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Gary, Indiana—in Deal with U.S. Steel—May Learn the Hard Way How Tax Breaks Can Backfire

Gary sought to entice U.S. Steel to invest in the town with incentives. Ben Thompson Flickr Vision

Subsidies have become a way of life for cities and states that want to woo corporations and expected jobs. And Gary, Ind., along with the state, offered a $47 million incentive package in August 2018 to U.S. Steel, according to U.S. News and World Report.

The hope was that the $750 million the company would invest in modernizing a 112-year-old steel plant would preserve nearly 3,900 steelworker jobs. President Donald Trump’s steel tariffs made the move economically viable.

But as the incentive deal continues to be negotiated, it turns out that jobs may be lost and not kept, as Reuters reports.

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U.S. Steel vice president Douglas Matthews told Reuters that “decreasing headcount over time” was more likely.

This makes the city of Gary—initially founded in 1906 by U.S. Steel and named for company co-founder Elbert Henry Gary—is the latest to discover that tax subsidies have left a lengthy trail of unmet promises.

The Kauffman Foundation has found that incentives only tend to shift jobs between states, not create new ones, as CBS News reported.

University of Texas at Austin professor Nathan Jensen and PhD student Calvin Thrall, writing in The Conversation, discovered that announced deals frequently get renegotiated privately, cutting back on the jobs promises.

Boston, for instance, offered General Electric $25 million in tax breaks to relocate its corporate headquarters from Connecticut. But after the deal announcement, GE cut jobs in its Boston temporary office, though the troubled conglomerate is still promising to create 800 new jobs in the city by its 2024 deadline.

As Jensen separately wrote in the New York Times, incentives often take tax revenues away from other local needs like education. A report from the site Good Jobs First, which tracks subsidies and incentives to corporations, found that public schools across the country lost $1.8 billion in 2017 when funds were redirected to corporate subsidies.

Or there’s the example of the incentives offered to Amazon to open a major campus in New York City. Initially, some of the enticements were tax breaks for developing poor areas. Amazon said in late January that it would now decline those breaks.

Often, winning an incentive bid for business can mean losing.

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