April 22, 2013

TO:     Journalists Covering Gov. Perry’s Job-Piracy Trip to Illinois

FR:      Greg LeRoy, Good Jobs First (and a Chicago ex-pat)

RE:      A Background Primer and Questions to Ask

Texas Gov. Rick Perry is again trying to pirate jobs from another state, and again we are getting media calls.  Here is a primer on key Texas and Illinois issues to expedite the conversations.

1. Get the Hard Texas Jobs Numbers. They reveal that interstate job piracy is a costly fool’s errand. We issued a national study on this very topic in January, and it has passages devoted to Texas on pages 4-5 and 16-20. We document that Texas under Perry in his first seven years netted a microscopic 0.03 percent (three hundredths of one percent) of its jobs base annually from corporate migrations—at great expense given to a tiny share of footloose companies.

What is Perry doing to help existing Texas firms expand and new firms to start up? (Not to mention operate safely.)  Does he know that more than 9,500 business establishments with more than 110,000 jobs moved out of Texas during his first eight years in office? Where did they go and why?

2. Master the Texas Subsidy-Industrial Complex. Learn how private dollars (TexasOne)—some of them from site location consultants who profit from corporate relocations—bankroll Perry’s job-piracy forays. Learn about the Texas Enterprise Fund, where two-thirds of subsidized companies have fallen short on jobs, and where a fourth of recipient companies have given money to Perry’s campaigns or political proxies. The Wall Street Journal [8/13/11] summed it up as “Rick Perry’s Crony Capitalism Problem.” And the New York Times wrote at length about tax consultant (and big Perry backer) G. Brint Ryan.     

Which consultants are accompanying Perry to Illinois? How much do they get paid when consulting for footloose companies? How much money have they given to Perry’s campaigns and proxies?

3. Bone up on “Single Sales Factor.” When you hear large corporations in Illinois complain about the state’s decision to raise its corporate income tax rate in 2011, take it with a big grain of salt. That’s because chances are those companies pay tax to Illinois on tiny shares of their profits—thanks to a loophole named “Single Sales Factor.”

Prior to 1999, Illinois used the traditional formula for multi-state companies to determine how much of their income to apportion to Illinois. It had three equal factors: the share of the company’s payroll, the share of its property, and the share of its sales inside Illinois.

Take a hypothetical national company headquartered in Illinois (certain construction equipment, farm machinery, pharmaceutical, corn-syrup, cell phone and food companies come to mind). Say it has 40 percent of its payroll and 40 percent of its property in the state, but only does 4 percent of its sales there (because Illinois has 4 percent of the nation’s consumers). Averaging those three factors meant that such a company used to apportion 28 percent of its domestic U.S. profits to Illinois.

But with single sales factor, the first two factors go away. Only the 4 percent sales factor matters: the company pays Illinois corporate income taxes on only 4 percent of its profits. In other words, its tax bill just plummeted 86 percent.

And for that windfall that was sold in the name of jobs, jobs, jobs, the company incurs no obligation whatsoever to retain or create any jobs. Indeed, as we documented in a 2012 study, nine Illinois corporations that lobbied for Single Sales Factor or were publicly identified at the time as major SSF beneficiaries have since laid off more than 12,000 Illinois workers.

My advice to reporters interviewing Illinois companies: ask them what share of their U.S. profits are apportioned to Illinois. I’ll be very surprised if they disclose, but for big national companies, chances are the answers are low single digits. Next: ask them the actual dollar amounts they have paid in recent years in Illinois income taxes. (Some big Illinois companies pay nothing or owe so little that they have been unable to claim the income tax credits they are due under the state’s EDGE program.)

For more, here is our 2003 study, Chapter 3 of which recounts Illinois’ enactment of Single Sales Factor.

Bottom Line: There are public policy and business reasons why the efforts of three other governors to pirate jobs from Illinois have failed (Wisconsin’s Scott Walker, Indiana’s Mitch Daniels and New Jersey’s Chris Christie). Perry’s splashy effort is likely to fail, too.

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