By Andy Brack | The $204 million incentive package that state and local governments offered Volvo to make a huge investment for at least 2,000 jobs in Berkeley County masks a pesky public policy debate that few talk about in public: Are incentives a good deal or should they exist at all?
On one hand, we wouldn’t have landed BMW, Boeing or Volvo without incentives. That’s just the reality of economic development. Because of incentives, these companies hired a lot of people and served as a catalyst to generate thousands of other in-state jobs — everything from suppliers to fast-food workers to staff restaurants that serve them.
Furthermore, incentives make sense, many argue, because they will eventually be paid off through steady infusions of revenues from sales, income and property taxes from the thousands of workers who get new jobs. It will just take a little time — and it’s in the government’s interest to invest now to get a long-term return on investment.
On the other hand, use of incentives is particularly interesting because it’s being pushed by the ruling Republican Party, which often goes overboard in its zeal to denounce “activist” government. If anything is “activist” and should raise the blood pressure of those who drink conservative tea, it’s using the power of big government to build incentive packages.
Wouldn’t it be fairer, economist Frank Hefner of the College of Charleston has argued, to completely rewrite tax policy to level the playing field and make it so that you don’t need tax incentives to lure big businesses here?
“The only reason you need to offer incentives is because you’ve created disincentives,” Hefner said. “I’d prefer a simplification of the tax code for everyone. If property taxes are too high for Boeing, then they’re too high for a lot of other businesses.”
A study done by Hefner as part of the Volvo project shows the annual economic impact to the state to be almost $4.8 billion a year in direct and spin-off effects through payroll, taxes and more. According to the study:
“Once the plant is up and running at the completion of Phase 1, it is estimated that 2,000 jobs will be directly employed at the plant. This will result in a total of 8,052 jobs within the state. Total labor income is estimated to be over $517 million with a total economic impact of over $4.7 billion. Over $72 million will be collected in state and local taxes annually. (This amount could potentially be reduced depending on incentives offered.)”
That’s a pretty good return on investment … and will add up pretty quickly, although it doesn’t factor in the incentive package’s impact on taxes.
Still, others wonder about the fairness of providing big incentives to big businesses at the expense of small businesses, which have to pay full freight on things like property tax and other expenses for government.
“When a big business moves into the state, it employs workers who help build local economies by purchasing goods and services from local small businesses,” said Frank Knapp, head of the S.C. Small Business Chamber of Commerce. “But while we appreciate these state government efforts and welcome these businesses, there should also be a commitment from the state to promote local economies by supporting the creation and growth of small businesses when big business recruitment is not part of the equation, especially in rural areas.”
With Volvo, lots of rural communities will benefit because their residents will travel to Berkeley County for jobs. Santee Cooper, which is purchasing 6,800 acres with Berkeley County as part of the deal, is involved because the deal fits the utility’s mission to promote economic development and create opportunities for small business retailers and service providers.
“Additionally, to the extent these projects improve the general welfare in terms of jobs and income, they create more disposable income for people to spend at small businesses,” said spokesman Mollie Gore.
Bottom line: Yes, it’s politically hypocritical for big government opponents to make hay through big government’s strength to offer incentives. Yes, the tax code needs to be fairer. But it’s far better for the state to have a big new corporate citizen like Volvo than to quibble now.
We Can Do Better, South Carolina!