Tax subsidies hurting CA

Tax subsidies hurting CA

Tesla Model S wikimediaYou might think individual tax subsidies, such as the film credit for Hollywood that just was tripled to $330 million, would help California. After all, they cut the taxes of some companies. Certainly, they help those individual companies.

But unless spending is cut to pay for it — which never happens — other businesses have to pay for the tax subsidies. Holman W. Jenkins Jr. just wrote for the Wall Street Journal how Toyota, after getting tax subsidies from the state, still couldn’t make a profit from its Nummi plant in Fremont. So it decided to cancel the plant.

But that happened at the same time as the “sudden acceleration” crisis, for which it actually was exonerated by the federal government.

The situation led to Elon Musk picking up Nummi at a bargain-basement price for his Tesla plant. Musk also has received state subsidies, although Nevada recently got his battery plant with $2 billion in subsidies of its own.


To its credit, the Los Angeles Times would level with its readers about Nummi, citing an industry consultant to the effect that “California just isn’t competitive in manufacturing with its taxes, regulations and overall cost of doing business.”

Perhaps the moral is obvious but dishing out handouts to favored businesses like Tesla at the expense of the state’s other taxpaying workers and employers is hardly a solution to California’s problems. And such Mommie Dearest love brings its own Faustian risk: The favored business can find itself, as Toyota did, under pressure permanently to subsidize a money-losing plant as a “success” politicians can point to even as their policies ensure that real success eludes other businesses in the state.


Contrast that with the policies of my home state of Michigan. Four years ago the outgoing governor was Jennifer Granholm, who was born in Canada but grew up in California’s Bay Area; she’s now a professor at U.C. Berkeley. According to a Journal editorial:

Democratic Governor Jennifer Granholm was a forerunner of President Obama ’s economic policy mix of raising taxes on everybody while handing out tax favors to the powerful and trendy. Michael Moore got a nearly $1 million tax break to film “Capitalism: A Love Story” in the state. The state awarded $543 million in tax incentives to battery makers in addition to $861 million in federal stimulus dollars. One of the state’s political capital recipients, A123 Systems, has gone bankrupt.

The result:

Unlike its Great Lakes neighbors, Michigan had been bleeding jobs for a decade. Between 2000 and 2009 Michigan lost 825,000 jobs, nearly half in manufacturing. The implosion of the Big Three automakers played a major role, but state policies exacerbated the carnage.

But in 2010, Republican Rick Snyder was elected governor; he’s running for re-election this year. And keep in mind that Michigan has nothing like Silicon Valley, which hardly was fazed by the Great Recession. He cut taxes, rearranged the tax system and got rid of some of the tax subsidies, such as cutting those for film. The result:

What really rankles Democrats is that Mr. Snyder’s tax shock-therapy and 2012 right-to-work law are working. Since January 2012, the Wolverine State’s private job growth (4.5%) has surpassed every state in the Great Lakes region save Indiana (4.6%). Last year, its private GDP growth led the region at 4.6%, compared to 4.4% in Wisconsin, 3.8% in Indiana and 3.5% in Ohio, and 2.6% in Illinois.

Illinois, like California, is run by a Democratic governor who raised taxes, Pat Quinn.

Of course, the weather still is terrible. On the other hand, you can buy a nice, middle-class home in a low-crime suburb for $120,000.






Tags assigned to this article:
John SeilerMichigantax subsidiesTesla

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