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A ray of sunlight on secretive corporate welfare

Tell the Government Accounting Standards Board you want full disclosure on tax subsidies for corporations

November 12, 2014 2:00AM ET

Each year billions of your state and local tax dollars get diverted from public coffers for corporate subsidies. Just how much you are forced to pay for corporate welfare could soon move from the darkness of official secrecy into the light — but only if you act now.

A proposed rule requiring state and local governments to disclose the total amount of property tax and some other abatements in any year is being considered by the little-known private rule-making body known as the Government Accounting Standards Board (GASB).

In 44 states, laws let county, city and other local officials grant tax reductions or exemptions to companies, often with little disclosure and no accountability. Exemptions from taxes benefit thousands of companies, from online retailer Amazon to shampoo maker Zotos International.

The proposal is tepid and narrow, but far better to let in a ray of light than to allow these deals the cover of total darkness in which they are typically carried out.

Picking your pocket

Just how many billions of tax dollars corporations escape paying is a mystery. The reason: Everyone responsible for picking your pocket — the politicians who grant the subsidies, the companies that get them and the brokers who charge fees to arrange them — prefer to hide in the dark.

Every dollar of tax not collected from these companies is a dollar you must make up through higher taxes, fewer government services or more government debt.

Nationwide, property taxes provide three-fourths of local government tax revenues. From 2000 to 2011, as wages stagnated and job growth slowed, the burden of local property taxes soared to $443 billion. Adjusted for inflation over those years, property taxes soared 30 percent, to $1,423 per American, Census Bureau data show.

People know little about the myriad local and state subsidies to corporations because governments report welfare costs using two systems, separate and unequal: a fully transparent one for individuals and an opaque one for companies.

Governments at every level publish finely detailed reports on how much taxpayer money is spent to help children, the chronically sick, the disabled, the elderly and the poor. But virtually no statistics exist on welfare for the rich and the corporations they own, as those of us whose who report on these matters know from years of painstaking work to extract limited facts from the public record.

The best estimate is that corporate welfare costs state and local governments more than $70 billion per year. That works out to $900 annually for a family of four, which is more than a week’s take-home pay for the typical family.

All these corporate welfare programs operate on the assumption that the lucky companies will create jobs. Good Jobs First, a research organization based in Washington, D.C., and various tax watchdog groups have shown that often far fewer jobs were created than promised. Sometimes jobs are destroyed despite massive corporate welfare. The jobs that are created are too expensive; subsidies of more than $1 million per job are becoming common. 

A modest rule change

The proposed rule clearly addresses only one narrow segment of local government welfare for corporations: property taxes that are reduced or waived entirely on new or refurbished factories, hotels, office buildings and other business real estate.

It may not apply to retail stores such as Walmart, Lowe’s and Home Depot, which in many towns legally keep the sales taxes collected at the cash register — money not made available for schools, police and libraries. Nor would it apply to interest-free loans, some of which never need be repaid, free land and buildings or job training at local government expense.

The proposed rule is about disclosure regarding rules under which you are forced to pay your taxes in full while others get a free ride.

Greg Leroy of Good Jobs First said the rule also appears to exclude the growing practice of corporations covertly taxing their workers. Nearly 3,000 companies in 20 states have deals to pocket state income taxes withheld from paychecks. The workers are in the dark because the state treats them as having paid their taxes even though government never receives the money.

GASB records show the issue has been under internal discussion during the past quarter century, when local corporate welfare systems ballooned.

The board’s use of the opaque term “abatement” in reference to companies’ being excused from some taxes indicates how gingerly it is dealing with the politicians, corporations and subsidy brokers that want to obfuscate these deals so they can continue to enjoy the benefits of picking your pocket.

Simply put, this proposed rule is about disclosure regarding rules under which you are forced to pay your taxes in full while others get a free ride. It is about corruption, which in our time has become sophisticated and institutional. Instead of cash bribes, which come with a risk of prison, today money flows as campaign contributions, cushy jobs for friends and family of the politicians who approve these deals and other harder-to-track payoffs.

Politicians who give your money to corporations also get to crow about jobs they brought to town. Never mind that often these giveaways just shuffle jobs away from businesses that must pay their taxes in full and toward firms showered with tax favors. Never mind that this means politicians, rather than the competitive market, determines economic winners and losers.

Comments welcome

The proposed rule is very limited in scope. It would require disclosure of only the net total of tax abatements and perhaps only for a single year rather than the full cost over the years when the giveaways are in effect. The disclosures would appear as footnotes to local government financial reports, the GASB report suggests. In addition, the rule would not require naming companies.

Contrast this limited disclosure regime with property tax records generally. The price you paid for your house, the current assessment of its value, the property tax owed and whether you paid are all public record. What justifies any less disclosure for exemptions from property taxes?

I’d love to tell you what the GASB and its staffers think, but the private organization’s publicist said they were too busy to talk. I got no response to an emailed suggestion that I delay my column for a few days so I could conduct interviews.

Still, even though the proposed rule would lift the window shades just a little, any sunlight is an improvement.

That’s where you come in. The GASB is inviting comment on the proposed rule from now through January. This is your chance to not just support the rule as proposed but also demand a much broader one. Tell the board you want disclosure of all state and local subsidies to businesses, that you want the recipients and their brokers fully identified along with any fees paid, any campaign contributions by the companies and brokers and a rigorous accounting of how many jobs were added, if any. And tell the GASB that you want disclosures to cover the entire period of each deal as well as annual snapshots.

Send your comments to director@gasb.org or mail them to Governmental Accounting Standards Board, PO Box 5116,
Norwalk, CT 06856-5116 and mention project 19-20E. 

Editor's note: An earlier version of this article misstated the scope of the proposed GASB rule. It covers both state and local taxes and more than just property taxes. We regret the error.

David Cay Johnston, an investigative reporter who won a Pulitzer Prize while at The New York Times, teaches business, tax and property law of the ancient world at the Syracuse University College of Law. He is the best-selling author of “Perfectly Legal,” “Free Lunch” and “The Fine Print” and the editor of the new anthology “Divided: The Perils of Our Growing Inequality.”

The views expressed in this article are the author's own and do not necessarily reflect Al Jazeera America's editorial policy.

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