Walker’s Desperate Deal With Foxconn
No governor in state history would have offered such a massive giveaway.
Back when Gov. Jim Doyle was offering tax incentives to companies like Harley Davidson and Mercury Marine to convince them to expand in this state, I questioned a Department of Commerce official about their rationale.
In essence, the department took a look at the number of jobs to be saved, the average wage earned and how much those employees would pay in state income taxes. The tax incentive was 7 percent of the company payroll for up to nine years and the workers were paying an average of slightly more than 5 percent in income taxes, so the state would be made whole in about 12 years. And that doesn’t include the corporate income tax that also would be paid.
The Commerce Department had a bipartisan history of this sort of approach, but Gov. Scott Walker, offering little rationale, replaced it with the Wisconsin Economic Development Corporation, where any sort of deal seems to be made. A Legislative Audit Bureau report found that of hundreds of millions in tax credits, grants and loans authorized since 2011, the agency “cannot be certain about the number of jobs actually created or retained as a result of any awards.” In fact only 12.5 percent of contract awards “even had an expected result of job creation or retention.”
But the Foxconn deal offers much more than this. The company also gets a 15 percent tax credit on all capital expenditures it makes for seven years. Since Foxconn, due to Walker’s Manufacturing and Agriculture Tax Credit, will pay little or no corporate tax, probably none of this giveaway will be recovered. Indeed, the company is being given “refundable tax credits,” meaning these are cash giveaways, not tax reductions.
But the deal offers much more than this. Foxconn will get a state and local sales tax exemption on the cost of all building materials, supplies, and equipment and landscaping and lawn maintenance services, estimated to be worth $139 million.
But the deal offers still more. Local governments will be pressured to create special Tax Incremental Financing districts, and the subsidy is expected to be so massive that the Foxconn bill provides an exemption from the state law limiting the size of such districts and lengthens the statutory payback period from 20 to 30 years.
But the deal offers still more. The bill would exempt Foxconn from some state requirements on: (1)discharging dredged or fill material into a wetland; (2)water quality certification related to discharges into wetlands; (3)construction, placement, or maintenance of bridges or culverts in or over navigable waters; (4)construction, dredging, or enlargement of an artificial water body that connects with an existing navigable waterway; (5)grading or removal of topsoil from the bank of a navigable waterway; (6) public utility projects consisting of high-voltage transmission line relocations.
In short, Foxconn will be able to operate as a kind of outlaw company that can simply ignore laws that regulate every other business or individual in the state. And that is because it promises to create up to 13,000 jobs in return for accepting $3 billion in tax subsidies or $585 per person for every adult resident in this state, not including the additional TIF subsidies, which have yet to be tallied.
And what guarantee is there that Foxconn will create 13,000 jobs? None. The company could collect $345 million of the maximum $1.5 billion payroll credit for just the 3,000 jobs it promises to start with and grab the sales tax exemptions and TIF subsidies while using the $1.35 billion tax credit on capital expenditures to automate the factory and gradually lower the employment even further. With no penalty. And given the company’s reputation for embracing robotics at ever opportunity, that is surely the most likely result.
And the cost to the state under this scenario would be $611,000 per job, not counting the TIF subsidies and environmental costs.
As for the jobs it promises, how many will be family supporting? Foxconn claims the average wage paid will be $53,875, but what guarantee is there of this? None. And even if this does turn out to be the average, that could easily mean half the workers earn less than this. How much less? One clue is provided by the legislation, which says the payroll tax credit applies for jobs earning at least $22,620 if the company is in a tier I county or municipality or $30,000 if in a tier II county or municipality. The lower figure is below the poverty line for a family of four while the higher figure is at about 130 percent of the poverty line.
These details come from a recent Legislative Fiscal Bureau analysis, which concludes the state could recoup the massive Foxconn giveaway by 2043. Leaving aside that this is a quarter-century, an entire generation from now, how can the money be recouped when it is far more than the combined taxes paid by workers and the company? The answer is that the Foxconn plant will spin off other jobs from suppliers, construction companies and the like that it uses. But if we followed this approach for every company in Wisconsin, it would wipe out all the corporate and personal income taxes paid in this state. That doesn’t seem like a sensible way to build an economy.
The Fiscal Bureau cautions that the data on the spin-off jobs is “speculative” and based on estimates from Foxconn and the WEDC. I leave it to others to decide which is less reliable.
The bureau estimates that given the proposed location for Foxconn is close to the Illinois border, perhaps 10 percent of the jobs could go to workers from that state who won’t pay Wisconsin taxes, which would extend the payback period two more years, to 2045. It also notes its analysis hasn’t reduced the value of future dollars, meaning the real dollar payback would occur even later, perhaps after 2050.
Has there ever been a worse deal proposed by a Wisconsin governor? True, the Brewers and Bucks stadium deals were massive giveaways, but this was done not for jobs but for the state’s prestige, to prevent the loss of major league franchises. A deal with Foxconn offers not prestige, but a deal with a shady operator who frequently walks out of deals, compares his workers to animals, and has created a company infamous for poverty-level wages and horrible working conditions, with riots, worker suicides and violence at the Foxconn plant in China.
Walker’s willingness to hand this company $3 billion suggests a desperation to wipe away his failed promise to create 250,000 new jobs and the state’s chronic below-average ranking in job creation. The Foxconn hype — with the dirty details downplayed — might rebrand him as a big-time job creator. As for state legislators in the Racine-Kenosha area, they may find it hard to oppose his plan.
But for every other legislator in the state, Republican or Democrat, there is no reason to vote for this unprecedented giveaway for a few thousand jobs, following a game plan that if applied to all businesses, would bankrupt the state and destroy its environment. This isn’t a sound conservative solution to economic development, it is fiscal liberalism run rampant.
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More about the Foxconn Facility
- The State of Politics: Foxconn Biggest Deal in State History - Steven Walters - Aug 21st, 2017
- Statewide Online Tool Assists Wisconsin Companies Seeking to Do Business with Foxconn - Gov. Scott Walker - Aug 21st, 2017
- The Senate Must be The Grownups in the Room… Again. - State Sen. Tim Carpenter - Aug 21st, 2017
- Op Ed: The Many Broken Promises of Foxconn - State Rep. David Bowen - Aug 20th, 2017
- Rep. Goyke Statement on Foxconn Special Session Bill - State Rep. Evan Goyke - Aug 18th, 2017
- Wisconsin Budget: Foxconn Could Take Till 2058 To Pay Off - Jon Peacock - Aug 18th, 2017
- Governor Walker Releases Statement on Bipartisan Assembly Passage of Wisconn Valley Special Session Legislation - Gov. Scott Walker - Aug 18th, 2017
- Republican Agenda Puts Corporate Welfare Package for Taiwanese Company Ahead of our Public Schools - State Rep. Dianne Hesselbein - Aug 17th, 2017
- Rep. Sinicki Votes No on Foxconn Package - State Rep. Christine Sinicki - Aug 17th, 2017
- Statement from Rep. Barca on the Assembly Passage of Foxconn Bill - State Rep. Peter Barca - Aug 17th, 2017
- Facts on Foxconn Trump Proponents’ Protestations Deal Would Benefit Wisconsin - One Wisconsin Now - Aug 17th, 2017
- Foxconn Debate Cheat Sheet - State Rep. Gordon Hintz - Aug 17th, 2017
- $3 Billion Foxconn Boondoggle Sells Out Wisconsin’s Future to Foreign Corporation - State Rep. Lisa Subeck - Aug 17th, 2017
- Op Ed: How to Get a Better Deal From Foxconn - John Torinus - Aug 17th, 2017
- Data Wonk: Will Foxconn Deal Fight Poverty? - Bruce Thompson - Aug 16th, 2017
- Governor Walker Moderates Foxconn Roundtable Discussion in Green Bay - Gov. Scott Walker - Aug 16th, 2017
- Op Ed: Where Will Foxconn Find Workers? - State Rep. Gordon Hintz - Aug 16th, 2017
- Vukmir: The time is now for Foxconn - Assistant Majority Leader Leah Vukmir - Aug 15th, 2017
- Foxconn tax break could exceed $1 million per job - State Sen. Jennifer Shilling - Aug 14th, 2017
- Paul Ryan Challenger Opposes $3 Billion Corporate Handout to Foxconn - Cathy Myers - Aug 14th, 2017
- The State of Politics: 10 Tough Questions About Foxconn Deal - Steven Walters - Aug 14th, 2017
- Campaign Cash: Did Foxconn Lobby Illegally? - Wisconsin Democracy Campaign - Aug 12th, 2017
- Statement from Rep. Barca Regarding Republican Amendment to Foxconn Bill - State Rep. Peter Barca - Aug 11th, 2017
- Statement: Amendment to Special Session Assembly Bill 1 - Wisconsin Assembly Speaker Robin Vos - Aug 11th, 2017
- Op Ed: Renegotiate the Foxconn Deal - Matthew Flynn - Aug 11th, 2017
- Murphy’s Law: Walker’s Desperate Deal With Foxconn - Bruce Murphy - Aug 10th, 2017
- Foxconn Deal Flounders in State Legislature - One Wisconsin Now - Aug 10th, 2017
- If ‘Ifs’ and ‘Buts’ Are Candies and Nuts We’ll Have Foxconn Deal Paid Off in 2043 - One Wisconsin Now - Aug 9th, 2017
- Rep. Shankland: Statement on Foxconn Analysis - State Rep. Katrina Shankland - Aug 8th, 2017
- Foxconn Fiscal Analysis Deeply Troubling for Wisconsin Taxpayers - State Rep. David Crowley - Aug 8th, 2017
- Statement from Rep. Barca on New Fiscal Analysis of Proposed Foxconn Deal - State Rep. Peter Barca - Aug 8th, 2017
- Rep. Hintz Statement on Foxconn Cost to Taxpayers - State Rep. Gordon Hintz - Aug 8th, 2017
- Campaign Cash: Bill Has $10 Million Giveaway to Fiserv - Wisconsin Democracy Campaign - Aug 8th, 2017
- Wisconsin Veterans Chamber of Commerce Calls For Foxconn Project to Include Disabled Veteran Owned Businesses - Wisconsin Veterans Chamber of Commerce - Aug 7th, 2017
- Wisconsin Budget: The High Cost of Foxconn - Jon Peacock - Aug 4th, 2017
- What Does the Foxconn CEO Say About His Employees? - One Wisconsin Now - Aug 4th, 2017
- Foxconn Hearing: Big Promises, Little Details, Lacks Transportation Plan - State Rep. David Crowley - Aug 3rd, 2017
- One Wisconsin Now Testimony on Foxconn Subsidy Legislation - One Wisconsin Now - Aug 3rd, 2017
- No Guarantees to Prevent Wisconsin Tax Dollars From Subsidizing Illinois Jobs in Foxconn Deal - One Wisconsin Now - Aug 2nd, 2017
- Unnecessary to Sacrifice Natural Resources for Foxconn - Wisconsin League of Conservation Voters - Jul 31st, 2017
- Statement from Rep. Barca on Foxconn Developments - State Rep. Peter Barca - Jul 28th, 2017
- The Contrarian: Walker’s Reelection Now A Certainty - George Mitchell - Jul 28th, 2017
- Eyes on Milwaukee: Foxconn Loves Wisconsin, Walker - Jeramey Jannene - Jul 27th, 2017
- Governor Walker, Foxconn Founder and CEO Terry Gou Sign Memorandum of Understanding in Milwaukee - Gov. Scott Walker - Jul 27th, 2017
- REALTORS® Welcome Foxconn - Greater Milwaukee Association of REALTORS® - Jul 27th, 2017
- MATC Statement on Foxconn - Milwaukee Area Technical College - Jul 26th, 2017
- Statement from Rep. Barca on Foxconn Economic Development Announcement - State Rep. Peter Barca - Jul 26th, 2017
- Milwaukee County Executive Chris Abele Statement on Foxconn Announcement - County Executive Chris Abele - Jul 26th, 2017
- Global High-Tech Manufacturer Foxconn Announces $10 Billion Investment, Will Create 13,000 Jobs in New Wisconsin Campus - Gov. Scott Walker - Jul 26th, 2017
- Foxconn Frenzy: Proceed with Caution - State Sen. Chris Larson - Jul 26th, 2017
- Shilling cautious on Foxconn announcement - State Sen. Jennifer Shilling - Jul 26th, 2017
- Op Ed: Loss of Talgo Train Hurts Foxconn Deal - James Rowen - Jul 20th, 2017
- Mayor Barrett Supports Siting Foxconn Facility in Southeastern Wisconsin - Mayor Tom Barrett - Jul 17th, 2017
- On the Air: How Likely Is It Foxconn Will Create 10,000 Jobs? - Urban Milwaukee - Jul 13th, 2017
- Murphy’s Law: Walker Building Yesterday’s Economy - Bruce Murphy - Jul 13th, 2017
- Eyes on Milwaukee: Foxconn Lands in Milwaukee - Jeramey Jannene - Jul 10th, 2017