The Hamilton County Commission took a hard line on tightening its budget this year because of a bad economy, but unanimously approved tax breaks for four different companies.
That, county officials say, is the price of doing business.
But one award-winning author who has studied government tax incentives said businesses receiving them are getting a much better deal in the long run.
David Cay Johnston, a Pulitzer Prize-winning journalist and author of “Free Lunch: How the Wealthiest Americans Enrich Themselves at Government Expense (And Stick You With the Bill),” said private companies are essentially blackmailing local governments with tax incentive deals.
“Good economy or bad, the eagerness of corporations to stuff their pockets with taxpayer money continues apace,” Johnston said. “The fundamental game here is to play one city or county against another, which allows companies to escape the rigors of the competitive market and enjoy welfare on a scale unimaginable to mere mortals.”
Under the Payment In Lieu of Taxes agreements passed this year, Hamilton County is giving up nearly $10 million in revenue during the next seven to 14 years in exchange for school taxes, growth and jobs, according to figures from the Chattanooga Area Chamber of Commerce.
According to the Chamber, the county will receive $10.8 million in new taxes from these projects, the bulk of which will go to schools. In exchange, the companies are expected to create 424 jobs.
Hamilton County Mayor Claude Ramsey thinks it’s a fair trade.
“You’re really not taking anything out of the county’s revenue stream,” Ramsey said. “Because if (companies) don’t do the investment, you wouldn’t have had it anyway.
“But if they do the investment and they create jobs, which means housing investing, you have other ways of growing the economy.”
If Hamilton County doesn’t offer incentives, another community will, Ramsey said.
J.Ed. Marston, the Chamber’s vice president of communications, agreed, and said incentives keep Hamilton County competitive.
Johnston said that, while the agreements create jobs, they also take money away from important government services such as libraries and police departments.
“There are now entire industries in the United States whose reported profits are smaller than their subsidies, which means that, but for the taxpayers, they would not be viable businesses,” he said.
While the economic benefits will be good for the local community, he said the agreements “destroy wealth” on a national level.
“When you take money from the taxpayers and concentrate it in the hands of corporations, especially foreign corporations, you don’t have a market economy that generates wealth,” Johnston said.
Jack Sample, a business manager for Idaho-based IBI Power, which was one of four companies receiving tax breaks from Hamilton County this year, said Johnston’s arguments are “misleading.” He said not having the tax breaks would be a “deal breaker.”
“It’s a two-way street and not only does it improve the quality of life and quality of the community and education, all citizens benefit from it,” Sample said.
Commission Chairman Fred Skillern said businesses looking to move to a community do put elected officials on the spot because other communities are offering lucrative deals of their own.
“I don’t call it extortion,” Skillern said. “I call it competition, because if nobody gave them anything, we wouldn’t be giving them anything. If you don’t give them anything, you’re never going to get anybody.”
Commissioner Warren Mackey said Johnston is “entitled to his opinion,” but added that a tougher economy doesn’t cause him to think twice about using incentives to lure businesses.
“Suffice it to say, by granting incentives, Hamilton County is better poised than virtually any other community in the United States,” Mackey said. “I will take that any day of the week.”