Saturday, December 20, 2008

UAW bailout - debating point du jour

I have been listening to a lot of talk radio about the auto bailout the past few weeks, and it is always interesting when I hear some of the arguments made by UAW members as to why their perks should be subsidized by the American taxpayer.   One that I have heard a few times is that it is OK for the Feds to bail out the big three because Southern States have been giving tax money to the foreign automakers to build in their states.
Is it true that foreign car makers get unfair tax incentives from Southern state governments?   This is kind of half true.   Now, for the record, I am not in principle a big fan of "targeted tax relief" in the form of incentives, as it reeks of state governments picking winners and losers.  Plus, I think sound tax policy focuses on making taxes as low as possible for all business, not just big ones looking to invest in your state.     That being said, it is true that Tennessee, Alabama, Georgia, Mississippi, and South Carolina have been very aggressive in putting together attractive tax packages to lure factories in their states.  
But what is also true is that the Big three have been playing this game for years in the Mid-West and Canada.  When Chrysler mulled expanding Jeep production, the State of Ohio and the City of Toledo made sure that there were ample incentives to expand on their existing site there.   When the automakers consider scaling back production in Ontario.   The Canadian government and the province of Ontario are there with massive packages of tax credits and loan guarantees.  The state of Michigan and the City of Detroit gave some generous tax breaks when GM bought and moved its headquarters into the Renaissance center. So, when your UAW flack talks about the "unfair" tax subsidies that foreign automakers got to locate in the South, tell them they were just following the lead of the big three.

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