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

By Smathers, Jason | Journal of Corporation Law, Summer 2019 | Go to article overview

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


Smathers, Jason, Journal of Corporation Law


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 Virginia2-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. In Part III, the Note will analyze how Wisconsin, Ohio, and Michigan (all states that were in the running for the plant) structure their tax-credits and other location-based incentive accountability measures, and will use the Foxconn deal as a lens through which to view their success. Finally, in Part IV, the Note will recommend a series of actions that could help restore the balance of interests between businesses and the state.

II. Background

While estimates of the amount of economic development tax incentives and grants are hard to calculate on a national scale, an analysis from 2002 estimated state and local governments gave out $50 billion annually.4 A more recent N. Y. Times accounting of state and local incentives put that number higher, having accounted for $80.4 billion worth of tax and grant incentives nationwide in 2012. Michigan, Wisconsin, and Ohio accounted for almost 15% of that amount.5 That same report found 48 companies that received more than $100 million a year in incentives through one or more grants.6 No matter the set of numbers, analysts have said that the number of tax incentive programs appear to have increased "substantially over the last 20 years."7 While some of the reasons for state adoption may relate to effectiveness, some analysts theorize that the increase is due to the political effectiveness of the deals and the assumption by the public that government incentives helped bring work to the region.8

While states have doled out tax incentives for business relocation since the late 19th century, scrutiny of those incentives and their effectiveness has ramped up considerably in the last 25 years.9 At least 40 states have developed job-creation tax credits, many enacted following the economic downturn of 2008. …

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