Wherever you look these days, the biotech industry wants more incentives to lure startup companies to this or that state. Ohio, Michigan, Florida, Maryland, California, Wisconsin, Missouri. It seems it would be much easier to just ask which one or two states is not using one type of incentive package or another to get their piece of the elusive high-tech pie.
Now, Floridians for Stem Cell Research and Cures, embryonic stem-cell research advocates in Florida, have drafted a ballot initiative that would put $200 million toward the science over the next 10 years. The measure would mandate that “the Department of Health shall make grants for embryonic stem-cell research using, or using the derivatives of, human embryos that, before or after formation, have been donated to medicine under donor instructions forbidding intrauterine embryo transfer.”
Other states, e.g., New Jersey and Illinois, have allocated money for stem-cell research, but Proposition 71 in California is the only successful effort to amend a state constitution to allow and fund embryonic stem-cell research. Wisconsin is in the game and who wouldn’t want a piece of the Scripps Florida deal where Florida will pay Scripps $310 million to run the center and Palm Beach County is financing the land and construction costs, which already total more than $200 million.
This is not a U.S. phenomenon, of course, as we move to a global economy. In France, venture capitalists have written to Dominique de Villepin, French prime minister, calling on his government to grant tax breaks for investments in small high-tech companies in this year’s finance bill. Their proposals would offer tax breaks to investors buying shares in companies with fewer than 2,000 employees, at least 10 per cent of spending going on research and development, and revenues of less than $184m. Just 10% on R&D? Only 2,000 employees? Wow, that’s not exactly the definition of a struggling, cash-strapped start-up trying to bootstrap itself up from zero.
The idea of tax breaks for high-tech investments is supported by several ministers since the French government is worried about falling behind the US, UK, and Germany. In their letter, 14 specialist high-tech funds wrote that “[T]he stock market does not work in France for these innovative SMEs, great capital consumers and future world leaders.” They don’t explain why the rules need to be different for VC-backed companies.
They only give the example of biotechnology, where France initially had an early lead in Europe, but now has only four listed companies, versus 15 in Germany, more than 50 in the UK and 350 in the US. I find it hard to believe that tax breaks would suddenly rocket France to the top of the biotech ladder.
This also seems questionable given all the reports lately that tax subsidies don’t really deliver all that they promise. In “The Great American Jobs Scam,” Greg LeRoy, details what he sees as a system that enables corporations to extract huge taxpayer subsidies by promising quality jobs – and then lets them fail to deliver. The other benefit often promised – higher tax revenues – often proves false or exaggerated as well. One study of 80 companies that had received “retention” subsidies from New York City found that at least 39 had later announced major layoffs, or they had entered into large-scale mergers or put themselves up for sale – events that usually trigger mass layoffs. A detailed analysis of 10 subsidized companies found they had a total loss of more than 3,000 jobs.
LeRoy claims that schemes like this cost taxpayers an estimated $50 billion a year in total spending by states and cities. The bulk of this comes from the tax breaks granted by states – income, sales, and excise taxes – the least visible, least accountable, and most corrosive means by which states fund job creation. Those granted locally – in particular, property tax abatements and diversions – are especially harmful to schools.
This would all be well and good except that, in general, these have failed to create or retain as many jobs as they said they would. Companies often have laid people off since they got the subsidies while other companies that have gotten paid just to move existing jobs from one place to another, where they are proclaimed to be “new jobs.”
What started as a strategy for economically depressed regions to develop has turned into a national epidemic of job blackmail. Subsidy packages routinely exceed $100,000 per job. And guess who’s getting stuck with the tab. One construction executive admitted during a lawsuit deposition:
“I hate to give the example, but we decided very early in the game we were going to locate somewhere in the Winston-Salem/Greensboro area and narrowed it down to Kernersville rather rapidly; but spent a lot of time in Siler City and Asheboro and other communities hearing their story, primarily to use as a leverage to get all we could out of Winston-Salem. Now I give you that as a local example. But a more recent one – in Dickson, Tennessee, we had about ten west Tennessee municipalities chasing us with all kinds of offers; although we knew through the whole process it was going to be Dickson. And it was unfair and probably, as bad as it sounds, we used the others to get what we could out of where we were going in the first place. . . . you know, I’ve been around it a long time; but to me it’s the process. Usually, you know early where you are going, and you use your leverage.”
Maybe we need political leaders to call a cease-fire in the incentive wars and work together, knowing that companies locate in areas that are desirable to employees. Money might be better spent on education and training initiatives, universities, transportation infrastructure, and public policies supporting technological innovation. We need the kinds of investments that will drive our economy, improve our quality of life and raise incomes for all in the next century.
The Baristas need to look into getting some tax breaks by threatening to move off-shore. The state needs us.
Read more in Greg Le Roy’s new book: The Great American Job Scam: Corporate Tax Dodging and the Myth of Job Creation.
