Foxconn broke ground in Mount Pleasant on Thursday, June 28.
If you are a governor and the Foxconn deal comes past your desk, you will certainly take a serious look at it. A large foreign company wanting to locate a plant in the United States with the promise of at least 3,000 jobs and maybe, just maybe, up to 13,000 manufacturing jobs would be a very important development. The obvious questions: What are the costs—monetary and quality of life—to the state and its taxpayers to get this potential foreign investment? Is the price too high for the jobs, and how many more jobs could be created if those dollars are used differently?
Obviously, many governors looked at the Foxconn deal, and when they understood the demands from Foxconn and the questionable record of Foxconn promises, all the other governors chose to walk away—except for Wisconsin Governor Scott Walker. The others understood that there were going to be enormous direct-dollar costs to state taxpayers, huge and costly infrastructural requirements and significant environmental consequences for the state and its residents.
Refundable Tax Credits
Initially when Walker began to talk about this deal, it sounded like it might be a reasonable one if the tax benefits to the company were tax credits, which are deductions from whatever taxes they would owe over a certain number of years. Giving away tax credits to a company not already in the state is often a negotiating item for attracting new investment. If the company does not invest in the state, they don’t create any tax liabilities and the credits become a moot issue. If the company does move into the state, the state only loses the tax revenues for a certain number of years that they would not have had in the first place.
The problem with the deal Walker made is that these are refundable tax credits, meaning that if the tax credit is greater than the tax liability, the state writes a check to Foxconn. Another huge problem is that once the Republicans got control of both houses of the legislature and the governor’s office after the 2010 election, the Republicans felt an obligation to pay back the various conservative business groups that helped fund their campaigns. They have already dramatically cut—or in some cases totally eliminated—various business taxes. This meant that a larger tax burden fell on Wisconsin taxpayers. Regarding Foxconn, there was a much smaller business tax liability to put against the generous refundable tax credits.
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So, if you start with a huge, annual, refundable tax credit, and you just passed laws that significantly lowered a manufacturing company’s tax liabilities, you end up sending hundreds of millions of Wisconsin taxpayer dollars to the Taiwanese billionaire who owns Foxconn. Walker also gave away the store on the infrastructure and environmental issues that Foxconn demanded.
Why Did Walker Make Such a Terrible Deal?
Walker went into the negotiations with Foxconn with a weak hand. He already wanted to run for a third term as governor and, after his embarrassing run for president and his resulting low poll numbers, he needed to show something to the voters, especially in the areas of economic development and job creation. He won his first election, in part, because he promised to create 250,000 jobs in his first term. He had no plan to create these jobs, and, once in office, he initiated policies that actually hurt job creation. As a result, during his time as governor, Wisconsin fell behind most of our neighboring states in virtually every important economic metric.
Now, after two terms in office, Walker is still far short of that first-term promise—this despite governing in a period of unprecedented national economic growth where the U.S. economy has grown in every consecutive month of his two terms. Furthermore, even if Wisconsin got the maximum number of jobs that Foxconn promised (along with the maximum number of ancillary jobs Walker has argued this investment might create), he will still be far shy of the 250,000 jobs he promised in just his first term.
Second, Walker was using someone else’s money—our tax dollars—and the consequences of his poorly negotiated deal wouldn’t hit Wisconsin taxpayers until after the November 2018 election. Walker has a history of throwing away our money. Remember, he is the only governor to have rejected more than $800 million for high-speed rail and hundreds of millions of dollars annually for Medicaid expansion in order to position himself on the far right as he planned to run for president. Wisconsin rejected billions of dollars in Federal monies over the eight Walker years in exchange for millions in donations to the Walker campaigns from the likes of the Koch brothers.
High Costs to Wisconsin Taxpayers
Walker agreed to give away more than $4 billion to a foreign company and made serious and damaging changes to our environmental regulations, but he also created various and less obvious problems going forward. Some Wisconsin companies saw that Walker was a desperate man, and they also saw that Foxconn could get billions of taxpayer dollars by promising thousands of jobs. These large companies thought, “Why can’t we get tens of millions of dollars by simply threatening to abandon Wisconsin and taking our jobs to another state unless Wisconsin pays us big bucks?”
Thus, since the Foxconn deal was inked, Fiserv, a successful company, demanded tens of millions of dollars and settled for $12.5 million to simply keep their headquarters in the state. Then, Kimberly Clark, which moved its headquarters to Texas in the 1980s in a dramatic gesture because it didn’t want to pay Wisconsin taxes, jumped into the game. After the Foxconn deal, Kimberly Clark demanded $100 million from Wisconsin taxpayers or it would move its remaining facilities out of the state. How many more large corporations will see Walker as an easy mark?
There are ways the state government of Wisconsin can help create jobs that won’t cost $4 billion dollars and won’t encourage big corporations to extort money from the state by holding our jobs hostage. The overwhelming percentage of new jobs created in Wisconsin come from local entrepreneurs creating new businesses and from small- and medium-sized Wisconsin businesses expanding. There are many things a smart state can do to encourage entrepreneurship by encouraging new businesses to thrive. These new jobs almost invariably will stay in Wisconsin. It’s not real flashy, and it doesn’t create big headlines for the governor when a Wisconsin business adds two, five, 10 or 20 new jobs. But, Mr. Walker, this is the way the vast majority of new jobs are created—and will continue to be created—in Wisconsin.
