As the nation struggles to emerge from the sharp economic free-fall of 2008 and 2009, as unemployment remains high in many of the traditional major job-producing states and as states have raised taxes to pay for underfunded pension obligations, competition has increased between states to attract new employers.
In the last week, two disputes between two radically different types of states have emerged. High-tax and high-cost states such as Washington and Illinois are in a race to counter incentives from Florida and other lower-cost states designed to attract large numbers of meaningful jobs.
The wager that Washington State offered was an incentive of $8.7 billion yes, billion to Boeing to ensure that producing the next generation 777X occurs in Puget Sound. The Washington State Legislature spent less than a week before approving a vast package of incentives to keep Boeing building the new jetliner in Washington. And Gov. Jay R. Inslee immediately signed the laws, gushing about the economic benefits for generations of residents.
The hurry-up deal also requires a new machinists union contract. The plan to be voted upon this week calls for concessions on wages, health care and pensions. The proposal was not greeted warmly in union halls where some leaders tore the proposal into shreds during a meeting with members.
Without union approval of the Boeing plan, the manufacturer promised to shop the next factory location to other states that will allow a more competitive cost base. And Boeing has already done exactly that when it opened a Dreamliner assembly plant in South Carolina.
Illinois faces a $100 billion pension shortfall and has the highest corporate taxes in the United States. The states General Assembly last week failed to act on a request by Office Depot for $53 million of tax credits over the next 15 years to maintain its headquarters and 2,000 jobs in Illinois instead of moving to Florida where taxes are lower and there is no personal income tax.
Illinois raised its personal and corporate income tax rates nearly three years ago. Last year, it had to act on requests of seven companies for reduced tax rates in return for keeping their offices there.
Sears and Navistar received $500 million in incentives in Illinois to hang around. Besides Office Depot, four other major employers are awaiting word on their requests for tax incentives.
Politicians seem surprised about what happened when they persisted on raising taxes to levels far above other states where residents migrate for jobs and the weather is better.
Notice that New York State is not a competitor in any of these disputes over where to locate new corporate facilities with all the attendant high-quality jobs. Unfortunately, New York has already proved that the state is a high-tax location with dwindling upstate population base migrating to states with jobs and lower taxes.
New Yorkers are drawn to the Carolinas, Florida, Texas or North Dakota because that is where the jobs are. Employers are drawn to the same states because that is where they will find the quality labor they need.
New York has begun a serious effort to become competitive with the inauguration of the tax-free incentives to businesses that locate on or near college campuses. But more has to happen.
New Yorkers need to be encouraged to stay here. And the best way to accomplish that is to reduce income tax rates on middle class jobs, allow exploitation of New Yorks vast underground natural gas resources and allow rebuilding of New Yorks electric energy transmission networks.
Taxes count as residents of Illinois and Washington State are now discovering that if you work for Sears or Boeing, you are treated better than if you work for anyone else. Weather used to be the appeal for southern migration. Now it is much more simple: Those states dont reach as deeply into your wallet as does your old home state.