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Sears Layoffs Shows Futility of Corporate Welfare

Pat Garofalo highlights one of the biggest problems with the corporate tax code, especially at it relates to the states. It turns out that getting to the bottom doesn’t guarantee you win the race:

Just a few months ago, Illinois gave retail giant Sears $275 million to keep its corporate headquarters in the state, after Sears threatened to move elsewhere (including, potentially, Ohio). To show its appreciation for receiving millions in taxpayer funds, as Greg Leroy pointed out at the Clawback blog, Sears announced last week that it will layoff 100 workers at those headquarters:

“Despite a huge subsidy package enacted by the state of Illinois in December, Sears Holdings Corp. has already announced layoffs at its headquarters in the Chicago suburb of Hoffman Estates. Last week, the retailer announced that 100 HQ staff will be laid off…That December deal, valued at up to $275 million, came after Sears threatened to relocate in headquarters to another state. Its predecessor company, Sears, Roebuck & Co., played the same “job blackmail” game in 1989. The $168 million, 23-year deal it won then was soon to expire when Sears Holdings announced it might again be footloose.”

I should add that Sears is not the main offender here, in my eyes. They are doing what businesses do by maximizing shareholder value. If business concerns dictate the loss of 100 jobs at the corporate HQ, so be it. The problem, in my eyes, lies with the state governments. They offer bribes to keep businesses in their state, bribes that cannot possibly produce a guarantee of jobs forever. If demand decreases or the company decides to restructure, they will downsize, and the fond memories of that bribe they received a year before will have approximately no impact on that decision. So states are just shoveling money to corporations for no real reason. After all, it’s not like Sears is the first company to try this.

Maybe states should try to secure a guarantee that would at least claw back some of the subsidies if the business lays off workers. But in this case, Illinois did. They just set the bar much higher than the current layoff totals. Under the agreement, Sears can lay off 1,850 workers without incurring a penalty. So you would have to view this initial round of layoffs as only a beginning.

Corporate welfare works great for the corporations, but not for the taxpayers and not even for the business climate in the states. If states would take that money in subsidies and put it toward educating the workforce, building first-class infrastructure and making their states attractive places to live and do business, maybe businesses wouldn’t be so successful in bribing them.

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David Dayen

David Dayen