Carrier deal is smart policy and politics
I’ve read and heard a lot of criticism about presidentelect Donald Trump’s effort to keep up to 1,000 good paying manufacturing jobs at Carrier in Indiana. The Carrier deal has been called corporate welfare, crony capitalism, bribery, a shakedown and needless stupidity. All the criticism is misguided as the incentive package makes sense on both policy and political grounds.
As former commerce secretary in Wisconsin, I can tell you that states compete for jobs every day. The primary duties of state economic development agencies are to retain existing jobs, encourage expansion of existing businesses, encourage startups and recruit new businesses. Each state has a variety of tools in its toolbox to fulfill its economic development duties. My most effective tool always was to have Gov. Tommy Thompson close the deal. There was nobody better at convincing CEOs that Wisconsin was the right place for their business.
Critics correctly point out this is government picking winners and losers. I agree it’s not the best strategy for job growth and retention. A smart economic development strategy requires state and national policymakers to focus on macroeconomic issues such as tax and regulatory reform, health care reform and workforce training that affect most businesses rather than a few. And the presidentelect is using the Carrier deal to begin that conversation.
The entire Carrier incentive package consists of Indiana tax credits. Carrier will receive $7 million in tax credits over a 10-year period. Carrier must “earn” those tax credits by maintaining certain job levels and by investing at least $16 million of its own capital in the Indiana plant. Reports suggest Carrier will retain between 800 and 1,000 hourly manufacturing jobs in Indiana. The Carrier workers make $31.50 per hour or $65,520 per year in total compensation. These are not “low-paying jobs” as suggested in a Wall Street Journal editorial. They are great family-supporting jobs here in the Midwest.
The three key criteria used to judge an economic development incentive packages are: 1) What is the cost per job? 2) What is the payback period? 3) Would this deal happen without the incentive — this is commonly referred to as the “but for” clause.
Let’s explore all three as it relates to Carrier. The cost per job retained, using 800 jobs retained as the baseline for a $7 million incentive, is $8,750 per job. This is an extremely low number when you consider the quality of the jobs retained. The payroll for these 800 jobs is $4,368,000 per month or $52,416,000 per year. The payback on the retained jobs is 1.6 months. That doesn’t include the additional $16 million investment Carrier will make in its facility. That’s exceptional. Finally, the jobs clearly were headed to Mexico but for this incentive package. Any state-run economic development agency in America would do this deal in
a heartbeat. The Carrier deal clearly makes sense for Indiana taxpayers.
Trump recently said, “The era of economic surrender is over. We are going to fight for every American job!” That powerful message resonates with people who carry their lunch to work. The presidentelect won states such as Wisconsin, Michigan and Pennsylvania because many working people were deeply concerned about the direction of the nation and were concerned nobody was listening to them. Trump said back in July he would work to save the Carrier jobs. President Barack Obama mocked Trump’s promise stating, “How’s he gonna do that?”
Trump often called working men and women the forgotten man along the campaign trail. Hillary Clinton called them deplorable and irredeemable. Trump has an opportunity to convert working folks to the Republican fold for a generation. The Carrier deal is a great start. Polls show strong public support for the Carrier deal, so clearly it is a winner politically.
The president-elect can do tremendous good for our economy by using his bully pulpit to encourage businesses to stay and grow, improving the economic climate for all U.S. businesses and not meddling in the free market. His words and actions can set the tone for massive reinvestment by American companies. But any notion of new tariffs on U.S. companies is counterproductive.