The Tesla story drives me crazy. It should drive you crazy as well. The innovative company captured the imagination of smart people. Picture a world in which we can drive high-quality automobiles and not be dependent on oil. Less pollution, less noise, less expense (assuming the cost of electric cars comes down). Tesla also took on old economy protection rackets like laws forbidding the direct purchase of automobiles.
Of course, Tesla, like most companies, asks for and receives all kinds of tax breaks. I first wrote about its tax breaks in 2009. More recently, I called it hypocritical for fighting the auto dealerships under the banner of free markets while demanding corporate welfare in the form of tax breaks. But the Nevada Tesla deal is troubling on a level not seen since Mercedes-Benz convinced Alabama that it should not be subject to the same taxes everyone else pays.
Nevada will give Tesla $1.3 billion to build a new factory in the state. Several economic development consultants who work on these kinds of deals have told me that $1 billion will be the incentive price tag. In fact, there will be a scramble to make sure the various tax abatements add up to more than $1 billion. Of course, these same consultants are the people who tell me that almost all businesses have decided where to invest long before the bidding wars begin. The consultants' job is to ensure that the state to which their client is moving is part of the bidding process.
Nevada is giving $1.3 billion to a company that is essentially owned by a guy worth $12 billion. I don't begrudge Elon Musk his money. On the contrary, I admire his ability to create and accumulate great wealth. I just don't see the need to give him public money. Assuming you ascribe to the belief that horizontal equity requires that similarly situated taxpayers bear similar burdens, Nevada is giving away public money. That billion could conceivably be used for teachers, roads, or broad-based tax cuts for everyone. It's a shame.
We know that in March, Tesla opened the bidding, and that Nevada, New Mexico, Texas, and Arizona were supposedly in the running. Before the end of the summer, California was reportedly in the mix. The bidding war was secret, as all bidding wars are. In July, Tesla reportedly broke ground for the new plant in Nevada. In early September, Tesla announced that Nevada was the winner. The governor had to call a special session of the Legislature to pass a law giving Tesla the money. Tesla agreed to a deal that had not even been approved by the state. It really looks like Tesla was going with Nevada all along. By the way, not one member of the Nevada Legislature opposed the final deal. Not one person stood up and questioned a policy that would give away a billion dollars.
I know that the politics of incentives are impossible to overcome. And I have had numerous readers tell me to give my constant ranting a rest. But the political inevitability of tax incentives does not make them appropriate or good. As Good Jobs First Executive Director Greg LeRoy asked recently, "Was the five-state auction all just a charade to extract bigger subsidies from the state Tesla had already chosen?" That is a question worth answering.
This post is an excerpt of an article that first appeared in State Tax Notes.