Companies themselves admit that government economic development subsidies are a very small factor when it comes to major site selection decisions. They rank in importance far below fundamental business factors such as workforce, competitive landscape, infrastructure, tax rates, regulatory environment, construction costs and more. The best estimates are that roughly four out of every five subsidy deals goes to a company that would have done the same thing without the subsidy.
That’s why targeted economic development subsidies don’t create jobs. It’s why they don’t improve economies or leave our communities better off than before. Just like so many other experiments in central planning throughout history, these programs end up benefiting a few powerful people at the expense of everyone else.
So if we know all this, then why do subsidy deals keep getting bigger and more expensive, year after year? Why did 2022 set a new record for massive, multi-billion-dollar subsidy deals? The answer is simple:
The real-world evidence is clear that economic development deals are political tools, not economic tools. We know that politicians that claim to have “created jobs” by spending taxpayer money on subsidies do measurably better on Election Day than their opponents, and rake in more campaign donations. Companies that make political campaign donations are four times more likely to receive subsidies than those that don’t. Governors running for reelection are twice as likely to make giant subsidy deals than they are in non-election years.
This all happens because the average American believes that these 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 for all, instead of a chosen few.
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.