A Rhode Island state representative explains that a WTO ruling which finds that state subsidies to Boeing violate WTO obligations would be a good way to rein in state and local subsidies:
a forthcoming decision will determine whether billions of dollars in government aid to Boeing is also illegal. We should hope the WTO sides with Airbus and the E.U. this time: These grants and tax breaks are busting state budgets, at a time when every last penny is precious. There's a war among the states to lure in businesses; our federal government should mediate it, but it could be the WTO that forces a cease-fire.
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Large corporations have become adept at pitting state and city governments against each other to secure ever bigger budget-busting tax concessions and subsidies, ever threatening to locate their facilities in some more 'business-friendly' state.
In fact, many fellow state legislators and I were lamenting these wasteful tax breaks, the race to the bottom they have precipitated, and the harm they have done in this era of budgetary crises. More than ever, we need those squandered dollars for schools and public works and social services. ...
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States are trapped in a paradigm wherein it seems to make sense to lure in new corporations, or hold onto old ones, by dangling goodies in front of them -- there's nothing more likely to win a potential vote than securing or saving the job of he or she who shall cast it. ...
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As states swipe employers from each other with tax breaks, businesses are moved around and countless tax dollars are lost, but on the net, few new jobs are created. The Boeing plant would be built somewhere, no matter what. If we care about all Americans equally -- as should any cabinet secretary -- it's clear that it would have been better for the public if it had been built without a mammoth subsidy, even if not in Washington State. The same phenomenon, on a somewhat smaller scale, manifests countless of times over, as states and cities compete for factories, stadiums and their sports teams, and corporate headquarters. Public coffers throughout the nation are poorer for it.
Locke suggested such interstate competition is a matter of "states' rights." One could argue, however, that it's really a matter of interstate commerce, and hence under the purview of the federal government; the Constitution's commerce clause empowers Congress to regulate commerce "among the several states." Unfortunately, the courts have made it unclear who, if anybody, has standing to force a ruling on the matter.
Regardless of its constitutionality, the phenomenon is a destructive one. Rather than encourage the practice, the secretary of commerce should facilitate cooperation among the states -- via federal legislation or an interstate compact -- to reduce corporations' abilities to extract subsidies by playing states and their residents off of each other, as states sprint past one another, into ever deeper deficits.
We ought to celebrate the WTO's recent decision not because it hurts Airbus and Europe, but because it reduces pressure to cede public money to corporate giants like Boeing. A ruling against Boeing in coming months could circumvent a complacent administration and commerce secretary and force a reorientation of tax policy that will leave cities and states across our country better off.
It probably won't come as any surpise for readers to hear that I agree with the view that states using subsidies/tax breaks to compete for investment is a bad thing. And I agree it would be great if the federal government or courts could put a stop to this. I'm a little skeptical that the Boeing ruling is going to have much impact here, though.
