“First: To those who have said this episode will prompt other companies to threaten to relocate production to Mexico or other offshore locations, I say that is unlikely. If a company is able to relocate to a low-wage country and its production has appreciable labor content, the savings it can achieve will normally dwarf anything a state or local government could offer in tax breaks.
“The critical numbers to remember are 2 and 98. For the typical company in the United States, all state and local taxes combined equal 2 percent of their cost structure. Business basics make up the other 98 percent: labor, occupancy, raw materials and components, energy, logistics, executive pay, etc. Of course, the mix of these business basics costs varies greatly by industry and by function of facility.
“That means tiny changes in those big cost factors will dwarf anything public officials can do with tax breaks. This is also why incentives rarely determine where a company chooses to expand or relocate. I explained this in Chapter 2 of The Great American Jobs Scam (Berrett-Koehler, 2005).
“This is also the reason why ‘job blackmail’ is almost always an issue among states, or within states, not between the U.S. and foreign locations. I detailed numerous examples in another chapter .
“This is also why I am concerned by a statement made by President-Elect Trump in his speech at Carrier. Specifically, he said:
“This problem, which has plagued our country’s economic development for decades, has never been addressed by the federal government, was last debated by the National Governors Association in 1993, and was the subject of an indecisive Supreme Court case in 2006 ( DaimlerChrysler v. Cuno ).
“Under our federalist structure, Uncle Sam has practiced laissez-faire on interstate competition for jobs, but we’ve never to my knowledge had a President who endorsed companies whipsawing states against each other.
“Given the nationalist economic frame that President-Elect Trump emphasized during his campaign, I would hope that on the domestic front, that frame would translate into a message that says: ‘All of our states are in this fight together for good American jobs; we’re not going to let states keep wasting taxpayer dollars stealing jobs from each other. We’re on the same team, right?’
“In 2012, we laid out a simple proposal for how the federal government could exercise its influence to cool off the economic war among the states. Our proposal is modeled on how Uncle Sam convinced the states to raise their legal drinking ages and thereby save countless thousands of lives by reducing traffic fatalities. We suggest using the leverage of federal Community Development Block Grants to persuade governors to agree to stop active recruitment and to fully disclose the costs and benefits of all their subsidy awards. In our 2013 study, we added the recommendation that what we call ‘interstate job fraud’ be ineligible for tax breaks; that is, no subsidies for pirated jobs that are fraudulently called ‘new’ by the state they arrive in. We documented that 40 states already deny at least some incentives for intrastate relocations, so why not interstate as well?
Good Jobs First is a non-profit, non-partisan watchdog group on economic development incentives. Founded by Greg LeRoy in 1998, it is based in Washington, DC. LeRoy is the author of No More Candy Store and The Great American Jobs Scam .