This week, the electronics manufacturing giant Foxconn unveiled its plans to build a massive factory in Wisconsin to make flat-screen displays—evidence, the White House proclaimed, of both an American manufacturing renaissance and the economy-boosting prowess of the new administration. “To make such an incredible investment, Chairman Gou put his faith and confidence in the future of the American economy,” President Trump said, referring to Terry Gou, Foxconn’s chairman. “If I didn’t get elected, he definitely would not be spending $10 billion.”
But Foxconn has more than faith and confidence drawing it to House Speaker Paul Ryan’s district in Wisconsin. It has up to $3 billion in tax breaks, to be passed and provided by the state government. Those kinds of tax incentives can get a manufacturer to plant a factory in a given location—but generally at a significant cost to the state budget, and without doing much to help the economy overall.
Already, it is hazy just how much of a boost to the local economy Foxconn is expected to make. The company said it planned to hire 3,000 workers over four years, whereas the state said the new facility would create 13,000 jobs with an average salary of nearly $54,000, along with 10,000 temporary construction gigs and an eventual 22,000 “indirect and induced jobs,” from firms supplying goods and services to Foxconn and its workers. (To give a sense of scale, Wisconsin currently has around 472,000 manufacturing workers.)
By either metric, Wisconsin—which reportedly beat out six states in a hush-hush bidding war to attract the plant—is spending a lot to win Foxconn’s investment. The Washington Post estimates that the breaks could cost the state as much as $230,700 per job created. Tim Culpan at Bloomberg Businessweek puts it at $1 million per job, enough to buy every man, woman, and child in Wisconsin a new iPhone.
That kind of math is all too common when it comes to tax incentives for manufacturers and other firms. To its credit, Wisconsin has tied its breaks to the number of jobs that Foxconn creates and has vowed to claw back money if “the jobs and investment are not kept in Wisconsin.” One report from the Pew Charitable Trusts, in contrast, found that “lawmakers often approve or continue incentives without knowing their potential cost or whether they are working.”
Still, such tax incentives tend to change where investment happens, rather than increasing overall investment—rearranging the economy, rather than boosting it. In this case, Wisconsin’s gain proved to be a loss for Ohio, North Carolina, Pennsylvania, Texas, Indiana, and New York. They also have a way of paying companies for investments they might have made anyway, economists think. Researchers at the Urban Institute, the Washington-based think tank, note that “although firms welcome tax incentives, availability of transportation and low labor costs more often drive business decisions about expansion or relocation. Corporate site selection professionals rank the availability of skilled labor and
adequate land and infrastructure higher than they rank tax policy.”
More than that, tax incentives tend to sap state coffers without necessarily generating good jobs or creating positive spillovers in the regional economy—both things that would boost a state’s tax revenues and thus help justify the investment. “Incentives are still far too broadly provided to many firms that do not pay high wages, do not provide many jobs, and are unlikely to have research spin-offs,” argues Timothy J. Bartik of the W.E. Upjohn Institute for Employment Research, a labor-market research organization, in a major analysis of such state and local tax breaks. “Too many incentives excessively sacrifice the long-term tax base of state and local economies. Too many incentives are refundable and without real budget limits. States devote relatively few resources to incentives that are services, such as customized job training.”
Plus, states rarely seem to consider whether the money they lavish on corporations might be better spent elsewhere—on public goods like bridges, say, or educational initiatives for their workforces. “If offering more tax incentives requires spending less on public education, congestion-relieving infrastructure projects, workforce development, police and fire protection, or high technology initiatives at public universities, the overall impact on a state’s economy could actually be negative,” argues the Institute on Taxation and Economic Policy, a nonprofit research group. “While the long-term economic benefits of education and infrastructure investments may not be as flashy as incentive-backed ribbon-cutting ceremonies, these investments are even more fundamental to any successful economy.”
All of these things might be true of the Foxconn deal—and one way or another, 3,000 or 13,000 jobs does not a manufacturing renaissance make. If it even happens: Foxconn made a splashy and lavishly praised promise to build a new high-tech factory in central Pennsylvania a few years ago. It never followed through.
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