Memo to Washington: Boeing tax breaks only make us weaker
Lawmakers passed tax incentives totaling almost $9 billion to keep Boeing and its 777X related jobs in Washington state this weekend. The tone, throughout the very fast and furious passage, was one of urgency: We need to pass this, because Boeing won't stay here without it. Few things, though, are ever quite as cut-and-dried as they seem.
Losing Boeing would be a tragedy for Washington, of course. There are around 33,000 machinist jobs alone at stake under the new contract, which promises to place 777X wing construction and final assembly in-state in exchange for significant cutbacks in pension plans, wage increases and wage progression for new workers. (The machinists union has so far come out largely against the contract.) In exchange, the jobs would be guaranteed and the wages would be decent — for those who have already climbed the ladder. Boeing is offering an early retirement plan and there’s a $10,000 signing bonus.
Boeing’s promise to place its composite research in Washington could be just as important as the initial jobs the contract promises to provide. Significant carbon-composite investment (to the tune of an estimated $2 billion) for the 777X’s high-tech wing could help establish Washington as a composite center that would enhance its local aerospace sector and help the state maintain its draw for Boeing and other aerospace companies.
Taxes may not be the best avenue for pursuing further prosperity — or Boeing — though. Last month, the Tax Foundation released a report meant to highlight how states “with the most competitive tax systems will reap the benefits of business-friendly tax climates.” In this case “competitive” refers to states with “business friendly” tax codes that result in lower taxes, easier and expedited filing and other factors. The data, however, show something else.
Slate and Governing looked at the study soon after its release and found that there was little to no relation between business friendliness (as ranked by the Tax Foundation) and state employment or median wage. Further, a look at the foundation’s own map generates skepticism: Three of the five best-ranked business friendly states are among the lowest in Gross State Products (the state version of GDP). Meanwhile, two of the worst ranked states (by business-friendliness) have two of the three largest GSPs.
Overall, a state's tax climate and its GSP seem to have a slightly negative relationship: States with less business-friendly tax structures have, on average, larger GSPs. The same holds true for growth since 2008: States with more business-friendly tax structures have, on average, grown less — both in terms of raw GSP and GSP as a percentage — than states with less business-friendly tax structures.
Business-friendly tax structures and incentives, it seems, are not the determining factor for state economic growth. Instead, we may look to innate qualities: history, experience, environment. It is hard to imagine the NYSE moving to Wyoming to escape New York’s tax burden, for example. The positive attributes of its location balance out the business-unfriendliness of New York. And a lack of tax breaks can help fund things like education, which can draw more advanced, and profitable, businesses.
Likewise, Boeing's jetliners have a 56-year history with Washington state. We’re known for turning out quality airplanes on-time. This is key because the other oft-discussed option for the 777X is South Carolina, currently known for turning out fewer-than-expected planes at a slower rate.
South Carolina’s manufacturing base is also small, employing around 6,000 workers. (As opposed to 30,000 machinists alone in Washington.) Expanding that workforce — in South Carolina or elsewhere — would take time and investment. With $87 billion in pre-orders, time is not something Boeing wants to need. Coupled with quality assurance problems on the 787, attributed to significant outsourcing, South Carolina looks significantly less attractive.
So, assuming Boeing keeps production in Washington, the Legislature may have had little to do with it. Tax breaks may be the icing on Boeing's cake, but they're not likely the baking soda that makes the company's cake rise. And, as it turns out, they may not be doing much for the rise of our state economy either- not when the money could be spent on other priorities.