Greater Boston Chamber of Commerce Asks for a Half Billion Dollars in State Tax Breaks for Corporations
Originally, I had intended to focus this week's editorial on the formation of the new Massachusetts Competitive Partnership by the CEOs of several major locally-based corporations. Then I took a look at the report just released by the Greater Boston Chamber of Commerce and thought I could wait to discuss the former until they make more formal policy pronouncements - which will doubtless be quite similar to the Chamber's "RenewMass Economic Recovery Platform." The platform calls for major changes to state tax policy that its authors insist will attract more business to the Commonwealth, give startups a chance to survive the tough economic climate, and (of course) create jobs. All of which amounts to a tune that Mass. working families have heard before from corporate leaders: "give us tax breaks, and we'll give you more jobs." But after the tax breaks are given, time and time again few if any jobs are created. CEOs and their top investors get richer. And our state government - which has plenty of flaws, but remains vastly more transparent to public scrutiny and oversight than any corporation - has less money to work with then it did at the start of the process.
That last point is actually the crux of the problem with the RenewMass platform. Looked at from the perspective of working people and taxpayers, the platform calls for giving away an estimated $507.7 million dollars in tax breaks to Mass. corporations over the next 5 years. Which the Chamber euphemistically calls "estimated static revenue cost to state." And it gets worse. The State House News Service reports Chamber officials saying that "When fully implemented over five years, the plan would sacrifice $165 million a year in business taxes while generating about the same amount in new payroll, property, sales and local taxes." But that statement makes a lot of assumptions that are only backed by the Chamber's own PR spin and statistical slight-of-hand.
So that's a half a billion dollars that the state government will no longer have available for a host of vital public programs - and $165 million a year lost after that. The resulting budget gap will therefore translate to further savage cuts to public spending in education, environment, health care, higher education, housing, transportation, welfare, and several other service areas. Including programs aimed at job creation.
Naturally, the Chamber would prefer the public to take their "glass half full" argument that the tax breaks will create jobs seriously. After all, they mention that their proposed reforms will "stimulate the creation of 35,000 to 40,000 jobs." And they do that in bold italicized type. So we're meant to know that they're very very serious about that claim. In addition, they further claim (though not in bold itals) that one of the four proposed reforms would "increase annual capital investment by $146 million."
What great numbers. Totally unfounded, but they sound marvelous. At least to corporate leadership.
Funny thing though. There's no way to ensure that even a single job is created in the platform. Or that there will be a single dollar in increased capital investment. And even if there is an increase in capital investment, why should the average working person care? The state government will have no more control over such monies anymore than it will have control over job creation if the platform were to be implemented.
Because there's no enforcement mechanism and no public oversight anywhere in the Chamber's proposal - at least as far as job creation and increases in investment are concerned. You can be sure the changes in the tax code will be all legal and enforceable, if enacted. Everything else will just be empty promises. Corporations will simply get to keep a huge amount of money in tax breaks over the next 5 years - and a big chunk every year after that. It's true that the proposed tax breaks could amount to less that the Chamber's projections given the down economy's potential effects on corporate profitability, but they could also amount to more than the estimated half billion if there's an upswing. But either way, corporations can count on a major gain in income from such tax breaks, but the Mass. state government and Mass. working families can count on nothing at all in exchange.
So I'll give the Chamber credit for having titanium-plated stones for releasing such a platform in a time of economic crisis created by precisely such corporate-friendly policies, but seriously ... after fiascos like the tax breaks that Mass. government granted Raytheon and friends back in 1995 (initially supported by the Mass. AFL-CIO, tragically enough), do they really expect thinking people to believe their numbers?
Don't remember that little incident? Well here's a refresher. And it actually relates to the linchpin of the Chamber's strategy - the so-called "single sales factor." Which if implemented for all industries in Massachusetts - as the platform proposes - would account for $300 million of the half billion in tax breaks.
The platform mentions that one reason for implementing the single sales factor approach is that " Massachusetts enacted a single sales factor formula in the 1990s for manufacturers, defense contractors, and mutual fund service companies." The state did indeed do this. And which company lead the charge for defense contractors (and manufacturers) to be included in that deal?
Good Jobs First, a pro-labor policy resource center based in Washington, DC, explains the sad tale so succinctly that I will simply republish their analysis here.
"One area in which business bullying has been especially egregious is the issue known as Single Sales Factor (SSF). Corporations generally pay state corporate income tax based on a formula that takes into account the size of their payroll, the value of their assets and the volume of their sales in the state. Large, multi-state companies prefer a situation in which the tax is calculated on sales alone. This results in a windfall savings for a firm that may have lots of property and employees in a given state but whose sales are spread out across the country.
"One of the most brazen campaigns for SSF was waged in Massachusetts by military contractor Raytheon Corp.--then the state's biggest private employer--in the mid-1990s. Raytheon threatened to move its defense operations out of Massachusetts unless SSF was adopted (and the company got other tax breaks and utility deals from the state). Raytheon estimated SSF would cut its income tax bill by three fourths, from $28 million a year to $7 million.
"A lobbying team headed by John Sasso, who had been a campaign aide to Michael Dukakis, engineered a public relations campaign that turned a corporate tax cut into a jobs program. Suddenly, it wasn't the Raytheon tax cut bill; it was the "defense initiative" to help save 117,000 jobs in the state. And these were well-paying blue-collar jobs that enabled people without a college education to make a decent living. The campaign issued endless statistics about the positive ripple effects of Raytheon's payroll and the state's high cost of doing business. Raytheon's campaign peaked in November 1995, when SSF passed both houses of the legislature by large margins. Defense contractors got the whole break as of 1996; other manufacturers got it phased in over five years.
"The assumption that the tax breaks would save all of the Raytheon jobs quickly proved wrong. In May 1996--just five months after SSF took effect--the company reportedly offered buyouts to 4,400 of its hourly employees in Massachusetts. By January 1998--two years after SSF took effect and about three years after it first threatened to leave--the company had reduced its Massachusetts head count by 4,100 people or 21 percent. Efforts by labor unions to get the legislature to enact stricter employment criteria were unsuccessful.
"Lobbying records later revealed that the 1995 campaign cost Raytheon $573,539--for a tax break that would save it $21 million a year. This was quite an amazing rate of return on its political investment.
"After Raytheon and other defense and manufacturing firms got SSF, mutual fund giant Fidelity Investments began pushing Massachusetts for the same perk. In order to gain leverage, Fidelity got Rhode Island to adopt SSF for mutual fund companies and began moving jobs to that state. That did the trick. In 1996 the Massachusetts legislature adopted SSF for the state's mutual fund companies, which in addition to Fidelity include some of the country's largest investment firms.
"The bottom line: in less than one year between 1995 and 1996, under the duress of job threats and intense lobbying, Massachusetts radically rewrote its corporate income tax code in ways that would not assure long-term job creation or even job security, but would cost the state treasury a billion and a half dollars over the next decade and shift the burden for public services away from a few favored industries and onto working families and small businesses."
Curiouser and curiouser. So not only Raytheon was up to its neck in the scheme, but Fidelity (the 900-pound gorilla of the Mass. corporate scene) is the corporation primarily responsible for getting the Single Sales Factor tax break for mutual funds.
And who is a key player the new Mass. Competitive Partnership that I had decided not to write about this week?
Raytheon. [Fidelity has seemingly given the new power group a miss so far. Sounds like a story in itself.]
Anyhow, doesn't that just wrap my whole missive up in a cheerful bow this week?
Be that as it may, I'll have to come back to our pals at the Partnership sometime in the coming weeks. Or risk turning this editorial into a treatise.
In conclusion, Open Media Boston recommends that all labor, community and civic organizations strongly oppose any attempt to implement the Greater Boston Chamber of Commerce's RenewMass Economic Recovery Platform. It's bad for state government, bad for working families, and bad for democracy. Moreover it's just another attempt by Massachusetts corporations - as with corporations nationwide and globally - to starve democratic governments for funds at all levels and become ever more wealthy and powerful in the process.