Thirty years ago this summer, two former governors—Michigan’s John Engler and Illinois’ Jim Edgar—arrived at the National Governors Association meeting with a radical idea: that states band together and stop handing taxpayer-funded subsidies to private businesses. The idea fizzled, and we’ve since seen ever-increasing corporate handouts. As governors convene this year, support for a change is growing again. And this time, they may have the right tool to put taxpayers over tax handouts.
The generous subsidies states offer to businesses to relocate (or to prevent businesses from moving someplace else) have been common for a long time. In 1936, Mississippi fired the first shot in the interstate subsidy war by targeting northern clothing manufacturers. Like many modern programs, it paid companies to do what they would have done anyway: shift production to a region with more affordable labor.
Research shows that most subsidies — 7 in 8 — don’t sway a company’s decision over where to locate or expand. Fundamental factors affecting production and profitability—like the availability of skilled workers and access to customers—are far more important to any business’ long-run success.
