Tax Breaks: When David Carries Goliath

Reno, NV, recently approved  $73 million in municipal tax breaks to insure that Apple Corp., the wealthiest corporation in the world, locates a data center  here to house its rapidly expanding cloud computing service.

When combined with state tax cuts, Apple will receive about $89 million in breaks over the next 10 years –  a 79 percent reduction in its tax burden that will include an effective sales tax rate of less than 1 percent.

 Meanwhile, Reno recently slashed its fire and police services because of budgetary woes.  Libraries seem to be closed more than they are open and once thriving casinos and  storefronts now feature seedy adult bookstores, lingere boutiques and tattoo parlors. The city, along with the rest of Nevada, ranks at or near the bottom of just about every national health and education assessment.

 Reno subsidizing Apple – a company worth $623 billion –  seems akin to asking David to carry Goliath on his shoulders. And for what? The Reno Gazette Journal says the Apple deal is expected to result in a grand total of 41 new full-time jobs to the region (not counting construction jobs to build the new facilities).

Officials said they “fast tracked” the Apple deal -  without any significant public input – on the theory that if Reno didn’t grab the deal, another municipality would.

 A new report by the National Employment Law Association blames unsound and irresponsible business tax breaks  for weakening state  unemployment compensation reserves around the country.

 NELA says 30 states were forced to borrow money from the federal government because they had weakened their unemployment insurance trust fund pool by providing ill-advised and unnecesary tax breaks to business.  These states will have to pay back nearly $1 billion by the end of September for federal funds borrowed to cover unemployment insurance.

  “A decade of tax giveaways when the economy was far more robust left most states’ unemployment trust funds depleted of reserves and woefully unprepared for even a modest downturn,” said NELA Director Christine Owens.  “Business lobbyists and their legislative allies engage in a cynical sleight of hand in trying to pin the blame for the unemployment funding shortfall and borrowing on unemployed workers, when the real cause is irresponsible financing policies leading up to the most severe downturn since the Great Depression.”

 Between 1995 and 2005, NELA reports, 31 states reduced employer contribution rates by at least one fifth, causing the nation’s average employer contribution rate over the decade to fall to its lowest point in the program’s 75 year history.

 NELA reports that at least ten states with a shortfall in their  unemployment reserves are now penalizing workers by passing legislation to reduce the number of weeks of benefits available to unemployed workers, severely restricting eligibility for benefits, or imposing measures designed to discourage people from filing UI claims.

Taxpayers too are paying the price for the unwise businrss tax breaks.  NELA estimates that states have  paid $3 billion in interest and penalties on what they’ve borrowed to pay unemployment benefits.

 According to the NELA report, Nevada, which has among the highest unemployment rates in the nation, borrowed $832 million from the federal government to pay unemployment benefits.

Reno, which, after-all, is a gambling town,  seems to be hoping that the Apple data center will magically attract high tech industries to the region, bringing jobs and prosperity.  A sucker bet? Not for Apple.