Amid news that Chiquita Brands International has decided to move its offices to Charlotte, North Carolina, we’ve also heard that it took months of meetings and lobbying and approximately $22 million in corporate welfare. That includes around $5 million from the Charlotte City Council.
While one might normally celebrate the arrival of new investment and expanded employment opportunities, this situation merits otherwise. Rather, it is a manifestation of how legislators have allowed economic fallacy to distort tax policy, and media professionals have echoed the confusion.
The relevant fallacy, that of the broken window, is perhaps the most common of them all. Also referred to as the fallacy of what is seen and what is not seen, it is the tendency to see and emphasize the immediate effects of a policy but not the secondary, longer-term impacts. As Frederic Bastiat, the French political economist, wrote (1848):
In the economic sphere an act, a habit, an institution, a law produces not only one effect, but a series of effects. Of these effects, the first alone is immediate; it appears simultaneously with its cause; it is seen. The other effects emerge only subsequently; they are not seen; we are fortunate if we foresee them.
http://www.youtube.com/watch?v=gG3AKoL0vEs
In this case, the immediate impact is the company’s arrival and the jobs observed. The secondary impacts, however, are less rosy. Either the $22 million assigned to Chiquita will mean higher taxes for other constituents (including for businesses that would have otherwise hired people), lower spending on government services, or borrowing against future generations.
Corporate welfare ploys such as these also generate wasteful negotiation processes, along with further complicating the tax code, and they set a counterproductive precedent. Now every man and his dog will be queueing up for a piece of the action before coming to the state. All the while, in-state and smaller companies that don’t generate media hoopla face a discriminatory tax code.
John Hood says it right in the clip below. Rather than play games or pick winners with companies, we would do better to simply provide quality public services at the lowest possible cost. That means applying an equal tax rate across the board and not succumbing to the temptation that economic fallacies offer.
