When the tax-preparation firm Jackson Hewitt wanted a round of tax breaks from New Jersey, its executives knew exactly how to get them: by threatening to move jobs to another state. It apparently didn’t matter to them that the threat was entirely hollow.
Testifying last month before a task force examining New Jersey’s corporate-tax-break programs, former Jackson Hewitt executive Gulsen Kama said that even though the company’s decision to stay in New Jersey was a “done deal,” it nevertheless invented a potential move to Florida or New York, which won it nearly $3 million in “inducements” to remain in the Garden State. Kama also alleged that the company didn’t keep the promises it made in order to qualify for its tax breaks, and then fired her when she pointed out the violations.
All in all, Kama presented a portrait of corporate greed run amok. But that we’re hearing about this sordid episode at all is actually a testament to the state’s officials. New Jersey is doing the nation a favor by pulling back the curtain on a problem with which nearly every city and state in America deals: being blackmailed by corporations into coughing up public money.
Democratic Governor Phil Murphy initiated an audit of his state’s corporate-tax-break programs shortly after he came into office, and the effort has shown how taxpayers consistently lose these corporate-state arrangements. In theory, programs like New Jersey’s Grow New Jersey Assistance Program and the Economic Redevelopment and Growth Grant Program give companies a break on their taxes or some sort of lump payment that encourages job creation and growth, thereby garnering the city more revenue and economic development in the long run. States and cities spend tens of billions of dollars annually on these sorts of tax breaks and giveaways: Estimates range from $45 billion to nearly $100 billion.
On every measure that should matter, though—jobs, incomes, economic growth—studies reveal that corporate-tax incentives do little to nothing. Instead, corporations simply receive windfalls to do what they would have done anyway, or turn around and break their promises regarding job creation, while keeping the money they received.
And that’s what happened in New Jersey. Here’s what the state’s audit found: Nearly 3,000 “jobs” were created by the programs that couldn’t be verified as actually existing. At least $179 million was given out via one program that shouldn’t have been according to the program’s own guidelines. One company was a year late filing its necessary follow-up reports for the tax breaks it got, and the state economic-development agency didn’t even know until the auditor pointed it out. Another company received $11.2 million for jobs it didn’t actually create, but no one bothered to check in later to ensure those jobs existed, so the company just kept the money.
And it makes sense that this happens: Giving a company a tax break in order to entice it to create jobs will almost always be economically inefficient, laundering public money through a private entity that will waste some of the cash on big executive salaries, send some back to corporate headquarters elsewhere, or simply pocket the money for doing what it wanted to do for reasons that had nothing to do with taxes.
For a couple of other recent examples, look at the search for Amazon’s second headquarters, popularly called HQ2, and the tax breaks former Wisconsin Governor Scott Walker rained onto the Taiwanese manufacturer Foxconn. In the former instance, the company will receive more than $750 million to open a new office in Northern Virginia, when it has good business reasons to be there anyway, including its interest in Pentagon contracts. In the latter, the company made a big show of how many jobs it was going to create, earning glowing headlines and praise from the president himself—and then dramatically cut those estimates later.
The Jersey effort to look into these programs has also shown how they’re susceptible to political pressures. In a case initiated by another whistle-blower, the former head of Jersey’s incentive programs said that the administration of then–Governor Chris Christie leaned on him to approve tax breaks to companies that shouldn’t have received them. (Christie was a huge proponent of corporate tax incentives, increasing the amount Jersey spent on them by billions of dollars.)
One study by the Kansas City Federal Reserve has found that the rate at which officials are convicted of federal corruption charges is actually correlated with an increase in the use of corporate-tax incentives—which makes sense, since they’re industry or even firm-specific handouts that necessarily breed a cozy relationship between lawmakers and the titans of industry. On that note, New Jersey’s task force has made its first referral to law enforcement that could result in a criminal probe.
However, corporate tax breaks also correlate with something else: more votes for politicians. And so they live on, even when all the evidence shows they don’t work as intended.
In many ways, New Jersey barely deserves the negative headlines arising from its probe, since at least it’s trying to examine the problem. Many localities don’t bother to even head fake in the direction of transparency. A 2017 survey by Good Jobs First found that half of the nation’s 50 biggest cities and counties didn’t disclose which companies received incentives. And cities all over the country are zealously guarding what they offered Amazon for HQ2, refusing to tell the public what they told Amazon CEO Jeff Bezos.
If more states did what Jersey is doing, we’d know far more about how corporations lie, cheat, and steal from the public coffers. And we’d all be better off in the long run.