State Governments Promised Private Companies More than $10 Billion in Subsidies Last Year

“Governments often make deals with private companies, offering generous subsidies to encourage development in their respective states. The year 2023 was unfortunately no exception.
According to a new report from Good Jobs First, a watchdog group that tracks economic development deals, 16 states promised more than $10 billion to private companies last year. The group counted 23 “megadeals,” which it defines as any agreement involving at least $50 million in subsidies to a private company.”

https://reason.com/2024/01/05/state-governments-promised-private-companies-more-than-10-billion-in-subsidies-last-year/

The Feds Shouldn’t Subsidize Fancy, Risky Beach Houses

“By insuring risky property, Paul points out, “You’re actually doing the opposite of what you would think government would want to do; you’re promoting bad behavior.””

“Years ago, federal flood insurance encouraged my bad behavior.
I wanted to build a house on a beach. When I asked my father to help with the mortgage, he said, “No! Are you crazy? It’s on the edge of an ocean!”

Dad was right. It was a dumb place to build. But I built anyway, because federal flood insurance, idiotically, guaranteed that I wouldn’t lose money.

I enjoyed my house for ten years, but then, as predicted, it washed away.

It was an upsetting loss, but thanks to Uncle Sam, I didn’t lose a penny.

I’m grateful. But it’s wrong that you were forced to pay for my beach house.”

https://reason.com/2024/01/10/the-feds-shouldnt-subsidize-fancy-risky-beach-houses/

Georgia Taxpayers Lose $160,000 for Every Job Created by Film Tax Credits

“A new audit of Georgia’s Film Tax Credit program found that the state “loses money” on the program. A lot of money, actually: about $160,000 for every job the program creates. Georgia is now spending about $1.3 billion annually on the program, but it generates a return on investment of just 19 cents per dollar, the auditors conclude.”

“There’s no doubt that Georgia’s program has influenced where movie and TV production takes place. The new audit concludes that the program has induced “substantial economic activity in Georgia,” but that’s simply evidence of the fact that lighting a lot of money on fire will eventually produce some heat. The underlying numbers suggest that Georgia’s subsidies are doing a poor job of generating economic growth or creating jobs.”

https://reason.com/2023/12/18/georgia-taxpayers-lose-160000-for-every-job-created-by-film-tax-credits/

Ford E.V. Battery Plant in Michigan Named Worst Economic Development Deal of 2023

“Each year since 2018, the Center for Economic Accountability (CEA)—a nonpartisan think tank opposed to corporate welfare—has named its Worst Economic Development Deal of the Year, a dishonor awarded to the most egregious misuse of taxpayer funds nominally intended to spur economic growth.
This year, the ignoble honor goes to Michigan, which has awarded over $1.75 billion to Ford Motor Co. and Contemporary Amperex Technology Ltd. (CATL), a Chinese battery manufacturer. The two companies are jointly developing a factory in Marshall, Michigan, that would build lithium iron phosphate batteries for the automaker’s electric vehicle (E.V.) lineup.”

“facing strong economic headwinds, Ford announced it was “re-timing and resizing some investments.” While the Michigan plant was originally intended to create 2,500 jobs, Ford changed its pledge to 1,700 jobs and lowered its potential output by 40 percent, estimated to shrink the company’s financial investment by $1 billion or more.

Since Ford originally pledged $3.5 billion, Michigan’s contribution to the project could be nearly as much as what Ford plans to spend on its own factory. Gov. Gretchen Whitmer, a Democrat, told reporters that Michigan’s investment may be “resized” as well, and “as Ford has had to make some changes…the state’s role will change as well.”

Of course, the deal’s merits were questionable from the start. When the project was first announced, Whitmer’s office claimed it would have “an employment multiplier of 4.38, which means that an additional 4.38 jobs in Michigan’s economy are anticipated to be created for every new direct job.”

This is a fanciful notion. Tim Bartik of the W.E. Upjohn Institute for Employment Research has estimated that a more typical multiplier on a local or state level is between 1.5 and 2. Last month, Bartik calculated the estimated benefits of Michigan’s proposed investment; while he was broadly positive, he noted that a 4.38 multiplier was “very high,” and “if the Ford project had a more typical multiplier—2.5 rather than 4.38—the project’s gross benefits would be less than the incentive costs.””

https://reason.com/2023/12/05/ford-e-v-battery-plant-in-michigan-named-worst-economic-development-deal-of-2023/

Congress Spent $7.5 Billion on E.V. Chargers. After 2 Years, None Are Built.

“”The slow rollout…primarily boils down to the difficulties state agencies and charging companies face in meeting a complex set of contracting requirements and minimum operating standards for the federally-funded chargers, according to interviews with state and EV industry officials,” the article notes.
Even with federal funds, part of the problem may also be cost, because the chargers are quite expensive to build and maintain. The types of chargers mentioned in the law are either Level 2 or Level 3, also known as Direct Current Fast Charging (DCFC). Level 2 chargers use alternating current electricity and take between four and 10 hours to charge an E.V., while DCFCs use direct current and can charge an E.V. in less than an hour.

Any long-term solution would prioritize DCFCs—no road-tripper will want to wait all day for their car to charge when fueling up a gas burner takes minutes. But DCFCs are considerably more expensive to install: A 2019 study by the Department of Energy found that while Level 2 chargers can cost up to $6,500 to install, DCFCs can cost as much as $40,000. Depending on factors like hardware costs, other estimates have put the price between $50,000 and $100,000.”

” Ultimately, consumer choices will dictate the future of electric vehicles; if people don’t buy them at their current price and with the current technology, then companies will either innovate or come up with something better. By merely subsidizing the current thing, the Biden administration is upholding the status quo and disincentivizing other innovations that could revolutionize the industry and make environmentally-friendly vehicles truly competitive with their gas-burning counterparts.”

https://reason.com/2023/12/08/congress-spent-7-5-billion-on-e-v-chargers-after-2-years-none-are-built/

Why Is Halloween Candy So Expensive? Sugar Protectionism.

“The series of subsidies and tariffs that the federal government uses to artificially inflate sugar prices in the United States cost consumers between $2.5 billion and $3.5 billion every year, according to a timely Government Accountability Office (GAO) report released today. Those protectionist policies aren’t the cause of the recent spike in sugar or candy prices, of course, but prices would absolutely be lower without them.”

“Those higher prices get baked—quite literally—into the cost of everything from Milky Ways to Sour Patch Kids. And, as the GAO also points out, this is a classic case of concentrated benefits for a special interest that results in huge, but very diffused, costs for everyone else: “Because the program guarantees relatively high prices for domestic sugar, sugar farmers benefit significantly, and sugar farms are substantially more profitable per acre than other U.S. farms.””

https://reason.com/2023/10/31/why-is-halloween-candy-so-expensive-sugar-protectionism/

Subsidized Flood Insurance Makes Storm Damage Worse

“The National Flood Insurance Program (NFIP), managed by the Federal Emergency Management Agency, was created in 1968 to help homeowners in flood-prone areas afford insurance. Federal law requires that mortgaged properties in designated flood hazard areas carry flood insurance, but insurance premiums in oft-flooded areas are significantly more expensive (if they’re even offered at all). The NFIP offers federal backing for policies that private insurers would not otherwise touch or that would be too expensive for most people to afford.”

“providing insurance to an otherwise uninsurable market comes at a price: A 2011 report by the nonpartisan Government Accountability Office (GAO) found that 22 percent of NFIP’s policies were issued at subsidized rates, about 40–45 percent of the cost of an unsubsidized policy. Between 2002 and 2013, the NFIP collected between $11 billion and $17 billion fewer in premiums than the market would have dictated.
As a result of charging premiums below market rate, the NFIP often runs over budget”

“The policies themselves don’t make financial sense. NFIP policy holders are not limited in how many claims they can file or how much money they can receive. As a result, more than 150,000 properties nationwide have flooded multiple times and received NFIP reimbursement each time.”

“An insurance company’s refusal to provide coverage in a high-risk area provides a disincentive to anyone who chooses to live there: When the inevitable happens, you’ll be responsible for the damage yourself.

But when the government assumes the risk on an insurer’s behalf and makes insurance cheaper than the market would dictate, it creates incentives for people to live in dangerous areas more likely to be battered by extreme weather events.

There is evidence that NFIP’s artificially cheaper policies have done exactly that. A 2018 study by Abigail Peralta of Louisiana State University and Jonathan Scott of the University of California, Berkeley, found that after a county joins NFIP, its relative population “increases by 4 to 5 percent” as residents stay in high-risk areas as opposed to moving away.”

“Two decades ago, John Stossel relayed the story of his beach house in the Hamptons, built on the edge of the water and insured for just a few hundred dollars a year through NFIP. It was fully or partially rebuilt multiple times over the years before finally getting washed away in a storm, with taxpayers footing the bill each time.

As the 2023 hurricane season gets underway, it’s high time for Congress to end the NFIP—a program that goes billions of dollars into debt providing subsidies to keep mostly wealthy people living in high-risk areas.”

https://reason.com/2023/08/30/subsidized-flood-insurance-makes-storm-damage-worse/

Industrial Policy Isn’t About Creating Jobs

“Government favoritism in the form of subsidies, tariffs, and other interventions allocates resources (labor and capital) differently than the way resources are allocated by consumers spending their own money. Ordinarily, businesses—spending their investors’ money—compete for these consumer dollars. Industrial policy rests on the assumption that such market outcomes don’t adequately support higher causes such as national security. If that’s true, it’s all the justification industrial policy needs. Nothing needs to be said about jobs.”

“As Noah Smith reminded his readers in a recent blog post, “Most of the actual production work will be done by robots, because we are a rich country with very high labor costs and lots of abundant capital and technology. Automated manufacturing is what we specialize in, not labor-intensive manufacturing.””

“Be wary of those who push industrial policy as a means of job creation. It’s a short-sighted approach that distracts us from the more important question, which is whether hindering the market allocation of resources is truly justified for national security or other valid reasons.”

Biden’s ‘Buy American’ Electric Vehicle Tax Credits Go Into Effect

“To qualify for a credit, an E.V.’s “final assembly” must occur in North America. If that sounds complicated for a consumer to figure out, the Department of Energy recommends searching individual cars by Vehicle Identification Number (VIN) “to identify a vehicle’s build plant and country of manufacture.” Past that, at least 40 percent of the battery’s minerals and 50 percent of its components must be sourced either from the U.S. or a country with which it has a “free trade agreement.” Those numbers will go up each year until they reach 80 percent and 100 percent, respectively. Meeting only one percentage requirement and not the other qualifies for half of the credit ($3,750).
The rules were written to exclude China. But China owns or controls the overwhelming majority of materials used in E.V. batteries. Not to mention, the European Union also lacks a free trade agreement with the United States. According to the Energy Department, only 14 vehicle models qualify for the full credit: five from Chevrolet, four from Tesla, two from Ford, and one each from Cadillac, Chrysler, and Lincoln. Some others qualify for half-credits due to sourcing requirements—for example, Ford manufactures the Mustang Mach-E’s battery in Poland—but American companies noticeably account for every single qualifying vehicle.

That’s a great deal for those four companies—Ford, General Motors, Stellantis, and Tesla—but a bad deal for everybody else. Numerous foreign automakers sell E.V.s in the U.S. but are disqualified from tax credits unless they build the vehicles domestically using parts sourced in a very specific way. Meanwhile, two versions of the Chevrolet Bolt—which uses outdated battery technology and was briefly taken off the market in 2021 when its batteries were catching on fire—qualify for the full tax credit under the new rules. So even though a consumer might find the similarly priced Nissan Leaf to be more reliable, a $7,500 tax credit might sway them away from it. That would be a boon to Chevrolet’s bottom line as it still gets to charge full price for the car, and the U.S. government will reimburse the purchaser at tax time.”

U.N. Climate Report Recommends Ending Fossil Fuel Subsidies

“There are two primary types of fossil fuel subsidies. Production subsidies offset the costs for companies involved in energy production. Consumption subsidies make the final product less expensive for consumers.”

“Fuel subsidies lower the cost of energy and incentivize consumption: When the price of fuel is artificially lowered, more people will drive and fewer will turn to carpooling and other commuting alternatives. After all, there’s a reason that demand for electric cars surges whenever oil prices spike.”

“A decade ago, a study published by the National Bureau of Economic Research estimated that ending all fossil fuel subsidies would decrease global consumption by 29 billion gallons annually.
Last year’s Glasgow Climate Pact was the first time an international climate agreement included a call to revoke subsidies. Even then, it came after significant opposition from developing countries such as India and China.

The IPCC report notes that ending subsidies can hurt “the most economically vulnerable.” But the IEA noted that “subsidies are rarely well-targeted to protect vulnerable groups and tend to benefit better-off segments of the population.” It recommends prioritizing “structural changes” over short-term relief, while the IPCC report argues that if you want to help poor people pay for transportation, it may make more sense to redistribute the revenue you saved by cutting the subsidies.”