Close the Deal

My column for the Washington County Daily News is online. Here you go:

After weeks of wrangling and a few modifications, the Wisconsin State Assembly passed a $3 billion incentive package for Foxconn to build a massive new plant in Wisconsin. Now it is up to the State Senate to follow the Assembly’s lead and bring Foxconn to Wisconsin.

To fiscal conservatives who desperately want a small, inexpensive, unintrusive government, the thought of massive corporate welfare to incent businesses to locate in Wisconsin is rather repugnant. Ideally, Wisconsin’s government would create an environment of low taxes, reasonable regulations, good infrastructure, etc., to make Wisconsin such an attractive place for business that taxpayer incentives would be rendered unnecessary.

But that is not the state we live in yet and the taxpayers have shown time and time again that they are willing to dole out corporate welfare if it for the overall betterment of Wisconsin. The measure has long since ceased to be, “should government do it?” It is now, simply, “is it a good deal for taxpayers?” The deal that Gov. Scott Walker and his staff negotiated with Foxconn and which was substantially passed by the State Assembly, is a good deal.

The structure of the Foxconn deal is relatively simple if the numbers are enormous. In exchange for Foxconn investing $10 billion in construction costs and eventually employing up to 13,000 people, Wisconsin taxpayers will give the company up to $2.85 billion in income and franchise tax credits and an additional $150 million in sales tax relief for construction materials. The total “cost” to taxpayers would be about $3 billion in waived taxes over 15 years.

In order to analyze any deal, you must weigh cost against benefit. In this case, the cost for taxpayers is $3 billion in waived taxes over the next 15 years. That is only really a cost in the eyes of a politician. Remember that if Foxconn does not build in Wisconsin, it will never buy the construction materials for which the state would have received $150 million in sales taxes. And if Foxconn does not build in Wisconsin, it will never generate the net income that would generate the $2.85 billion in income taxes. If Foxconn does not build in Wisconsin, the $3 billion in waived taxes will never exist. The only way that anyone can claim waived taxes to be a “cost” is if they presume that it was the government’s money in the first place.

The one caveat to that is that the bill passed by the Assembly does permit the state to grant tax credits to Foxconn in the form of a refund even if Foxconn does not have a tax liability. In this way, the incentives wouldfunction much like the Earned Income Tax Credit.

If this happens, it would indeed be a cash outlay from the taxpayers to Foxconn. We must demand vigilance from the state administrators of this deal to watch Foxconn closely to ensure that they are meeting their obligations to receive tax credits.

On the other side of the ledger, what benefit does Wisconsin get for its $3 billion in waived taxes? Foxconn is committing to spend $10 billion in construction costs to build a massive new facility. Most of that money will be spent in Wisconsin and employ thousands of Wisconsinites. After the facility is built, Foxconn will continue to spend hundreds of millions every year in Wisconsin to maintain and run the facility.

Foxconn also plans to directly employ 13,000 people at the facility at an average wage of $53,900. A facility of this size would also generate an estimated 22,000 supporting jobs. That is a tremendous number of Wisconsinites earning a family supporting wage. That is an enormous number of people buying homes, buying cars, buying groceries, going to entertainment events and spending money to live their lives in Wisconsin. The return on investment should not be measured in cash paid to the tax collectors, but in the cash put in the pockets of tens of thousands of Wisconsinites.

Beyond the direct investment by Foxconn, this deal would facilitate the transformational introduction of an entire industry to Wisconsin. Wisconsinites can reasonably expect that other manufacturers and supporting industries will follow in Foxconn’s wake to locate in Wisconsin. Wisconsin is standing at the precipice of a generational economic boon if we only have the courage to jump.

Is the Foxconn deal a risk? Of course it is. Any commercial enterprise is a risk. Wisconsin’s government must be vigilant in holding Foxconn to their commitments, and the deal is structured to cease taxpayer support if Foxconn reneges. But the cost of doing nothing is far greater for the future of Wisconsin than the cost of this deal.

The State Senate must step forward with their colleagues in the Assembly and close this deal. Wisconsin is waiting.