Interstate Love Song
Legislation in 11 states would form a compact to stop senseless corporate giveaways.
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Usually, the debate around corporate tax breaks centers on a specific giveaway: The focus is on the latest incentive push by Amazon, Netflix, Samsung, or whatever the case may be. But playing whack-a-mole by attempting to stop one deal at a time isn’t, ultimately, the most efficient way to deal with the issue of states and localities dishing out tens of billions of dollars to big corporations every year. Grander solutions are available.
One such solution is an interstate compact: States would join together to agree not to use tax breaks or other economic privileges to entice corporations to hop from state to state and city to city.
For the 2021-2022 legislative session, lawmakers in 11 states — Alabama, Arizona, Connecticut, Florida, Hawaii, Illinois, Massachusetts, New York, Rhode Island, Utah and West Virginia — have introduced bills to form a compact to eliminate corporate tax giveaways. An effort to introduce one is also underway in Pennsylvania. (Full disclosure: I work with a coalition of state lawmakers and policy experts and advocates that tries to get these bills written and introduced.)
By creating a compact, state lawmakers would get around the political problem of corporate tax incentives: No officeholder wants to look like they are doing nothing for their constituents, while those in the next state or town over are announcing deal after deal (even if those deals, as readers here hopefully know, don’t actually bring about the promised benefits). No one savors the appearance that they’re losing jobs to the pol down the street, even if those jobs don’t actually materialize after the ink is dry and everyone has moved on to the next thing.
The interstate compact aims to solve this issue by having states multi-laterally disarm, together. It is a political solution to what is, at its core, a political problem, not an economic one.
Were the compact to become law, states would initially agree not to use tax incentives or other favors to poach jobs from any other state in the compact. Non-compact states would still be fair game, and hopefully want to join the compact later.
Compact states would also agree to form a board that would meet yearly to discuss changes to the compact, as well as to a set of data-sharing and transparency practices so that corporations would be less able to play states and cities off against each other through enforced secrecy. Eventually, the hope is to eliminate corporate incentives entirely.
Kansas and Missouri implemented a version of this in 2019 in order to prevent corporations from moving across the greater Kansas City metro area — which straddles the border — to claim incentives. The compact aims to bring that solution nationwide, and in a more robust manner that introduces democratic input and accountability to an area of policy desperately lacking it.
This may sound like something weird and radical, but interstate compacts are actually extremely common. There are currently more than 200 active interstate compacts, with states belonging to an average of 25 apiece, covering everything from water and flood management to crime control to common licensing regimes for lawyers and doctors.
Now, this isn’t going to become law in all 50 states this year. I’d consider one or two a massive victory. You have to start somewhere.
I do feel more optimistic, though, than in years past, because the pandemic is changing the politics of business and economic development.
The pandemic is crushing state budgets and disproportionately harming small businesses, while corporate tax breaks are a sinkhole for taxpayers that disproportionately go to larger companies. There’s no money to spare on ineffective prop-ups for already-large businesses when Main Streets have been obliterated and workers everywhere are hurting.
More and more lawmakers and taxpayers are coming to that realization, many for good reasons, and many others just because they’re sick of having to dig through the proverbial couch cushions of state government to fund the things they care about, and corporate tax breaks look like something politically palatable to cut.
The overall goal here is to shift the debate on economic development back to a place where the outcomes benefit everyone, rather than just a select few who can navigate complicated incentive application processes. Ideally, the debate should be about what builds the best economic climate: That means trying to figure out the optimal levels of overall taxation, the right amount of social spending, the proper education and infrastructure investments, and the best policies for promoting quality of life for workers.
But because of the big myth about economic development, we’re usually stuck arguing about what amount of money should be thrown at a big corporation in the hopes some economic growth trickles down.
Instituting the interstate compact would put the debate on much better terms, saving tens of billions of dollars that could be spent on policies that actually promote job creation and economic opportunity. It’s really exciting to see so many states start the process.
I spoke at an event on Monday with Reps. Anna Eskamani and Omari Hardy of Florida and Rep. Bob Morgan of Illinois, as well as the Mercatus Center’s Michael Farren, about why this effort is so important. You can watch video of it here.
If you’d like model legislation to share with your state’s lawmakers, here are links to the Florida, Illinois, and Massachusetts versions of the bill. Reach out if you need help figuring out who to contact in your respective state or if you’d like different legislative language.
Finally, since it was the subject line of this edition and all, here’s the Stone Temple Pilots’ “Interstate Love Song.” Let’s do this thing.
UPDATE: Last week, I wrote about a set of state-level policies around Big Tech that I find promising. On Monday, one of the app store-related bills was approved by a House committee in Arizona. Progress!
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— Pat Garofalo