House Bill 6 exemplifies the dangers of taxpayer-funded subsidies

Rea S. Hederman Jr. Sep 01, 2020

This opinion piece appeared on Crain’s Cleveland Business.

House Bill 6 and the public corruption charges brought against former Ohio House Speaker Larry Householder and his alleged co-conspirators epitomize the problem of crony capitalism and corporate tax subsidies. Those subsidies — and corporate bailouts — must stop.

Every year, Ohio taxpayers pay hundreds of millions of dollars through corporate tax subsidies ostensibly designed to lure or keep businesses in Ohio. The subsidies are not grants or spending to build roads, or supply or maintain other public infrastructure. Instead, the subsidies are direct payments or special tax cuts to specific businesses — typically those with enough money to hire well-connected lobbyists.

When those businesses fail to keep their promises, when they close their doors or furlough their employees, they leave Ohio taxpayers holding the bag. General Motors, for example, promised Ohio jobs at its Lordstown assembly line in exchange for $60 million in tax subsidies. Instead of delivering jobs, General Motors closed the plant — sending state officials scrambling to recoup the tax dollars.

Subsidy supporters claim that special corporate tax-breaks and subsidies create jobs and encourage corporate expansion. Research shows, however, that this type of corporate welfare does little to benefit state economies or deliver the promised jobs. Wisconsin, for instance, gave Foxconn billions of dollars in tax credit subsidies, only to watch Foxconn fail to add the promised jobs to its payroll.

Corporate bailouts and subsidies raise prices on goods and services, and hand taxpayers a higher tax bill to make-up for lost revenues. Sometimes the higher taxes are obvious — like the 85-cent monthly tax added to residential energy bills by House Bill 6. But other times the higher taxes are hidden and harder to fight — like higher property taxes that officials neglect to explain are needed to offset corporate tax-breaks.

Businesses, of course, prefer taxpayer subsidies and bailouts as low-risk ways to reduce costs and increase profits. And they are happy to pay high-priced lobbyists for the chance to get them. After all, it appears easier to convince a handful of lawmakers to give a government handout than it is to convince thousands of customers to buy an inferior product or pay higher prices. Taxpayer handouts simply offer a potentially higher return on investment. As Neil Clark, one of former Speaker Householder's alleged co-conspirators, said: "(O)n HB 6, Company got $1.3 billion in subsidies, free payments, ... so what do they care about putting in $20 million a year for this thing. ..." In fact, the "Company" allegedly paid $61 million to get its $1.3 billion in subsidies — quite a return.

Crony capitalism and spending hard-earned taxpayer dollars to prop-up inefficient and unprofitable businesses is not a game unique to House Bill 6 or Ohio. But Ohio can stop playing it. Rather than requiring hardworking Ohioans to bail out and subsidize companies that may or may not hold up their ends of a bargain, Ohio public policy should treat all businesses equally and stop carving out special tax-breaks for well-connected companies.

As the troubling criminal allegations surrounding House Bill 6 attest, dispensing billions of dollars of taxpayer-funded subsidies can corrupt good government and corrode the public's trust. To begin restoring some of that trust, state lawmakers should end the crony capitalism in House Bill 6 and stop paying corporate welfare in Ohio.

Hederman is vice president of policy and the executive director of the Economic Research Center at the Buckeye Institute in Columbus.