The High Cost of Foxconn
Each job created could cost the state anywhere from $17,273 to $54,159 per year.
The cost of the proposed new tax credits for the tentative deal with Foxconn could be far larger per job created than some people have suggested. Those costs will vary greatly depending on the ratio of spending for payroll versus the capital expenditures.
The more that Foxconn invests in its facilities and state-of-the-art automation, rather than payroll, the more the proposed deal will cost state taxpayers per job created. A new Wisconsin Budget Project report examines the potential tax credit costs based on four scenarios that make different assumptions about the number of new jobs, the duration of the project, and the amount of Foxconn spending for capital improvements.
In brief, we found that:
- The cost to the state of the new tax credits (excluding other subsidies) could range from about $219,000 per job for 13,000 Foxconn jobs to $587,000 each if the new enterprise employs 3,000 people.
- On an annual basis, the proposed credits would cost state taxpayers $17,273 per job per year for 15 years under the scenario of 13,000 Foxconn jobs described by state officials, but the cost could exceed $54,000 per job per year under a scenario of 3,000 jobs that last for 10 years rather than a minimum of 15 years.
- On top of the very substantial cost of the new tax credits, there’s the cost of existing tax breaks for manufacturers (which would already essentially zero out Foxconn’s corporate tax liability), plus the costs of huge local infrastructure investments, the cost of prioritizing work on the I-94 corridor, potential costs to state taxpayers from making a guarantee to cover up to 40 percent of local losses from spending for the project, and the unknown costs from unprecedented exemptions from environmental regulations.
|Scenario 1||Scenario 2||Scenario 3||Scenario 4|
|New Foxconn jobs||13,000||3,000||3,000||3,000|
|Duration of jobs||15+ years||15+ years||10 yrs (2020-29)||10 yrs (2020-29)|
|Total payroll through 2034||$8.9 billion||$2.4 billion||$1.6 billion||$1.6 billion|
|Total capital investment||$9 billion||$9 billion||$9 billion||$5 billion|
|Total jobs tax credits||$1.5 billion||$412 million||$275 million||$275 million|
|Capital expenditure credits||$1.35 billion||$1.35 billion||$1.35 billion||$750 million|
|Total of the new tax credits||$2.85 billion||$1.76 billion||$1.62 billion||$1.03 billion|
|New tax credits per job||$219,231||$587,381||$541,588||$341,588|
|New credits per job per year||$17,273||$39,159||$54,159||$34,159|
Our report addresses the misimpression some people have that the proposed state “tax credits” – which will pay up to 17 percent of payroll costs and up to 15 percent of capital expenditures – will be offsets against the corporate income taxes that will be owed by Foxconn. That is not the case; our analysis explains that Wisconsin currently has two very generous tax breaks that make it highly unlikely that manufacturers like Foxconn will owe any corporate income tax on their net profits. That means the state will be writing huge checks to Foxconn each year for the cost of the tax credits.
One positive aspect of the proposed legislation is that new tax subsidies are tied to job creation and capital spending in Wisconsin, which is not the case for the massive giveaway known as the Manufacturing and Agriculture Credit. Nevertheless, the structure of the proposed deal allows Foxconn to do very well by investing in automation and taking full advantage of the capital expenditure tax credit, rather than focusing on jobs and trying to maximize the new jobs tax credits.
Even under the state’s relatively optimistic assumptions about job growth, the proposed subsides are far greater per job created than any significant subsidy deal the Wisconsin has proposed in the past, and the numbers get much worse if we assume that Foxconn prioritizes automation. Wisconsin policymakers and state citizens need to think carefully about the different scenarios, after removing our rose-colored glasses.
One of the questions that we need to think about very carefully is whether a corporation that is induced to locate here by such large subsidies is going to stay when those subsidies end, or when another state offers an even better deal. And policymakers should think about how these subsidies would affect the demands of other companies who play the game of threating to locate elsewhere.
Finally and most importantly, we have to think very carefully about the effects of the proposed legislation on the state budget and whether there are more effective ways to invest billions of dollars of state and local tax revenue.
- Foxconn Will Make 10K Ventilators - Corri Hess - Jun 19th, 2020
- Medtronic and Foxconn Partner to Increase Ventilator Production - Foxconn Technology Group - Jun 18th, 2020
- Foxconn Audit Delayed Two Months - Erik Gunn - Jun 3rd, 2020
- Back in the News: Foxconn’s Profits Plunge By 90% - Bruce Murphy - May 19th, 2020
- Foxconn to Assemble Procedural Masks in Wisconsin for Pandemic Relief - Foxconn Technology Group - Apr 20th, 2020
- Murphy’s Law: Foxconn Squeezes Evers - Bruce Murphy - Apr 15th, 2020
- Foxconn Says It Earned Tax Credits - Corri Hess - Apr 9th, 2020
- Back in the News: Foxconn Plant Will Make Ventilators - Bruce Murphy - Apr 8th, 2020
- Op Ed: Foxconn Facility Could Help in Pandemic - James Rowen - Mar 29th, 2020
- Op Ed: The Foxconn Road to Ruin - James Rowen - Mar 9th, 2020
Read more about Foxconn Facility here