Tax Credit Fever in Ohio (again)

Lawmakers in Ohio continue to believe that tax credits are the way towards economic growth, which they tend to measure merely in the number of gross jobs that are created by the credit. The latest from the Cleveland Plain Dealer:

The Ohio Tax Credit Authority approved tax incentives for 13 companies on Monday, including General Motors, Whirlpool and two Cleveland-area businesses.

The largest incentive went to General Motors Corp., which was approved for a tax credit capped at $23 million over a seven-year term. The catch: The company must go through with a renovation and expansion of a transmission manufacturing facility in Toledo and stay in operation there for at least 14 years.

The renovation would allow GM to manufacture new Powertrain transmissions. According to the state, 2,000 jobs could be at risk without the upgrade because the type of transmission currently manufactured at the facility will become obsolete within five years.

The $413 million project would include a 400,000-square-foot addition to the existing facility.

The committee also approved a tax break for Whirlpool Corp. valued at $6.3 million over a 15-year term to help expand the company’s location in Clyde.

Whirlpool bought Maytag Corp. in March and plans to close facilities in Iowa, Illinois and Arkansas.

The project is expected to create 553 jobs with an average pay of $15 per hour. (Full Story)

Lost in the talk of how many jobs will be brought to Ohio from various subsidies and tax credits to certain businesses, most of the lawmakers conveniently ignore what any student is taught in their first day of introductory economics: there is no such thing as a free lunch.

When tax credits are implemented for certain companies, taxes must be raised on other businesses and individuals, or government spending must be cut. That is, unless a state believes that the tax credit will be revenue-enhancing for its own state because the growth will largely come at the expense of the rest of the country.

Either way, specific tax credits for certain companies are nearly always bad public policy from a national economic welfare perspective. And it is really nothing more than central planning – the government controlling the allocation of resources – which as we have seen in countries that tried it before, inevitably fails and is prone to extreme levels of corruption.