Tax Analysts Blog

Tax Incentives That Aren't Incentives At All

Posted on Nov 13, 2013

In 2040 I will likely be wherever tax journalists go when they die. But the Boeing Co. will still be getting tax breaks from the state of Washington. Gov. Jay Inslee (D) signed legislation this past weekend that will extend the already extremely lucrative tax breaks Boeing receives from the state until 2040. The new gift is aimed at guaranteeing that assembly of the company's 777X plane and carbon fiber wing stay in Washington.



Here is what you (and the lucky people of Washington) should know. First, this corporate welfare will cost the state $8.7 billion. Greg LeRoy of Good Jobs First says it's the biggest tax incentive in US history.

The Boeing cronyism package passed the Washington Senate on a 42-2 vote, and the House of Representatives on a 75-11 vote. That confirms what everyone already knows -- Boeing owns most of the Legislature. But most troubling is that there was no indication that Boeing was thinking about leaving Washington or assembling its jets anywhere else. Indeed, Boeing has been gearing up for production in Washington and negotiating with the labor unions there. It was not going to pick up its plant, engineers, and infrastructure and move to Tennessee or Texas or even down the street. So this is an incentive that provides an incentive for nothing.

Read Comments (3)

emsig beobachterNov 12, 2013

David,

I agree with you completely. Time for a reality check.

However, Boeing does have other plants around the country to which they can
allocate production of some parts and systems. These extortion payments may be
necessary to keep more production in WA.

Allen LittmanNov 14, 2013

I think there are lots of Federal incentives that incentivize some activity
that would be conducted anyway. Black liquor comes to mind as a particularly
egregious example. But almost every incentive incentivizes some activity by
someone that would be done anyway. So it is largely a matter of degree. It
would be nice if economists would find some way of quantitatively measuring the
amount of wasted incentives of this sort, which are like lost opportunity costs
(or their opposite) and apply such a measure to all incentives so they could be
rated by their effectiveness.

vivian darkbloomDec 9, 2013

"First, this corporate welfare will cost the state $8.7 billion."

I read the following today in the WSJ which made me think of the above quote
and this post which I am belatedly responding to.

"Washington's legislature last month approved sweeteners valued at $8.7 billion
over 16 years—which experts say is the largest corporate-incentive package in
U.S. history—in an effort to keep the jobs in what has been Boeing's primary
manufacturing base for commercial jets. But Boeing then began looking elsewhere
after its largest union rejected an eight-year contract deal that would have
made significant changes to employees' wage structure and retirement and
health-care benefits."

The article made me question whether the Washington offer is entirely
"corporate welfare".

As the article makes clear, and it is really common sense, Boeing is evaluating
where to locate production based on the cost structure. Tax is just one of
those costs. If the cost of labor in Washington is higher than elsewhere, then
Washington state may need to make up for that with a sweeter tax deal. So, who
is being subsidized here? Is this corporate welfare, labor welfare, or both?
In this case, I vote for the latter.

The incidence of the tax burden and the benefits of tax breaks is not always
straightforward.

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