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Corporate tax breaks pit states in race to the bottom

States are engaged in a race to the bottom, lavishing corporations with tax breaks to attract new businesses, or entice them to stay, all at taxpayers’ expense.
A Boeing 787-9 Dreamliner taxis in Seattle, Washington. Sept. 17, 2013.
A Boeing 787-9 Dreamliner taxis in Seattle, Washington. Sept. 17, 2013.

Obamacare’s recent troubles have been used by many conservatives – and some liberals, for that matter -- to argue that government simply can’t function as efficiently as the private sector.

The one problem with this narrative? It isn’t true. Or if it is, then why are corporations consistently looking for government handouts in the form of tax breaks and subsidies at taxpayers’ expense?

Last week, Boeing received $8.7 billion from Washington State -- the largest corporate tax break in history – despite earning more than a billion dollars in the third quarter alone on revenues of $22 billion.

“This is something that has quietly happened and is more than in vogue,” Alex Wagner said. “This is now almost business as usual, giving these corporations these massive tax breaks.”

Indeed, Boeing isn’t alone.

report released this summer by the “Good Jobs First” identified over 240 so-called “megadeals” in which corporations received subsidies from states worth more than $75 million.

Aluminum giant Alcoa received $5.6 billion in taxpayer funds from New York State, while Nike and Intel received $2 billion each from Oregon and Washington State, respectively.

Boeing’s record-shattering deal came on top of a $3.2 billion subsidy it received from the Evergreen State in 2003.

Jared Bernstein, senior fellow at the Center on Budget and Policy Priorities, advised states to protect themselves against company threats, real or otherwise.

“If you’re going to make a deal with a corporation, or chase stadiums, put in claw-back provisions at least, so that when it turns out they turn around and split on you, you can get something back,” he said.

States are routinely engaged in a race to the bottom, lavishing corporations with excessive tax breaks to either attract new businesses, or entice existing ones to stay, all at taxpayers’ expense.

“I think we have to think about this almost as a situation of hostage-taking,” said Salon’s Alex Seitz-Wald on Wednesday's NOW with Alex Wagner. “It’s one thing for a state to attract a new business to come in with a tax break, but it’s an entirely different thing when you have a company like Sears or a company like Boeing which have been based in the state for a long time suddenly saying, ‘you know what, Texas is looking pretty good, we might go down to Texas unless you give us another tax break.’”

At the same time that corporations are making record profits, corporations’ income taxes as a share of all federal taxes have declined precipitously over the past six decades.

“When you hear people talk about corporate tax reform, too often they’re framing it as revenue-neutral,” Bernstein said. “That might be ok if the revenues were at some historic average, but they’re currently very low, so we need to be very careful not to lock that in.”

Despite this, a consensus has emerged in both parties about lowering the corporate tax rate as part of any tax reform deal. President Obama’s plan, which he laid out over the summer, calls for eliminating corporate loopholes while lowering the corporate rate from 35% to 28%.

On Wednesday, Chairman of the Senate Finance Committee Senator Max Baucus (D-MT) laid out his draft for reforming the corporate tax code to address the estimated $2 trillion in U.S. corporate earnings being stowed overseas to avoid the clutches of Uncle Sam.

Watch today's discussion here.