Corporate Welfare Needs to Get In-N-Out of Here
If you asked my childhood self to describe love, I would likely have sputtered out “roses are red, violets are blue, love is icky, it’s kinda like glue.” Over the years, however, I’ve learned a thing or two, whether from observing my parents, spectating desperate high-school relationships, or rewatching Hitch for the 7th time. From these experiences, I’ve determined to abstain from romantic feelings until I’m ready to bear the cost because contrary to what Sheryl Crow will tell you, love isn’t free.
While I now understand that Hollywood only portrays the fun side of love, Tennessee’s Department of Economic and Community Development (TNECD) has unfortunately watched too many rom-coms and been on too few dates. According to TNECD, their unrequited love is freely available for every large corporation. The only problem is that corporate welfare is costing Tennesseans and Tennessee businesses.
It’s time to shift the narrative on subsidization from free money to Tennessean’s money. Most recently, Tennesseans lost $2.75 million to California’s most notorious food chain, In-N-Out Burger. Here are three misconceptions and realities addressing their subsidization by TNECD.
Myth: Business is a product of subsidization.
Fact: Business is the byproduct of Tennessee’s attractive tax climate.
Chances are, at some point in time, you’ve relocated to a new home. If so, you’re familiar with the neighborly gesture of goodwill known as a housewarming gift. While flowerpots and chocolate certainly seem appealing, they were not the impetus for your decision to move. Your incentive to move was potentially business or family, but assuredly not gift baskets. Tennessee’s subsidization of In-N-Out is at best a housewarming gift with a hefty price tag.
Even with a pandemic recessive economy, In-N-Out’s 385 locations, scattered throughout the west coast, grossed the corporation well over a billion dollars in annual revenue. With all these burger sales, In-N-Out plans to invest $125.5 million in just their administrative Franklin-based office. TNECD in exchange offers a trifling chunk of change. Tennessee’s tax climate, on the other hand, is the true incentive, ranking third nationally as one of the best states for business.
TNECD should keep this general rule in mind: If a company needs a subsidy to persist, then the company simply shouldn’t exist.
Myth: Subsidization creates economic growth.
Fact: Subsidization distorts production and growth through the artificial creation of supply and demand.
While state and local incentives are only the 13th factor considered by large corporations relocating sites, welfare checks are an unfair hand dealt to many out-of-state actors. Corporate welfare may not be of significance to corporations, but it is, however, pertinent to local businesses who watch as the state and local government pick winners and losers. If subsidization allowed for just two additional In-N-Out locations, that’s several hundred meals a day diverted from unsubsidized local restaurants. Organic competition reduces prices, but artificially induced competition cherry-picks winners and losers while affecting local businesses, wages, and revenue.
To protect Tennesseans, TNECD should stay out by not picking winners and losers, because favoritism never works out.
Myth: Economists support subsidies.
Fact: Subsidies are defended by their political counterparts.
Government subsidization and job growth is a political maneuver classified by many economists as a broken window fallacy. The belief that $3 million in local government subsidies will create 277 new jobs is akin to the belief that eating Hershey’s chocolate increases happiness—-it ignores the consequences and is only a half-truth. The Broken Window Fallacy, popularized by economist Frederic Bastiat, reveals this half-truth by illustrating that growth may be illusionary if the overall output of a local government is shifted but unchanged. The millions gifted by TNECD to In-N-Out and other large corporations are tax credits morphed into corporate welfare.
As for the stigma surrounding the subsidization debate, let’s be clear that In-N-Out will create jobs and opportunities for many Tennesseans. For that, Tennesseans are grateful. On the other hand, subsidization is a costly, unnecessary, and a counterproductive restraint upon the free market.
TNECD, here’s one last rule: Tennesseans deserve some love too—-so keep in mind that money isn’t free, it’s actually costing you and me.