PGHIMC - Pittsburgh Independent Media Center

Transferring Wealth
by Sudhama Ranganathan Sunday, Feb. 22, 2009 at 6:33 PM
uconnharassment@gmail.com

Our economic crisis has had a sobering effect on how we view taxes. This is especially true for financing private organizations using public funds. We believe for the most part we live in a market based economy, barring emergency situations, where competition is the rule and whoever has the better product for the best price ends up getting consumers. It’s part of our national value system and we believe in free markets.

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We became a more prosperous country compared to thirty years ago until our current predicament. That didn’t translate to more dollars in the pockets of everyday Americans. As investigative journalist David Cay Johnston pointed out, since 1973 when taking inflation into consideration the bottom 90% of Americans in 2005 brought home over $70 dollars less per week. While this figure held steady the top 1% between 2003 and 2005 alone enjoyed an increase in income greater than the total income of the bottom 20% combined.

Of course we believe this was all done through smart choices, diligence and hard work. Indeed some of it was, but there is a flip side to that coin. Many researchers and journalists like Johnston discovered some of the money that made the wealthiest companies wealthier came from public financing. This occurred long before bailouts and, like exorbitant executive bonuses we have heard about, is just as disconcerting.

One method of transferring tax dollars to large corporations is something called TIF’s or Tax Increment Financing. This is a method by which a certain area of a municipality is deemed in need of economic uplift and worth investing tax dollars in. It is typically proposed that in the long run new income, jobs, tax dollars and increased property values will grow out of the investment. So the city agrees to finance part and usually all of the construction costs by diverting or increasing local taxes.

Often the centerpiece of such an investment is a large retail giant like a Wal Mart or Target etc. The retail giant almost always gets a deal for agreeing to build in the municipality generally including giving them not just tax dollars for construction and a partial if not total break on property taxes, but all sales taxes generated by the store for a certain period of time. The city or town does so under the assumption the deal will benefit them in the long run by increasing revenue and under threat the next town over will get the store.

But after years of TIF implementation, studies say otherwise. What usually happens is the economic boost in the area designated a TIF zone is offset by a loss of revenue in other parts of the municipality. So the city stays where it was or would have been. In fact studies show there is often no overall growth or negative growth. One study of 235 TIF municipalities in Chicago revealed “property values in TIF-adopting municipalities grew at the same rate as or even less rapidly than in non-adapting municipalities” (Dye and Merriman 2000).

As the research shows evidence of zero to negative growth the taxpayers who foot the costs end up paying the tab. On top of that money that would have gone towards better roads, emergency services and schools just to name a few things are poured into the pockets of wealthy corporations who are often the only ones to benefit.

Johnston pointed to a particular store in Pennsylvania. The city was sold by alluring sales pitches of millions of people coming annually to their store from instate and out of state. Local stores selling the same things were unable to compete because the giant store had zero construction costs, as that was covered by tax dollars, plus they kept all their sales tax. The smaller local stores still had to pay sales taxes and taxes the smaller stores were paying went to help finance the giant store’s construction. They were legally forced to pay for their own demise. That isn’t exactly letting the market decide.

The parent company of the big store during the first three years they were publicly traded reported profits of $220 million, but reported getting $294 million in taxpayer dollars from subsidies related to the TIF deals. The company wasn’t making money by doing business at all they were profiting from tax dollar soaking schemes. The fact is those deals hardly ever work out to benefit the town. They benefit companies who come to town with slick sales pitches and promised jobs, increased property values, tax revenues and increased traffic for surrounding businesses which rarely materialize.

These deals have not stopped with our financial downturn and we may be more vulnerable to them now out of desperation to increase revenues to our towns and cities. TIF’s were created to aid areas ailing from blight in the 1950’s but have become a way for corporations to harvest dollars from our pockets by having us pay more taxes or shifting taxes to them. A study by the Neighborhood Capitol Budget Group in Illinois looked at 36 TIF districts which did this despite the fact property values were rising when the TIF was implemented. The study found $1.6 billion would be raised from those TIF zones over a 23 year term, but also found $1.3 billion would have been raise anyways due to the already established property value trend. $1.6 billion was invested in the end for a return of $300 million.

Most people agree taxes for things like emergency services, schools and road maintenance benefit those whom they serve. But a scheme forcing us to pay increased tax dollars which only get shifted to the already wealthy is shady.

Currently we debate and argue about giving subsidies to large companies and even nationalization. But for years we have already been subsidizing one third of all Wal Mart stores and give so much in subsidies to Cabela’s they were able to report hundreds of millions in profits where otherwise they would have been in the red. The devil here is in the details taxpayers beware.

To read about my inspiration for this article go to www.lawsuitagainstuconn.com.

www.lawsuitagainstuconn.com

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