Boeing’s Model for the New Global Corporation is a Recipe for an America Without a Middle Class
Boeing built an assembly plant in North Charleston, South Carolina, by extracting a 63% discount on its property tax from the county — plus reimbursement for half of the remaining taxes it did agree to pay. Some of the tax breaks may last beyond 2060.
“Low business costs generally translate into low wages and low tax revenues. Low wages generally translate into low incomes, and low tax revenues generally translate into low levels of educational expenditure and other government services. And low income and low services generally translate into a low quality of life.” - University of Kansas, study 2004
War Between the States
One way Boeing wins lucrative tax concessions is by forcing a public contest among states for a new Boeing investment. Boeing has been at the center of three of the most celebrated cases of site-location competition in recent U.S. history: the location of the first assembly line for its new 787 Dreamliner passenger airplane; the re-location of its corporate headquarters away from Seattle; and the location of the second 787 assembly line. All three were high-profile national campaigns, with publicity in national, local and trade newspapers pressuring officials in many places to create tax-break packages larger than had ever been proposed in those states.
South Carolina
Boeing received about one billion dollars in tax incentives to select North Charleston, South Carolina, as the site of its second 787 assembly line. South Carolina had not landed the first 787 assembly line — which went to the Seattle area — but was selected as a major subassembly site. Details of South Carolina’s bid for the second assembly line began emerging in October 2009, when the state legislature went to work on an incentives deal. Boeing’s decision to build there came later that month, after the passage of an incentive package. At the time, no one was sure about the details of what Boeing would receive nor the total value of the package, despite legislative action.
As late as January 2010, the Charleston Post and Courier reported that “months after celebrating the groundbreaking for a massive jet assembly facility in North Charleston, state officials credited with luring Boeing to the Lowcountry say they still don’t know what all the incentives offered to the aircraft giant are worth.”
The price tag didn’t seem to matter, though initial estimates pegged the ultimate value of state and local tax breaks at about $450 million, by far the largest ever given in the state. Later, state officials who had trumpeted the $450 million value backed off, with comments such as, “I don’t know where the $450 million (figure) came from.”
“Of the 163 state and county officials in South Carolina who voted on the deal, it was difficult to find a single person who claims to know what incentives were actually worth.”
Through its research — difficult because both government officials and Boeing tried hard to avoid releasing details — the newspaper concluded in January that “the incentive package South Carolina promised to Boeing is worth more than $900 million, at least double the highest estimate first circulated by state officials.” One of the reporting team that compiled the estimate later told the Seattle Times, “These are lowball estimates, counting only the incentives we could put a reasonably firm value on…I would expect the (final) value is well above $1 billion.”
The package of tax incentives for Boeing on behalf of South Carolina includes at least the following:
- Property tax breaks in Charleston County worth at least $360 million over thirty years. Boeing’s new factory would pay property taxes of 4% rather than the usual 10.5% on the assessed value, and half of the property taxes the company would pay would be rebated back to the firm for fifteen years;
- Up-front money to Boeing through a state-issued bond of $270 million, which would require about $399 million in total including interest payments (all paid by the state);
- Ten-year property tax exemptions on the two specially-designed aircraft Boeing uses to transport large aircraft subassemblies. Each plane is valued at about $250 million and the tax exemption at more than $100 million.
- Training costs of $33 million, paid by the state;
- A grant of $5 million to help Boeing pay for site preparation;
- Job tax credits, up to $12,500 per worker, to offset state income taxes;
- A $150,000 study by the County of traffic needs around the airport;
- And $100,000 as a utility tax credit to help Boeing with road and utility construction expenses.
This is the package agreed to in order to secure Boeing’s investment. It does not include other costs required by the deal. For example, two new major road construction projects, aimed at alleviating traffic congestion around the airport and Boeing’s new plant, are to cost an estimated $155 million. And the state approved a $3.1 million program to train Boeing workers, in the South Carolina Technical College System. The approval, in February 2010, was accomplished using a special legal provision “last used in fiscal year 1994–95,” said a spokeswoman for the Technical College System.
What Is the Impact of Boeing’s Method?
Boeing wants its many demands met immediately. But the only way states and communities can afford the expensive infrastructure Boeing demands, while at the same time giving major tax breaks, is by borrowing from the future.
In South Carolina, the incentives given in 2009 last various time periods. The largest property tax breaks extend for 30 years. Others incentives are to last ten years and fifteen years. And if certain conditions are met, “some of the property tax breaks could remain in force beyond 2060,” the Charleston Post and Courier reported.
Are these states and communities in strong enough financial condition to manage while giving Boeing large tax breaks?
No. Especially with the recession battering state and local budgets across the country, the communities in which Boeing is receiving large tax breaks are struggling to maintain services while balancing their budgets.
Consider South Carolina, where the tax incentives begun in 2009. The state ran on an anticipated deficit of $1.2 billion for fiscal year 2010, or 20% of its total budget, and $1.3 billion in fiscal year 2011, according to the Center on Budget and Policy Priorities (CBPP). Its projected deficit for fiscal year 2011 is $1.3 billion.
The state is dealing with these deficits in the customary way: by slashing programs. South Carolina has already cut programs in public health, education at all levels from pre-school through K-12 to higher education, workforce development (except for Boeing) and service for the elderly and those with disabilities. The governor is further proposing to cap the state’s children’s health insurance package.
On top of that, the new Affordable Health Care law and poverty rates will mean an additional half million people eligible for the state’s Medicaid program. A state official determined that “it will cost $914 million in state funds over a decade to cover them.” Coincidentally, that’s just about the amount of tax breaks going to Boeing over that same time period.
Boeing and those who follow its lead drain resources from employees and governments while demanding investment in roads, sewers, and supplementary systems to facilitate expansion. The multiple demands leave state and local governments incapable of maintaining the intricate network of programs that are vital for communities to thrive. This also erodes the public sector framework for growing and maintaining a strong middle class — education, public health and safety, transportation, housing and investments in technology.
This is the bottom line for Boeing’s ‘cash cow’ approach to local government. The combination of demands for low taxes, low wages and high-cost infrastructure is unsustainable. In 2004, a review of state taxes by the University of Kansas summarized the consequences clearly: “Low business costs generally translate into low wages and low tax revenues. Low wages generally translate into low incomes, and low tax revenues generally translate into low levels of educational expenditure and other government services. And low income and low services generally translate into a low quality of life.”
That’s not how the company sees it, of course. Boeing and its top executives are self-consciously bold, buoyant, futuristic, optimistic. That’s why it calls the new 787 aircraft the Dreamliner. But Boeing’s ‘dream’ scenario clashes with the realities of how it conducts business.
Boeing makes impossible demands of communities that simply cannot be satisfied in a world of shared prosperity. The only way that states and communities can satisfy Boeing’s insatiable demands is by disassembling its prize public structures and borrowing unsustainably into the future.
In the long run, Boeing’s model for the new global corporation is a recipe for an America without a middle class.
