Nevada strikes $1.25B tax break deal with Tesla
rgj.com
rgj.com
Don't hold your breath, in other words. Even with the most optimistic economic multipliers I don't see the state breaking even on this for about 25 years. I think they're gambling on the 'gigafactory' being the center of a manufacturing hub that attracts other businesses to the region, sorta like HP in Silicon Valley back in the day. Perhaps they'll call it 'Lithium Oasis' or something if it works out.
I'm neutral on this, and I hope it works out for them, but it's not the sure thing you suggest. Companies that get huge tax breaks sometimes crowd out other employers that were willing to do a better deal, only to up sticks and leave as soon as the tax break expires. I'm not saying Tesla will do this or that they shouldn't seek the best deal, just that it's not guaranteed to be a long-term benefit.
Not to mention, there are now 6500 new jobs, and 6500 additional middle-income wage earners paying taxes that the state never had to begin with.
Not to mention, there are now 6500 new jobs, and 6500 additional middle-income wage earners paying taxes that the state never had to begin with.
Really? Everyone who goes to work there was previously unemployed? Economics is not so simple.
See also: why are professional sports teams able to force cities to pay for their stadiums? If the federal government disallowed this type of interstate competition, the factories and stadiums would still get built but their owners would pay their fair share in taxes.
Factories will _not_ "still get built" if somewhere else is a more favorable economic deal.
See manufacturing's move to Asia, from 1970-present.
Nevada giving incentives to have a factory built is no more corruption than tariffs to protect imports/exports is corruption. You can argue if it's a good or bad thing, but it's definitely not illegal nor should it be illegal.
That doesn't make much logical sense. If you think it's a bad thing you would want it to be illegal so that it doesn't happen. Just like if you think tariffs are bad that they should be illegal.
Maybe not illegal in the criminal sense, but illegal as in regulated to not be allowed makes perfect sense.
We are not living in a libertarian society, though I guess you can believe we should if you want.
Not at all. These are good things because they force states to not go out of control, to practice restraint in taxation and expenditures, while at the same time providing proper services to people and companies.
Like I said in another comment these types of deals are turning governments into quasi-investors. They put money up front with the intention that decades later it will pay off. What if some of these projects fail before the pay off?
Up to this point these deals have largely paid off. But if this starts becoming the norm, and government leaders start coming under pressure to outbid each other, I fear for what might start transpiring. Elected officials that are looking to score points for the next election are not someone I'd trust making these long-term decisions.
It doesn't seem as difficult competitively as eg picking stocks on wall st is what I'm trying to say.
Not yet. But I'm a bit worried about the future. The governors in California and Texas are going to take quite a bit of flack from this. The bidding war for these types of projects is likely to get fiercer. As competition between states increases, the margins will get ever slimmer.
Many of the 6500 workers at the gigafactory won't be able to afford a Tesla, but at least they'll be able to put food on the table.
The former is undeniably good public policy, the second is more of a tragedy-of-the-commons from the perspective of those looking to maximize total tax revenue.
Ordinarily, the Laffer curve is just talking about tax breaks that raise total tax revenue, not tax breaks that bring a net benefit in reduced deadweight loss.
Tesla gets $1.25B from Nevada. That means that the taxpayers of Nevada, collectively, have $1.25B less while Tesla has $1.25B more. Now Tesla may spend every dollar of that money in the state of Nevada, hiring people, buying supplies, making investments, etc. But for every dollar being spent by Tesla, that's one fewer dollar being spent by a Nevada taxpayer into the same economy. Those dollars that would have been spent hiring people, buying supplies, making investments, and so on from Nevada taxpayers are now not being spent on those things.
So you can count up all the "stimulus" from the money that goes to Tesla over the next decade, but you're ignoring the money that now isn't getting spent and the jobs that now aren't getting created.
Actually, it's worse than just redistribution, for two reasons:
1) It's likely that a lot of the money will not be spent in Nevada, and I doubt anyone is auditing this deal for the next decade to make sure that it is.
2) Before, those dollars were being spent privately by millions of taxpayers who got to decide if the money they spent for X product or Y employee was worth it, and could take individualized risks with their own dollars. But now that their money has been pooled and dumped into Tesla, those taxpayers of Nevada have taken on a substantial risk with no equivalent reward. If Tesla is explosively successful, they don't see any more money than if Tesla just limps along for a couple decades. But if Tesla fails, they've lost it all with nothing to show for it (save for the few people who got a job out of the deal...but there aren't enough jobs at Tesla to compensate every taxpayer in Nevada for the risk).
In short, it's difficult to see this deal as anything more than a great benefit to a few people (Tesla investors, Tesla employees, Tesla consumers) at the expense of the taxpayers of Nevada.
Tesla gets $195 million in tax credits that they can sell to other companies. Note that it's a credit and not simply a tax break or deduction.
Furthermore, the state and local county will have to pay large amounts of money to support the explosive growth of the community. If they expect 6,500 new workers and 22,000 new residents overall, that means huge upgrade to infrastructure, police, education, etc. That is potentially hundreds of millions that the will not be offset by property or sales taxes from Tesla. That money will be coming from Nevada tax payers.
The other option is Tesla builds elsewhere. At no point was there ever an option for Nevada to get the Tesla factory and NOT give tax breaks.
Because there are competing states which can offer tax breaks. But is it better for the US as a whole if states can give tax breaks to individual companies?
But the country loses. We as Americans gain nothing by states racing to the bottom to see who can give the biggest tax breaks to businesses. These sorts of tax breaks don't create jobs--they shift them while offloading the tax burden onto individuals.
If citizens can't negotiate their tax rates amongst states, I'm not sure why some think it's ok for businesses to do so.
>or raise the value of its securities that citizens of this country own
Right, it's the citizens subsidizing the shareholders. This is not a good thing.
I consider citizens bearing more of the tax burden to be a loss for our country, along with less taxes being paid when we have debt.
>If you are worried non shareholders pay more and gain less, they are free to invest
You can't be serious.
>but shareholders inevitably pay capital gains tax
At a capital gains tax rate, which greatly contributes to wealth inequality: http://papers.ssrn.com/sol3/papers.cfm?abstract_id=2207372
Ok, well you are making an argument about ethics and not about monetary losses because it seems that a net gain to economy through reduced taxes would still be a loss to you for above reasons.
>You can't be serious.
people earning 13k usd per year spend 9% of income on lottery tickets so it was indeed a serious point.
A "net gain" isn't good enough. Tesla generating $1 in tax revenue is a net gain. The fact is that this new business does not depend on tax abatements, and if we had politicians with spines Tesla wouldn't get one.
That's a simple concept. What I'm talking about is the tertiary effects of such a policy. These tax abatements do not exist in a vacuum.
>There are states that already have no income tax
Yes, and that's a regressive tax structure.
All of this centers around who benefits from these policies. Tax abatements for businesses and no income tax benefits the business owners while shifting the burden to citizens. This is why it's a bad policy.
Ok I see what you are saying but I don't really believe in a sort of plutocracy that get all benefits of tax cuts while others get no benefits. The reason being that benefits are hard to localize. Suppose you are correct and some small group of owners benefit from the tax cuts, they then have more money, and then what would the business owners do with the money? For benefits to remain local, they would have to essentially hide their money. If they reinvested all of it or spent all of it, the money keeps changing hands and circulates. Circulating money is economic expansion and economic expansion benefits everyone. So unless there is a dead pool of money which seems a contradiction or that somehow tax revenue circulates through the economy better than profits do, it would seem there isn't a loss anywhere. But that is not to say no taxes should exist because these are societal and not economics.
It's well understood that the wealthy don't circulate their money at the same rate that the middle and lower classes do, which contributes to wealth stratification.
Maybe universally by Austrian school economists; certainly not universally by economists more generally (e.g., its pretty clear that neither Brad DeLong nor Paul Krugman think that business taxes are an unqualified evil, and its pretty hard to argue that they aren't economists.)
It's not about "unqualified evil," it's more about the fact that business taxes decrease productivity, take money directly away from employees and consumers, and could easily be offset by any other individualized progressive tax, not to mention the repatriated corporate dollars that would result from a competitive tax scheme.
Here are some fun sources from the NY Times and NPR:
http://www.nytimes.com/2014/01/06/opinion/abolish-the-corpor... http://www.npr.org/blogs/money/2012/10/18/163106924/a-tax-pl...
Its certainly not universally held among economists in general, as was claimed upthread. I didn't suggest it was exclusively the view of Austrian-school economists (a very different thing that Austrian economists), but that it might just possibly be universal among Austrian-school economists.
> Plenty of liberal economists including Robert Frank, Dean Baker, even Matt Yglesias think that corporate income taxes are a bad idea.
"even Matt Yglesias"? Matt Yglesias might be a liberal, but he isn't anything like an economist.
Competition for business between states based on tax rates drives efficiencies. The state that can offer the most for the fewest dollars wins.
States and private companies are completely different. Competition is great when you can tolerate losers (such as private companies). When it comes to states, we don't want losers--we want every state to succeed.
Pitting states against one another only shifts the tax burden to individuals.
If one state has a high tax rate and is wasting money I want there to be a downside. They should lose jobs to other, more efficient states.
Yes. If the result of states competing in this area is harming citizens, then it should not be practiced. It's also not fair to competing businesses. We all pay the same federal rates without issue.
I'm open, but not keen, on states having different tax rates. I'm 100% against not enforcing those rates consistently, as is the case with abatements.
No one loses when the economic pie gets bigger. Economics is not zero-sum.
It's one thing when an entire industry gets a tax break, like how a lot of states have tax incentives for film makers. But to give only this company a singular and specific tax break just seems wrong and anti-free market. It's one step towards a planned economic model.
Plus there is an outside chance this blows up in their face. What if some other company has a breakthrough that makes this battery technology obsolete? What if Tesla then goes belly up and the factory is shut down? That is very much a possibility. Should our government leaders be deciding what companies to bet on? It's almost like they are quasi-investors in Tesla now.
It's sort of like giving a really good chef a discount on rent if he moves into your apartment. You think it's worth it because he'll cook some great food for you. If he loses his job and has to move out, you're just back where you started. That you were planning on giving him a total discount of $100,000 over 10 years (for example) doesn't mean you're now out $100,000 whet it didn't work out.
I don't like the idea of localities competing on tax breaks like this, but the downside in my view is simply letting successful companies avoid taxes, not any trouble from extending tax breaks to failing ones.
>$195 million in transferable tax credits, which other Nevada companies will be able to buy from Tesla in order to reduce their own tax liabilities to the state.
Credits are basically the state writing them a check. Plus the article mentions the state buying the USA parkway for an additional 43 million. And I'm not completely sure how the reduced electricity bill works, but I gotta imagine that it will be passed on to the government somehow.
If Tesla went belly up 5-10 years into this project before the tax breaks are up, the state would lose out quite a lot. Might not exactly be 1.25 billion, but still a lot.
Edit: Wanted to add there is also unseen expenses and burdens placed both on the state and county government where this project occurs. Tesla wouldn't be paying property tax, yet there would be a very significant increase in population to the area. That means more police, teachers, infrastructure, etc. The burden would be placed on local individuals and other businesses. There isn't an exact number to put on this, but I wouldn't be surprised if it would be hundreds of millions of dollars.
Why would you describe this as giving only this company a singular and specific tax break? Getting tax breaks like this is routine for all companies above a certain size; just because it's done on a case-by-case basis doesn't make any one case more special than all the others.
Just because other deals like this have also occurred doesn't mean this one isn't also singular and specific. Don't know why you're getting pedantic on this.
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Asking local governments for tax breaks is part of the process of siting factories. The terms vary from case to case, which is completely normal in the free market. That's how all major transactions are negotiated. But yes, this is a policy anyone can benefit from, as long as they're siting a factory or doing something similarly exciting to politicians.
I suspect the poorest taxpayers of Nevada will pay the most, because they are the least likely to be able to afford a Tesla, least likely to have the skills and training to take what jobs are created (and even so, not enough jobs to go around), and also the most hurt by the higher taxes that inevitably result from such a subsidy.
No, it's a net gain for Tesla and maybe Nevada, but that's about it. Tax abatements reduce the corporate tax burden and shift it towards individuals.
http://www.nytimes.com/2012/12/02/us/how-local-taxpayers-ban...
“Even where officials do track incentives, they acknowledge that it is impossible to know whether the jobs would have been created without the aid.”
The point is that governments are throwing money at companies without really having any idea if it is a good idea. The data is - at best - unclear.
I don't think people are alleging personal financial gain, but rather more of a political kind of corruption: buying votes with high-profile projects. The allegation is that politicians are mainly driven by short- to medium-term reelection concerns, and therefore are buying a current positive headline ("Tesla relocates to Nevada!"), and perhaps a near-term employment boost. And that they are doing this without consideration of whether in the long-term it's actually a good allocation of tax breaks. It's possible that it is, but I don't believe that Nevada politicians either know that that's true, or care whether it's true.
However, city's or states lowering their taxes on every business is a different story.
I actually have no problem with a state doing this, so long as they dish out the tax breaks equitably.
A tax break by definition is something that's not dished out equitably. :) ("Favorable tax treatment of any class of persons" is how Wikipedia describes a tax break, which sounds about right.)
What you're describing is the opposite of a tax break. One example would be across-the-board tax relief such as lowering income taxes or property taxes for everyone, whether they're in an industry favored by the current politicians in office or not.
If I were making 15 an hour at the local casino, I'd be pretty happy to pay more taxes and take a 25 dollar an hour job at Tesla. Sure, Tesla isn't paying its full share but we're both better off.
I might be wrong, but I think Nevada doesn't have income tax. And property tax is typically paid to local county/city governments.
I think it's still open to debate whether Nevada will really recoup all this money in taxes. Of course there are benefits other than pure tax dollars. This could lead to a convergence of high tech manufacturing in the area.
Big guys can afford the transaction costs of preferential treatment, small guys have to get by like everyone else. In both cases the provider is a government-backed monopoly. You can port the net neutrality arguments to this issue with a simple term substitution. All I am saying that if someone is 'for' net neutrality, it's hard to be 'against' tax neutrality.
Having said that, in a world where these deals happen, Tesla is right to extract the best deal they can, regardless of what would be the global optimum.
In Tesla's case, what if the demand doesn't meet the projections cited in the article? What would that mean for taxpayers in Nevada?
1. http://www.oregonlive.com/business/index.ssf/2012/08/dark_da...
2. http://online.wsj.com/news/articles/SB1000142405274870446130...
3. http://www.bloomberg.com/news/2012-09-05/in-stadium-building...
As I see it, giving the tax break is a gamble. The state or local government wagers that the tax relief will bring in more revenue (through increased jobs, stimulating local business, etc.) than lost in the incentive package.
With really large companies the bet usually pays off, but of course it sometimes doesn't. But that's what gambling is all about.
edit: s{386}{Pentium} and here's an adequate recap: http://development.cfed.org/focus.m?parentid=34&siteid=1629&...
So, when I see that Tesla needs to spend ~$10 billion, and is only required to spend 3.5B, I can't help but wonder if other sites/states are still bidding.
It's reported that Intel remains the state's single largest employer. As far as Oregon is concerned, and the Portland metro area in particular, the tax break for jobs tradeoff looks like a pretty good deal after all.
Though property owners grouse about Intel avoiding its "fair share" of taxes, our local, regional and state governments aren't likely to complain or change their policies.
Apples and oranges, guys.
Here in Florida, it is quite common for large companies to move operations here from up North and not pay any property taxes for 10+ years, due to deals like this. Of course, when I start a small business in Florida, you'd better believe I have to pay my property taxes. So, this kind of "local economic development" results in a kind of subsidy for large companies at the expense of small ones.
Tesla is primarily competing with other large businesses, who are getting subsidies also, so its unlikely that this deal is directly effecting the competitiveness of any small businesses in Nevada. However, local businesses will compete with Tesla for employees, and also have to split the cost for roads, sewage, law enforcement, etc. unevenly with Tesla. So, Nevada taxpayers are certainly within their rights to expect the new company in town to pay the same tax rates as they have to.
Now, I don't think that these local economic development deals alone are behind the consolidation which has been happening in our economy for the last few decades. But it sure isn't helping. You'd think people on a site focused on small businesses would get this.
At the same time Texas loses having a high tech manufacturing base. How would this have been a net negative on Texas?
Not for Texas. For Texans. These tax reductions are given out to those with bargaining power, leaving those without to pay the bills. Mainly, the average tax payer.
Why do you think Z would be much higher than Y ? The government isn't paying to build the factory is it?
9% ($120M): Transferable tax credits
6% ($75M): $12,500 per job transferable tax credits (6,000 jobs)
Those services aren't free. Normally the burden is shared by all, by with these special deals, they're shared by those who didn't get the special deal.
Is Nevada a good workforce location?
$25/hr seems like a pretty nice wage.
And no, there won't be any massive influx of good jobs or any 0.0% unemployment rate. Tesla's factory will be run by robots and temporary foreign workers being paid half the local wage, because "they just can't get good workers". And no, there won't be any taxes collected in 10 or 20 years when these deals expire, because Tesla will simply threaten to move to another state unless the deals are extended.
Shameful all the way around. Crony capitalism at its finest.
I'm not sure why a company has to pay 100% taxes to be considered noble.
Your point is taken, but the ability of Tesla to do this whilst other companies do not have the same opportunity strikes many as unfair.
That was sort of the point of the article, which you may have missed.
> (rails, roadways, power, etc.)
You know those are expenses to Nevada, right? Which Nevadans will be paying for, to benefit Tesla?