Academic journal article Journal of Corporation Law

Outfoxed or Conning Ourselves? Balancing Accountability, Business, and Fiscal Interests in Location-Based Tax Incentive Deals

Academic journal article Journal of Corporation Law

Outfoxed or Conning Ourselves? Balancing Accountability, Business, and Fiscal Interests in Location-Based Tax Incentive Deals

Article excerpt

I. Introduction                                               828 II. Background                                                829    A. Proactive Accountability Measures                       830    B. Reactive Accountability Measures                        831    C. Wisconsin's Foxconn Pitch and Legislation               833    D. Ohio's Jobs Tax Credit                                  834      1. Ohio's Accountability Mechanism                       835      2. Enforcement of Ohio's Accountability Mechanisms       835    E. Michigan's "Good Jobs" Program                          836 III. Analysis                                                 837    A. Foxconn Contract and Wisconsin Statute                  837      1. Comparison with Kohl's Contract                       838      2. Job Verification and Lasting Presence                 840      3. Little Red Tape Provides Attractive Option for Firms  843    B. Applying Ohio's Model to the Foxconn Deal               843      1. Statutory Clawbacks May Allow Complete         Recapture of Incentives                               843      2. Lack of Verification, But Evidence of Enforcement     844      3. Possible Drawbacks to Competitiveness                 845    C. Michigan                                                846      1. Alternatives to Clawbacks Can Limit State Liability   846      2. A Mismatch in Scale for Large Deals                   847 IV. Recommendations                                           848    A. Broad Clawback Authority Written into Statute           848    B. Require and Outline Proactive State Verification of       Job Creation Numbers                                    849    C. Government Finance Stress Test                          850    D. Exercising Political Will Toward Uniform Law and       Restraint                                               851 V. Conclusion                                                 852 

I. INTRODUCTION

In 2017, Wisconsin solidified the largest location-based tax incentive package in the United States involving a foreign corporation. The deal gives Taiwan-based Foxconn approximately $4 billion in location-based tax incentives over 15 years, including $2.85 billion in cash incentives from the State of Wisconsin and another $700 million in TIF incentives from Racine County. While the deal is large, Wisconsin is not alone in its aggressive posture. States like Michigan, Indiana, Ohio, and North Carolina also offered large deals, with Michigan technically offering $800 million more than Wisconsin, and Ohio rumored to have pitched a similarly sized package as Michigan. (1) The enormity of the total deal was even comparable to the total incentives offered to Amazon for its second headquarters by New York and Virginia (2)--the culmination of a multi-state pitch and intensely watched competition. (3) However, as details of the project have developed, the deal has come under intense scrutiny and criticism, not only for the price of Foxconn's economic impact, but also the company's changing strategy and reduction in promises. While Wisconsin's politicians continue to battle over the wisdom of the deal, the incentive package itself prompts several questions: Was this deal truly a bust? Did the state do enough to protect itself if the deal goes sideways? In the end, was this worth it for Wisconsin and Racine County?

This Note will posit, through a comparison of three state approaches to location-based tax incentives, that larger location-based tax incentives will be a net-drain on state and local economies if there is no yardstick for success and no clear-cut mechanism for recouping or limiting those incentives when a firm has failed to deliver on their promises. If states intend to engage in tax incentive deals to lure new businesses to the state, there must be a reasonable balance between fiscal responsibility and the desire to create jobs.

In Part II, this Note will review the landscape of economic development tax credits across the nation, highlight different methods of accountability, and briefly outline the legislation and contract authorizing the Foxconn tax credit package itself. …

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