How much do state and local economic development subsidies cost the United States every year?

It depends on how — and what — you measure. The low end estimate of specific tax subsidies and incentive programs is generally $45 billion, while other researchers looking at data coming out of new accounting requirements suggest it’s at least $70 billion. In 2012, The New York Times estimated $80 billion, and since that time incentives have only continued to grow.

As of 2020, the most recent inflation-adjusted estimate that takes the new trend of multi-billion-dollar megadeals into account is $95 billion per year. That’s the figure the CEA uses in our discussion of this issue, but even if it were $80 billion, or $70 billion, or $45 billion it would be too big a cost for what little we receive in return.

$95 billion is:

  • Three times the amount we spent on economic development subsidies in 1990. These deals have tripled in size nationwide in three decades, with nothing to show for it.
  • Enough to cover the entire state budgets of the 11 smallest states.
  • Corporate welfare that’s three times as much as states spend on actual welfare — at least the $31.1 billion of state and federal money that states spend on the Temporary Aid for Needy Families “TANF” welfare program. (TANF provides “welfare check” cash assistance to low-income families, in addition to funding a variety of other services such as job training, Head Start, juvenile justice, youth pregnancy prevention, adoption programs and more.)
  • A lot of guns and butter. Economists use “guns versus butter” as a nickname for the tradeoffs countries make between defense spending and social spending in their budgets. With $95 billion, the United States could get a lot of guns and butter by fully funding all federal food assistance programs and still having enough money left over to buy two new Ford-class nuclear aircraft carriers for the U.S. Navy every year.

A Note on Transparency

The reason that most of these figures are estimates is that state and local economic development agencies tend to actively fight against transparency. Many hide critical information about subsidy size, scope and requirements behind flimsy arguments about “taxpayer privacy,” or launder deals through nonprofit corporations that are not subject to Freedom of Information Act or Open Meetings Act requirements.

At the CEA, we believe that companies that ask for and receive public investment incur a responsibility to be just as transparent to the public as a whole as they would be to any other investor. If you get public money, you should open your books up to the public. If you don’t want to incur those responsibilities, then there are any number of banks, private investors, hedge funds and other investors out there that exist to invest in your business.

Bureaucrats and elected officials who keep subsidy details secret from the public are demonstrating that they are more concerned about their relationships with the businesses they’re subsidizing than with the best interests of the people they serve.

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