THE GREAT AMERICAN JOBS SCAMCorporate Tax Dodging andthe Myth of Job CreationBy Greg LeRoyBerrett-Koehler; 290pp; $24.95
The Good A powerful compendium of corporate tax dodging in the U.S.
The Bad The author is far from a neutral observer.
The Bottom Line A persuasive study supported by lots of disturbing evidence.
For years, economists have pointed out how unproductive it is for states and localities to dole out tax breaks in order to influence the location of new plants or offices. It turns out that the practice is even more widespread -- and damaging -- than many critics have thought, according to The Great American Jobs Scam: Corporate Tax Dodging and the Myth of Job Creation. As is clear from the title, author Greg LeRoy is no impartial observer. He came to the subject after years of helping labor unions battle plant closings in the Midwest. Still, he has compiled a powerful compendium on a practice that has become standard operating procedure in recent decades.
Overall, states and cities today surrender some $50 billion a year through a bewildering variety of corporate tax breaks that are at least nominally intended to lure development, according to several studies the book cites. The fiscal impact has hit nearly every state, each of which now has an average of 30 different corporate-subsidy programs. Since 1980, this proliferation has helped to halve the share of state-tax revenues contributed by corporations -- to just 5% today.
Most disturbing is evidence that states and cities are usually paying companies to do what they would have done anyway. Using both specific examples as well as broader studies, LeRoy shows how companies pit prospective sites against one another to get the best tax deal -- then usually locate the new facilities in the region they had chosen in the first place. In fact, an estimated 96% of company tax breaks are such windfalls, according to work LeRoy cites by University of Iowa professor Peter Fisher. To put it another way, officials are handing out millions to influence a minute number of job shifts. "I think of it like using dynamite to catch fish," writes LeRoy.
In the end, even the corporate beneficiaries take a hit. By undercutting the local infrastructure and skill base, they worsen the business climate of their new home, raising the cost of operating there. Of course, most companies have an out if subsequent tax dodgers run the place too far into the ground: They can always pull up stakes and seek greener pastures -- and fresh tax breaks. By Aaron Bernstein