The Illinois state legislature is currently considering replacing its discarded “Economic Development for a Growing Economy” debacle. This was the infamous EDGE program, which not only enabled many of Illinois’ largest corporations to avoid paying state corporate income taxes, but also permitted them to absorb the state income taxes paid by their employees.
Since there was little state supervision and sparse documentation of the program, it has been acknowledged by state legislators that they cannot ascertain how many jobs, if any, were created by the program or how much revenue was lost by the state.
Since a number of our state legislators are admirers of Wisconsin Gov. Scott Walker and wish to emulate his programs, I thought it might be useful to compare Gov. Walker’s approach to another program with an entirely different orientation.
New York City has just announced a $2B project that will build a 12-acre campus devoted to “the marriage of academia and business” in the hopes of generating a new class of tech-savvy biz kids. Phase One was officially completed on Sept. 13 with the first three buildings up and running for 300 students and three corporate giants — i.e., Citigroup, Two Sigma Investments, and Ferrero, an Italian chocolate company. More corporations are expected to enroll in the program.
Wisconsin, on the other hand, has just passed a $3B incentive package of state corporate income tax breaks and income tax credits, plus $150M for sales tax exemption and exemptions from environmental regulation. Wisconsin is paying a high price to attract a Foxconn factory for the production of television flat screens and other electronic devices. Foxcomm says it will employ 3,000 to 13,000 workers. It has been estimated that, at the end of fiscal year 2032-33, the cost of all these benefits will exceed potential increased tax revenues by $1B. The break-even point is supposed to come during the 2042-43 fiscal year. This assumes Foxcomm remains in the state after it has used up all its tax credits, amortized its plant and equipment, and not found a better tax deal elsewhere.
Michael Mazerov, a senior fellow at the Center on Budget Policy Priorities in Washington D.C., has surveyed entrepreneurs who establish start-up businesses (which are the primary source of job creation). This is an important demographic because Mazerov found that 90% remain in the state where their businesses were founded. The purpose of the survey was to ascertain factors that draw these entrepreneurs to a particular location.
The conclusions?
1) The most important factors in choosing a site were, first and foremost, a pool of knowledgeable and talented employees, and secondly, proximity to customers and suppliers.
2) Other desirable characteristics were the availability of high-quality K-12 schools, well-funded universities, an abundance of parks and recreation facilities, and a plethora of cultural institutions, things that attract and hold talented employees to an area.
3) Surprisingly, low taxes were way down the list. The reason is entrepreneurs cannot be lured with corporate tax cuts is that most start-ups begin as small businesses — S corporations. S corporations do not pay state corporate income taxes because their profits pass directly to their owners who pay a personal state income tax.
New York City is looking to the future by building an infrastructure that will attract those budding entrepreneurs who will build the modern corporations of the future. By bribing corporations to exploit their people and their resources, Wisconsin is looking only to the past and present.
In my opinion New York City is building its future on rock, Wisconsin on sand.
Al Popowits is a resident of River Forest.
