Kimberly-Clark Proves Tax Giveaways Don’t Stop Layoffs

Thursday, February 8, 2018 at 1:20 PM by

[Note:  This post has been updated to include an increased estimate of the cost of the Manufacturing and Ag. Tax Credit.]

One of the Fox Valley’s largest employers has announced it is closing two Wisconsin plants and eliminating 600 jobsbut that won’t change its eligibility to claim a state tax credit that nearly eliminates the requirement for manufacturers to pay state income taxes. That’s because businesses can claim the credit even if they lay off workers, shutter factories, or ship jobs overseas.

The Manufacturing and Agriculture Credit will cost the state an estimated $324 million in fiscal year 2018-19, which is a lot of money. For example, that’s more than all the tuition and fees combined paid by students in Wisconsin’s technical college system.

For such a big tax break, you might think that the state would require a great deal of accountability on the part of manufacturers receiving the credit. But in fact, there is no requirement that businesses create even a single job to receive the credit. Kimberly-Clark’s announcement illustrates that allowing a corporation to get away with paying next to nothing in income taxes doesn’t mean that corporation will increase the number of workers it employs.

Companies base their hiring and plant location decisions based on a variety of factors in addition to taxes, including the health and skill set of the workforce in the area, the reliability of the state’s transportation network, and the safety of the communities in which the plants are located. Giving enormous tax breaks to manufacturers makes it more difficult for the state to pay for these types of investments and public services that make the state a good place to do business and raise a family.

Nearly wiping out income taxes for manufacturers hasn’t done much to spur the growth of manufacturing jobs in Wisconsin. Wisconsin ranked 28th among the states in the rate of growth of manufacturing jobs between June 2016 and June 2017, based on the most current “gold standard” employment figures from the Quarterly Census of Employment and Wages. The number of manufacturing jobs in Wisconsin increased by only 0.8% during that period, compared to the national average of 1.1%.

While the Manufacturing and Agriculture credit doesn’t do much to keep jobs in the state, it does serve another purpose: to line the pockets of the wealthy and well-connected who have rigged the system to their benefit. The credit is strongly slanted in favor of the very rich, to the point where millionaires take home nearly three-quarters of the portion of the credit that is claimed through the individual income tax, despite making up only 12% of the claimants (and a much smaller share of the total population). In fact, just 15 credit claimantsall with incomes of at least $30 millionreceived a combined tax break of $28 million from this credit. That averages out to a tax cut of a whopping $1.8 million each for these extremely wealthy claimants. These figures are based on the Legislative Fiscal Bureau’s analysis of the costs and distribution of this credit.

Now, Governor Walker and other state policymakers are saying that nearly wiping out the requirement for manufacturers to pay income taxes is not enough, and that Wisconsin should also publicly subsidize a portion of each job that Kimberly-Clark (and potentially other companies in the same situation) identifies as threatened.

Given the high cost of the Manufacturing and Agriculture credit, its failure to spur employment, and its extremely slanted nature, Wisconsin policymakers should be seeking to roll back the credit. Instead, Governor Walker and other lawmakers have proposed giving an even bigger break to Kimberly-Clark (and presumably other companies) by paying cash subsidies to maintain employment levels, similar to a portion of the incentive package that the state offered Foxconn.

After the Foxconn deal, it’s not surprising that legislators in the Fox Valley want Kimberly-Clark to get similar cash subsidies, on top of the state’s other tax credits. But the Foxconn deal was extraordinarily generous, and the state can’t afford to throw cash at every corporation that is cutting jobs or threatening job cuts. Doing so would make it more difficult for the state to make investments in its communities and families, and would hurt the state’s long-term economic competitiveness.



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