Job Creation Promise? More Political Rhetoric

I’ve been pondering this new paradigm that has government granting tax breaks to businesses that promise to create jobs. Business benefits from lower taxes, politicians can benefit by posing as job creators, and taxpayers…well, if there are any benefits, they’re offset by paying the price for corporate welfare, and further diminishment of the free market system.

If all the new jobs promised by government agencies handing out tax incentives to companies fishing for tax breaks actually materialized we might have to put children to work. But alas, the promises and predictions of new jobs are more political rhetoric and wishful thinking than reality-based forecasting.

Government agencies at every level justify tax breaks for select companies by claiming the result will be new jobs. Government can’t really create jobs, since it cannot create wealth; it can only confiscate wealth. But government at every level can use taxation policy as a way to control business activity: Build Here, Create Jobs, Get a Tax Break! Every new deal gives politicians an opportunity to talk up their job creations skills.

Call it crony capitalism or public-private partnerships, either way companies accepting tax breaks are beholden to create the promised jobs regardless of what unforeseen events occur: new competition, economic downturns, natural disasters, bad weather, poor management, etc. Those can be hard promises to keep.

In 2013 the Auditor General of Michigan issued a performance report on the 21st Century Jobs Fund and found the program only delivered 19 percent of the jobs promised between 2005-2013! Some other findings:

  • The Michigan Pre-Seed Capital Fund loaned $7.7 million to 35 companies with the promise of 390 jobs, but only 79 new jobs resulted.
  • The Centers of Energy Excellence program awarded 12 grants worth $67 million with the promise of 1,746 jobs, but only 588 jobs came to be.
  • The Renaissance Zones program promised to create 1,061 jobs, but only 220 came to fruition.

Not all politicians use new job forecasts to promote pet projects. Senator Debbie Stabenow of Michigan cherry-picked the numbers to justify her vote against the Keystone XL pipeline expansion. She claimed it was not worth the environmental risk because only 35 permanent jobs would result. President Obama, who is also opposed to the Keystone venture, told the New York Times it would only create 2,000 jobs during construction, a “blip,” and only 50-100 permanent jobs.

Nobody can predict for sure the number of new jobs if Transcanada Corp. is allowed to proceed with the $8 billion dollar construction project that would run through five states. Obama’s State Department said the economic impact will include 42,100 jobs (direct, indirect and induced), generating more than $2 billion in earnings. Of these jobs, 3,900 would be direct construction jobs (1,950 per year over two years). Once completed it would likely require 35 full-time and 15 part-time employees. The project would also generate $55.6 million in new property tax revenue in 27 counties where the pipeline would be laid.

I suspect if Keystone was a wind industry project, Stabenow and Obama would be zeroing in on the 42,100 number instead of 35, and probably throwing some grant money its way.

Speaking of permanent jobs, I wonder if Senator Stabenow will vote against the President’s infrastructure plan. It calls for new taxes on corporations to finance new and improved roads, bridges and schools. The estimated cost of $478 billion over six years would create zero permanent jobs.

Another downside to the public-private economic development partnership is the cost. In February the Michigan Economic Development Corporation announced the state is liable for $9.4 billion in tax credits owed to companies that cut a deal to stay in, expand or move to Michigan.

Attempts by politicians and government officials to get into job creation can result in positive economic development. However, we may also get broken promises, crony capitalism and the loss of tax revenue. On the plus side, your kids won’t be forced to go to work.