Wisconsin Strikes Historic Cronyist Deal With Foxconn
Wisconsin made history last month as Governor Scott Walker signed a bill granting approximately $3 billion in tax breaks and subsidies to Taiwanese electronics manufacturer Foxconn to build a second factory in the state. This bill sets the record for the largest subsidy package ever given to a company by a state government. While job creation is generally a positive, the ends do not justify the means — in this case, a $3 billion price tag.
In Wisconsin, unemployment is nearing record lows and jobs once held by baby boomers remain unfilled. A recent survey found that 77 percent of businesses have difficulty finding qualified employees. In order to combat the growing worker shortage, Wisconsin should take further steps to make the state more desirable for workers. While Right to Work exists, the state income tax rate still remains relatively high. Seven other states do not tax income at all, so perhaps workers would be more inclined to move to Wisconsin if the tax rate were lowered or abolished altogether.
Wisconsin businesses already have a hard time filling vacancies and chances are slim that Wisconsin taxpayers could fill the 13,000 openings at the proposed new location. How can Walker and the state legislature justify $3 billion in special favors for jobs that might not even go to residents and have the potential of going unfilled for years?
The Department of Administration, an advisory body to the Governor, reports that Wisconsin would not see a positive return on investment until 2042. But if Foxconn cannot operate at full capacity due to a labor shortage, how many more decades will taxpayers have to wait?
A recent report by the Lincoln Institute of Land Policy highlights the industrial property tax rates of the largest cities in all 50 states and the District of Columbia. Milwaukee, Wisconsin, placed 22nd in the nation, with a tax rate mirroring the national average of 1.57 percent. For comparison, Louisville, Kentucky, collects half of Milwaukee’s rate, at approximately .79 percent. This means that a plant in Milwaukee would pay double the amount in property taxes as it would in Louisville. Would Foxconn be more open to the idea of accepting fewer subsidies if the state government urged municipalities to lower their property taxes to well below the national average, instead of on par?
The Foxconn deal appears eerily similar to that of the Kemper Coal Plant in Mississippi. A “clean coal” power facility, Kemper became the most expensive power plant ever planned in the country. In 2008, the Mississippi legislature passed the Baseload Act that allowed Mississippi Power, the owner of the plant, to charge rate increases to cover the costs of the project before the location generated the first kilowatt of power. Kemper’s price tag totaled over $7.5 billion in mid-2017, over $4 billion over the initial budget. Mississippi Power announced in June 2017 that the firm would cease pursuing coal power production at Kemper. The big dreams of Mississippi Power and the state legislature would never see the light of day. This bad deal, allowed by the Mississippi legislature, costed residents billions.
The failure of Kemper is not anecdotal. Elsewhere, taxpayers have lost major money in failed corporate handouts. Solyndra, a solar energy company, accepted over $500 million in federal loans to produce a solar energy product that the market was not prepared for. The company found their business model unsustainable and government regulations too strict to be able to operate profitably. Filing for bankruptcy, Solyndra proved that no amount of government subsidization guarantees success.
Wisconsin’s stimulus package is a record-breaking recipe for disaster. With a labor supply on the decline and cronyism elsewhere yielding bad returns, Wisconsin should look for alternative and more affordable means of attracting businesses. Wisconsin’s economy can prosper without the government cheating taxpayers with massive tax breaks and subsidies for corporations.
While Wisconsin took two steps forward with Right to Work, this bill may set them one step back.
Stephen Lusk is a Young Voices Advocate and a senior Marketing major at Mississippi State University.