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Saturday, June 5, 2004

Big Four Accounting Firm's PowerPoint Presentation Offers View of Seamy Side of State Tax Incentives

Saturday, June 5, 2004

Following up on Monday's post, Do State Tax Incentives Work?, Ernst & Young's brazen PowerPoint presentation, Turning Your State Government Relations Department from a Money Pit into a Cash Cow, has made it onto the web via the Carolina Journal (a North Carolina-based business publication).

Ernst & Young delivered the PowerPoint presentation at a recent meeting of the State Government Affairs Council, which bills itself as "the premier national association for multi-state government affairs professionals of over 120 major US corporations, trade associations and service providers." Ernst & Young made the pitch to a who's who of leading companies -- Alcoa, Anheuser-Busch, Bank of America, Bayer, BellSouth, Best Buy, Capital One, Coors, Goodyear, Home Depot, MBNA, Microsoft, Nextel, Nissan, Pfizer, Toyota, Verizon, and Wal-Mart.

Ernst & Young acknowledges that taxpayers don't like corporate welfare but suggests ways to "provide government with justification" for giving tax incentives to businesses. A key strategy is to identify "public benefits" while making a threat of dire consequences if the deal is not made. At the same time, the PowerPoint presentation suggests techniques to prevent states from rescinding the tax incentives if the promised public benefits do not materialize.

Ernst & Young holds out the recent Boeing-Washington state deal as the model. Faced with Boeing's threat to move manufacturing jobs out of state (following the relocation of its corporate headquarters to Chicago), Washington ponied up almost $4 billion in tax incentives. Yet, as the Evergreen Freedom Foundation notes, Boeing since has shed more than 4,200 jobs in Washington. But the deal stipulates that "the state shall not suspend, revoke, or require repayment" of the tax incentives, no matter what Boeing does on the jobs front. The deal even requires Washington to "assume the entire defense" for any legal challenge to the $4 billion package, including "all fees, costs and expenses"!

(Thanks to reader Ben Cunningham for the tip.)

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Comments

Brazen? The title, absolutely. But other than that, it strikes me as good business practices. You can't really blame businessmen if the states are willing to lavish millions and millions of dollars on them for things they were going to do anyway.

And when the state involves itself intimately in many of the day-to-day practices of business, why would you not expect to see the business community try to return the favor?

I say this as a part of top management in a State tax collection agency.

Posted by: jsmith | Jun 5, 2004 11:01:24 AM

Financial incentives provided directly by the states or indirectly by underwriting the bonds of their local governments (cities and counties) providing such incentives is financial bribery.

Such incentives subverts the law of comparative advantage and build in perpetual inefficiencies in the local and state economies. Such incentives are bad public policy and should be stopped.

Posted by: bncthor | Jun 8, 2004 4:01:48 PM

Excellent article on Big Four firms and tax incentives. Looking forward to see more articles.

Posted by: Neil More | Oct 13, 2005 2:31:18 AM

Nice Article. I foud some related kind of articles on Big Four Alumni Blogs too. May be you can post this artilce there too.

FYI: http://bigfouralumni.blogspot.com/ which is a part of www.big4.com . Really nice to see more and more blogs on Big Four.

Thanks,

Ali

Posted by: Ali | Oct 29, 2005 12:35:45 AM