This article was originally published in The New York Times on May 15, 2023.
President Biden and Vice President Harris recently announced their re-election campaign, with the president saying “Let’s finish this job.” Among the accomplishments they will be running on are the CHIPS and Science Act and the Inflation Reduction Act, which are designed to help the nation restore its domestic supply chain for semiconductors, promote renewable energy and improve climate resilience.
This legislation may be necessary and will yield benefits and jobs for years to come, but it has had an unintended consequence, which is to trigger an expensive incentive war between localities — with taxpayer money as the sweetener for corporations. Some programs, like the CHIPS Act, require state and local subsides to access federal dollars. Other programs are indifferent to bidding wars across states and cities.
Offering tax breaks and other incentives to corporations has been proved to be one of the least effective ways for localities and states to grow their economies. Yet the Biden administration and Congress may incite destructive races to the bottom — unless they make some sensible tweaks to the laws.
The bidding wars started in August 2022 in Lockhart, Texas, which was competing for a new semiconductor factory for Micron. After comparing Lockhart’s proposal — which offered billions in tax exemptions and utility subsidies — with those from cities in North Carolina and New York, Micron chose to build in upstate New York. The state offered a staggering $5.5 billion in tax credits over the life of the project, assuming Micron meets employment targets.