The Dead Hand of Crony Capitalism Is Exposed

Political Economy: Does Wal-Mart really need tax subsidies to succeed? Does Apple? What about Hollywood? A new study shows that while these goodies enrich companies, they make residents poorer.

Earlier this year, Virginia Gov. Terry McAuliffe signed a bill that more than doubled the tax credits available to film producers who come to the state. McAuliffe called it a big win for Virginia, since so many other states compete for Hollywood productions with special tax favors.

Meanwhile, Wal-Mart has secured a total of $1.2 billion in at least 260 special benefits over the years. Nike, Boeing, Alcoa and Intel got more than $2 billion each.

North Carolina promised Apple up to $370 million in benefits and an additional $255 million to Google to build data centers in the state.

Washington offered Boeing $8.7 billion in benefits to build the wings of its new jetliner in the state.

As in Virginia, every time such a deal is struck, politicians - Democrats and Republicans - stand at the podium and brag about all the jobs and all the economic activity these special breaks will create.

But there's nothing to back up such claims. That's made clear in a new report from George Mason University's Mercatus Center, which finds that these targeted benefits leave residents worse off.

First, such deals will almost inevitably misallocate a state's limited resources, making everyone poorer as a result.

North Carolina, for example, spent $77,000 per job at a new FedEx delivery hub. South Carolina spent $68,000 per job on incentives to BMW. Michigan's tax credit program cost taxpayers $45,000 per job, Minnesota's ranged up to $30,000 per job.

Targeted benefits can also crowd out competitors. Much of the state tax money showered on Wal-Mart, for example, ends up paid by retailers that compete with Wal-Mart.

Companies can win fat breaks just by threatening to leave. So, many of the jobs "created" by the breaks likely come at the expense of jobs or opportunities elsewhere.

Then there's the problem of rent seeking, as companies focus more and more on competing for political favors rather than for customers.

"Once in place," the paper warns, "cronyism is hard to root out." Which is why taxpayers would be well advised to hold their applause when a politician brags about some a new targeted tax.