$3 Billion Foxconn Deal is Biggest Corporate Subsidy in Wisconsin History

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Economists say the deal makes little economic sense.

To get Taiwanese electronics manufacturer Foxconn to build a $10 billion factory in Southeast Wisconsin, Gov. Scott Walker is promising nearly $3 billion in tax giveaways, the largest subsidy package, in state history.

“This is a great day for America, it’s a great day for Wisconsin, and it’s a great day for Foxconn,” Walker said.

Great for Foxconn, almost certainly, but not for most of the people of Wisconsin, Matthew Mitchell, a senior researcher with the Mercatus Center at George Mason University, says.

“With enough subsidies,” Mitchell tells Reason, “you could get orange growers to relocate to Wisconsin.”

Foxconn will get up to $1.5 billion in income tax credits, another $1.35 billion in credits for investment capital, as well as a $150 million sales tax break for funds spent on construction.

Included in the state legislation is $252 million in highway upgrades intended to service the eventual Foxconn site, as well as a promise that the state will assume 40 percent of the cost of any additional local government incentives offered to the company should the deal fall through. Environmental rules will also be waived for the Foxconn site.

“That money might have been spent on a genuine public good, or it might have been spent on a state-wide tax reduction,” says Mitchell.

According to proponents, the jobs created by deal make the subsidies worthwhile. The agreement reached between Walker and Foxconn, is supposed to generate 13,000 jobs, 10,000 of which will be for construction of the plant.

Wisconsin will be shelling out $231,000 for every projected job added under the agreement. The Milwaukee Journal Sentinel reports that Foxconn will get 17 cents in tax credits for every dollar its spends on employees as part of the deal.

The high public cost of each job is evidence the Foxconn project is not suited to area. “The last thing a region wants in order to prosper is a bunch of firms that aren’t really suited for the region,” Mitchell says.

Cato trade policy expert Dan Ikenson agrees. The Foxconn deal has less to do with creating prosperity in Wisconsin and more to do with President Trump’s potential to crack down on trade.

“Foxconn is hedging against a U.S.-China trade war which it feels is increasingly likely,” Ikenson says. “If it’s stuck in Shenzhen snapping iPhones together and there is a trade war, they could be jeopardy.”

Having a manufacturing plant in the United States would allow Foxconn to ship its goods to its American customers without the fear of being hit with tariffs says Ikenson.

Other companies have made similar moves under the Trump Administration’s brand of bullying and incentivizing.

Carrier agreed to stop the relocation of some jobs to Mexico thanks to a mix of state-level incentives and the possibility of federal retaliation. Ford also agreed to halt construction of a new plant in Mexico following public condemnation from the president.

As Reason has previously reported, Carrier ended up moving many of those jobs south anyway. The economic logic of lower labor costs and less regulation proved more decisive for the company than tax credits it was given to keep jobs in America.

Expect more cronyist deals during the Trump Administration, Ikenson says.

 

Reprinted with permission from Reason.com