
Memo: Foxconn cost to Wisconsin nearing $4.5B - aaronbrethorst
http://host.madison.com/wsj/news/local/govt-and-politics/memo-foxconn-cost-to-public-nearing-billion/article_83a3ab6e-6c7e-553e-ba97-976c9c32fe76.html/
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mfe5003
In my opinion, environmental regulation exemptions are the real cost to the
state[1]. Not to mention its kind of weird to give out an exemption, if the
standards are being lowered why is it just for this one entity?

[1] [https://www.wpr.org/wisconsin-foxconn-deal-waives-
environmen...](https://www.wpr.org/wisconsin-foxconn-deal-waives-
environmental-regulations)

~~~
clarkevans
I've never heard of anything like this. Is this common?

 _(1) Let Foxconn discharge dredged materials or fill wetlands without a
permit. The provision would apply not only to wetlands Foxconn fills when it
's constructing its 1.6 square mile complex, but also to wetlands it fills
once its new facility is fully operational. (2) Exempt the company from
another state law that requires businesses to create new wetlands when they
get permits to fill existing ones. (3) Allow Foxconn to change the course of a
stream, or straighten a stream without a permit. (4) Let Foxconn build on a
lake or stream bed without a permit. (5) Sidestep a state law that requires
environmental impact statements before businesses can begin construction.
(6)Let public utility projects begin for the Foxconn complex without approval
by the Public Service Commission._

Also, Foxconn gets "refundable tax credits" \-- does this mean state could end
up paying FoxConn cash (not merely a break on taxes)? is this also common? I
wish every small business could be _paid_ to create jobs.

~~~
bb88
> I wish every small business could be paid to create jobs.

I always thought tax credits for businesses were more related to numbers
rackets than to actual economic gain.

Here's a thought experiment:

I take one person from my company, fire him, and split the job into two
people. Both get paid less than half of the original guy I fired. Yet one of
the keeps the old title. Did I create a job? Yes. Did I grow the economy?
Doubtful.

While splitting one job into two seems far fetched, it's not that far fetched
to split 8 jobs into 10, say.

~~~
lr4444lr
Actually, you arguably shrank it if the new lower salaries both render the
receivers eligible for a greater share of public benefits while subjecting
them to lower marginal tax rates.

~~~
bb88
Yeah that's a good point, but that also means there's more rent being paid,
more food being bought. So it's probably at best a wash.

------
nathantotten
It is worth noting though that some of these costs are simply tax credits for
revenue that wouldn't be collected if the factory isn't build. So they are
comparing the "cost" to a basis that assumes the factory gets built and pays
normal taxes. Items in that group are:

* State tax credits, $2.85 billion * Local government incentives, $764 million[1] * State sales tax exemption, $139 million

When you add back the revenue that would be generated from 13,000 jobs the
state will come out well ahead.

Note, I am not in favor of the government picking corporate winners, but I
think it is fair to clarify that the state of WI is not paying FoxConn or
pulling money from other places (at least in a large portion of the line
items).

[1] I don't know what this actually is, but I would assume it means tax
credits based on various metrics (i.e. jobs created).

~~~
Twirrim
4.5bn / 15 / 13,000 = $23k cost per job created, give or take, plus the chance
for a boosting of local manufacturing. That seems perfectly reasonable.

~~~
maksimum
$23k tax collected / job created with a 7.65% state tax rate, roughly means a
$300k salary per job for 15 years. Sure sales tax and real estate taxes will
help some, so let's be generous and say you only need $200k in average salary
for 13k workers over 15 years. That still sounds completely unreasonable to
me.

I feel like governments would come out ahead if they refused to negotiate. I
guess with multinationals the nash equilibrium leads to governments all
ratting out each other... Isn't there something game theory can do to save us
here?

~~~
oarsinsync
The prisoners dilemma ultimately proves that in the short term, while you win
more if everyone works together, you ultimately risk losing less if you don't
work together.

Or rather, if you think another govt might blink and screw you, blink first
and screw them to avoid being screwed more by them.

------
redorb
I think this kind of subsidy is only slightly better than sports stadiums.
They both are shades of the bad parts of capitalism.

If only all states could agree to not give preferential treatment via tax
subsidies. It'd be nicer for companies to pick their location based on
geography and work force along with tax reasons.

~~~
leggomylibro
>If only all states could agree to not give preferential treatment via tax
subsidies.

Any reason a Federal law couldn't do that? Most states agreeing might be good
enough.

~~~
duxup
States have latitude on how they tax. I'm thinking it would be a debate as to
how much latitude and who could restrict them.

------
product50
Tax credits are not costs. If Foxconn didn't come to Wisconsin none of that
money wouldn't be realized. On the other hand, there is very little info in
the article on how having a Faxconn facility there will help with the direct
benefits which job creation brings.

Relatively speaking, the LA Rams stadium actually cost the LA county $2.6B and
there are few direct revenue benefits of it. Otoh, having a city NFL, one can
argue increases citizen happiness, which is why this might be worth the
investment.

~~~
rtpg
There's the third option of Foxconn building the factory in WI despite there
not being tax credits offered.

Very few would make the argument that the EITC doesn't cost money because
without it people wouldn't have kids. There's likely a correlation, but it's
far from an "all or none" situation.

The "simplest" thing to do is to recognize tax credits as expenditures,
because it balances things out pretty well and is probably closer to reality.
The reality where companies build factories because they need them, and tax
credits help but aren't the main reason.

(Thought experiment: we outlaw tax credits for building factories worldwide.
Do factories stop getting built entirely?)

~~~
nothrabannosir
Your thought experiment already alludes to this: states can compete. If
anything, the only thing that was “really” lost, practically, is the
difference between WI and the second best offer.

There is no way a company with choice would ever go for a state which
unilaterally put its foot down. You need an authority to say: no more credits.
Or to otherwise put a quota on credits. That would balance things out. But
until they do, it’s a tragi-economic race to the bottom. Nash equilibrium and
all that :(

~~~
oarsinsync
See the prisoner's dilemma. In the short term, the most likely way to win is
to ensure everyone loses.

------
a2tech
Getting Foxconn to Wisconsin is going to end up being a ridiculous boondoggle.
They’ll reap the rewards of massive tax cuts and Wisconsin will never see any
upside.

~~~
blisterpeanuts
Jobs are not an upside?

~~~
kristopolous
Nearly everything creates jobs. An uptick in car crashes or a catastrophic
flood would create crisis management jobs and all the insurance and
construction infrastructure jobs that go with it.

Exxon Valdez was the most job creating oil tanker to ever sail. Think of the
thousands of jobs that have been created to clean that up.

"creating jobs" is a placeholder for "economic activity" with the benefit of
always making it appear positive.

It's a euphemism that's used when nothing more legitimate can be found.

In the business context it's insidious in yet another way. Deals and contracts
that will make certain privileged people gobs of money is presented as "job
creating" because people are needed to execute the deal or do the dirty work.
In this case, the Wisconsin tax payer is paying $1,500,000 to foxconn for each
job.

The focus is removed from the cost to society, who benefits the most, or the
structure and merits of a particular event. They get papered over with the
economic equivalent of rainbows and puppies: "job creators".

~~~
blisterpeanuts
Spoken like someone who has a job.

There are hundreds of thousands of people in this country who could use the
work. Why limit their opportunities?

~~~
kristopolous
It's presented as "This is a non-zero net job thing!" without questioning it.
This is a problem. Are the taxpayers squandering say $20 million for creating
a minimum wage part-time, 2 week gig? Well let's not limit the opportunity
here! Let's waste those 20 million dollars! We're just losing 99.9985% of our
principle. What a great investment!

A bad policy fundamentally limits the number of jobs in the long run because
by then you've already spent the money poorly, in a way that didn't lead to
many jobs at all.

If you could "create X jobs" one way and that would lead to "X*3" jobs later
on, wouldn't you want that instead of something that creates "X/4 jobs" in a
temporary environment and leads to "create 0 jobs" later on?

If that's the only thing you care about; not the environment, type of job,
structure of the work, sustainability of the practice, actual pay, health,
culture, well-being of society, if it's only the total quantity of jobs, then
it's still a wasteful squandering of resources because you can get "more
created jobs" for less money many other ways.

We have to do better than just saying "ok" to every bad deal that comes along.

------
InclinedPlane
The concept that America is not substantially a crony capitalist economy is at
present untenable. There are too many examples otherwise. And if people don't
see this development as a primary threat against every principle the US was
founded on they are either not paying attention or deluding themselves.

~~~
PeterStuer
At the risk of sounding pedantic: how do you prevent a capitalist economy, an
inherent cumulative system that in practice can not be separated from the
meta-system that regulates it, from turning into cronyism?

~~~
InclinedPlane
I suspect you're looking for some sort of iron clad algorithmic solution that
is good for all cases, that's not how it works. The answer is the same as
always: eternal vigilance. An educated and engaged electorate. A functional
media. And the ability of the government to course correct as necessary.
Institutions that feel they are accountable to the will of the electorate.
There are, of course, many examples of this not working, but there are
examples of it working as well (trust busting around the turn of the 20th
century, the breakup of ma-bell, etc.)

------
patio11
Predictably, $3 billion is simply a negotiated discount on fees in return for
Foxconn choosing Wisconsin over a state not willing to discount fees.

~~~
throwawayjava
I understand what you're saying, but I think you're wrong, for two reasons.

1\. There's a reason that foxconn wants to manufacture in the USA, and there's
a reason they're courting states in the great lakes region. Resolving the
Prisoner's dilemma becomes much easier when there are ~3 states with viable
sites as opposed to 50.

2\. See guelo's comment.

Your point is well-taken in general, but in this particular case, IMO, it
really is a stupid giveaway.

------
oneplane
Would make more sense to just hand the money to the people that would get
those 'jobs' and be done with it?

~~~
bduerst
Or giving $4.5 Bn tax credits to SMBs across the whole state, instead of just
one business in one town in the furthest corner of the state.

------
oftenwrong
$4.5B + the long term liability of maintaining all the new infrastructure

Wisconsin is already far behind on the infrastructure maintenance front.

------
propman
I don't disagree with giving out tax credits, I jut disagree with giving them
to unreliable companies like Foxconn without a more firm contract. I also
potentially disagree with how big the breaks are.

Tesla received a $1.3B incentive from Nevada and a bunch of other perks. At
the time, I believed it was a clear net positive for Nevada and I haven't had
the chance to look in depth about this deal, but I hope it's the same here.

This isn't a Republican or democrat thing by the way. Both sides do this about
equally. Just like Amazon bidding for their campus.

------
coldcode
I assume the 13,000 supposed jobs require skilled workers being found to want
to live in Wisconsin in a time of full employment. I also assume Foxconn wants
to pay them wages similar to the ones in China. Good luck with that.

------
vadimberman
In addition to what the others pointed out:

* Worker training, $20 million

* Utility costs, $140 million

Does the state pay for that?

* U.S. Interstate 94 North-South project, $408 million

* Road improvements, $134 million

How is improving the infrastructure a bad thing? FoxConn is a great excuse but
they should be doing that anyway, no?

------
s73ver_
So, when employees want a raise from their employer, they generally have to
work at the higher level for a while before they get the raise. Essentially
working at a discount for a while, until the employer has decided to give the
raise.

Why don't we require the same of companies asking for tax breaks? We'll give
you the tax break AFTER you've been around for a bit, and you've proven that
you're worth it, and that you'll actually do the things you promised you'd do.

~~~
withdavidli
The best time to negotiate is before you start.

~~~
cptskippy
I thought it was after you got them to sign the contract?

------
Feniks
Still amused that the jobs Trump promised will end up to be Foxconn jobs. Not
really the jobs people wanted and certainly not the jobs that will rebuild the
nation. And ofcourse those jobs will be automated in 20 years max anyway.

The Chinese are not stupid, they're actually moving away from light industry.
Decreasing state subsidies.

------
angel_j
And Steve Jobs told Barack Obama those jobs weren't coming back!

~~~
mikeash
13,000 jobs is essentially indistinguishable from zero if you're looking at a
national scale.

------
partycoder
Note it's a cost not a loss. There's a difference.

I hope there's a good return on investment in a reasonable amount of time.

~~~
ngharo
I hope it's better than giving $100,000 in credits to 30,000 small businesses
in the greater Milwaukee area.

~~~
partycoder
This is an attempt to set a precedent of successful investment on American
manufacturing.

Is this idea in particular viable? Probably not.

~~~
moorhosj
This doesn’t make sense, Foxconn already publicized their intention to create
these jobs. The incentives just made it more economically feasible for them to
do it in this state. Race to the bottom is a phrase that comes to mind.

~~~
partycoder
Many countries give short-term incentives to attract long-term foreign
investment.

Some countries go as far as providing guarantees for investors in their
constitution.

~~~
bduerst
Developing countries, sure, and they run a huge risk of propping up an
unsustainable economy. Especially when those incentives run out.

Just look at how Argentina's incentives for Blackberry panned out:
[https://www.npr.org/2017/02/23/516895101/when-argentina-
elec...](https://www.npr.org/2017/02/23/516895101/when-argentina-elected-a-
populist-president-some-companies-left-the-country)

~~~
partycoder
All investments have associated risks. e.g: Microsoft invested in Nokia and
turned out bad, except for the acquisition of a substantial IP portfolio.

------
jstewartmobile
Will Racine get the suicide nets up-front, or will that have to wait until...
later?

[http://www.telegraph.co.uk/news/worldnews/asia/china/9006988...](http://www.telegraph.co.uk/news/worldnews/asia/china/9006988/Mass-
suicide-protest-at-Apple-manufacturer-Foxconn-factory.html)

------
nickysielicki
I am a Wisconsinite, and I voted for Republicans that are pushing this into
place. This whole thing stinks and I'm upset about it. I voted for job
creation through lower taxes, not job creation through direct corporate
handouts and bribery.

Outside of principled arguments against this sort of thing, one blatant issue
is that Wisconsin taxpayers are paying for something that bolsters job
creation in the _Chicago_ Metropolitan Statistical Area. Racine is not
Milwaukee, Racine is Chicago. The jobs being created and the local economy
stimulus are going to spread to Elgin and Waukegan before it makes its way to
West Bend and Janesville.

edit: also, why is this on HN?

~~~
549362-30499
At the risk of taking this wildly off-topic, how you reconcile the massive
failure of low taxes = jobs = more revenue in Kansas state politics over the
last few years? Is there something about Kansas that makes that lesson not
apply here?

~~~
nickysielicki
Any kind of response I would give here would just be regurgitation of junk
articles I've read, sorry.

------
chiefalchemist
On the bright side, it's pocket change compared to the F-35.

Https://politico.com/story/2014/02/f-35-fighter-plane-costs-103579

------
blisterpeanuts
The title is misleading; Foxconn's plant is not costing Wisconsin anywhere
near $4.5 billion, according to the article itself. In reality, the state is
outlaying very little money to bring in this company, probably about $20
million total. Even the interstate improvements are cited as previously
planned and not a special accommodation to Foxconn, except that it was moved
up in priority.

Tax exemptions and credits are a common method of enticing businesses to set
up shop. The notion that this somehow "costs" the state is mere rhetoric with
no factual basis. The money the state is supposedly losing by not taxing the
plant never existed. If Foxconn never moved there, there's zero potential of
tax revenue. The fact that Foxconn made a deal with the state for a package of
tax incentives merely means the state won't collect theoretical corporate and
property taxes from this entity. The state is not paying money out of the
treasury to Foxconn.

What the state does get from Foxconn is _jobs_. Three thousand jobs is
significant, even in a moderately populous state that's already doing well.
The employees pay state income tax (ranging from roughly 4% to 7%), they'll
spend their paychecks on food, cars, homes, and consumer goods, and the ripple
effects will be quite beneficial. The initial construction will employ lots of
people as well--builders, inspectors, security, suppliers, utilities, etc.

It's interesting that the Asian countries have long recognized the benefits of
plants and factories, whereas in the U.S. people have come to regard these
efforts as a bad thing, polluting and greedy and tax evaders. Singapore one
time offered HP ten years tax free in return for setting up a laptop factory
there; they understood implicitly that technology employment is beneficial to
the local economy.

I frankly can't understand why people (aside from NIMBY neighbors who don't
want the increased traffic and activity) would characterize this excellent
development as a net negative.

~~~
kenoshathrow
_> aside from NIMBY neighbors who don't want the increased traffic and
activity_

This made me laugh. Let me try to explain why. Kenosha/Racine are about as far
from SF Bay / crowded metropolis as you can get. They're bedroom communities
of Chicago and Milwaukee with one or two major local employers.

So, trust me, none of the locals care about the traffic/activity. If anything,
they welcome it.

However, locals _do_ care about the environmental impacts. Tourism, growth of
bedroom communities, and other economic activity related to the location's
environmental appeal helped the local economy sustain the hit from auto
factory closures. A dirty, polluted lake would rob this region of a somewhat
unique/defining natural resource. And the locals know all too well that
factories come and go.

So, far from NIMBYism, there's a very intelligent and hyper-rational, purely
economic concern about the economic impact of degrading the local ecosystem.

~~~
blisterpeanuts
The assumption is that a Foxconn plant will destroy the local ecosystem. Any
evidence, or just plain anti-business nimby-ism at work here?

------
maxharris
This is all based on the premise that the $2.85b in tax revenue
_automatically_ belongs to the state in the first place.

I understand that most people agree with the above view, and they have what
they believe are good reasons to think that. (And no doubt many will reply
with these reasons...)

But I don't agree. I don't think that any such forcible takings are justified.
If people want (as I do) a government to protect them from a Hobbesian
nightmare, let them choose to pay for it voluntarily. Such a government could
publish lists of people who have paid, and how much they chose to pay, and
maybe with a brief description or statement outlining why. People could then
choose for themselves whether or not to have dealings on people on the basis
of what they find in that list.

One benefit of this is that you could say, "not a dime from me because you're
invading Iraq," or "none of my money may be used to fund executions, drug
prosecutions..."

~~~
wpietri
One of the useful things science fiction taught me was to look for where the
magic comes in to a fictional world. E.g., travel at sub-light speeds makes it
inconvenient to write about interstellar empires, so the author creates a
magic FTL drive covered over with science doubletalk.

The magic in your fantasy is infinite cognitive capacity. As if each person
could carefully look at the list of hundreds of millions of taxpayers across
federal, state, county, and city jurisdictions, extract all the information
they needed, fairly contextualize it in the total economic and social
environment, and then respond appropriately when they meet somebody new over
dinner. All the while managing to live their lives, do their work, raise their
kids, etc, etc. And that's not even counting the labor of figuring out the
correct amount to pay for each function of government, which on its own is an
impossible task for a single individual.

In practice, with human cognitive limitations, what we'd have is chaos,
parasitic behavior, and a race to the bottom. Which is why we have a system
where the free rider problem is instead solved by having a variety of locales
one can move to so that individuals can choose the sort of public investment
approach they'd like to live under. If you would like to live in 19th-century
conditions, you can buy a chunk of land in the middle of nowhere for
approximately nothing.

~~~
skmurphy
"The magic in your fantasy" is a very good check for evaluating the mechanism
effects of a new product or service. Thanks for this!

