Capitalism Dies From A Thousand Local Paper Cuts: The Facebook Subsidies

So the other day I read this news from Iowa:

“The Iowa Economic Development Authority board has approved $18 million in tax credits for Facebook’s $300 million data center in Altoona. ‘Welcome, Facebook,’ said board member Pete Brownell. The data center project has been referred to as Siculus Inc. in state documents. Debi Durham, the state’s economic development director, said she expected that Facebook’s investment would grow to a billion dollars within five or six years. ‘It’s good to be friends with Facebook,’ she said. The company says it’s considering three data centers, each totaling 300,000 square feet. Today’s project would be the first phase. The company is requesting an $8 million refund of sales tax and $10 million in tax credits based on capital investment. The due diligence committee today will consider the incentives before it goes to the full board, which meets this morning. The project would create 31 jobs, expected to pay at least $23.12 an hour on average. Altoona city leaders are expected to provide 20 years of tax abatement. No details were immediately available on that amount. Altoona leaders have green-lighted three centers, totaling 1.4 million square feet. Experts believe that amount of investment could reach $1.5 billion. Altoona leaders have green-lighted three centers, totaling 1.4 million square feet. Experts believe that amount of investment could reach $1.5 billion.”

This, of course, is a press release. We don’t know who the “experts” are, or what other estimates they have made, or how accurate they have been in giving guidance. We do know that there is no contractual obligation for any of these “promises” to be kept—there are no consequences to the people making these predictions if they are wrong. No investigation is done to show that the authorities making this decision are any smarter than the ones in Rhode Island who supported 38 Studios.

Looking at this situation as an optimist, one can appreciate the local government’s admission that taxes kill jobs. Otherwise the deal would be meaningless. And since there is probably no direct Facebook competitor in that location, this is the least damaging deal that could be made. But I remember when Bass Pro Shop got similar deals for a location in a city. All the cities other smaller fish and sports shops complained. Essentially, they were taxed at one rate while their massive competitor didn’t have to pay taxes for many years. They were essentially seeing their taxes used to attract a competitor who was then given special advantages.

Taxes should be lowered and kept low. Then, rather than attracting only the businesses a politician is aware of, the location will attract all sorts of businesses. Who knows what might happen? When Bill Gates was working in his garage, no city council member in the country would have thought to offer him a special deal to start his business. Basically, politicians can only try to catch some business from a company that has already made news headlines. It is like buying a stock after it has already made a steep increase in value.

A steady policy of low taxes and low regulation would also discourage corruption. Basically, officials are now an opportunity for businesses to put tax payers on the hook as venture capitalists. The decision makers do not personally bear any risk, but they can be targeted by amoral corporations.

We need politicians who are devoted to a stable order with the same rules for everyone. Nothing good can come of our present establishment of politicians using taxpayers to recruit businesses. It is killing the economy and degrading the culture.