Subsidies

Apple Loses Its Sweet Irish Tax Deal

When governments in the United States decide to give special tax breaks to large corporations, the sky is the limit and no one can challenge that largesse. As Apple just learned to the tune of about $14 billion, things are different in the European Union.

The EU is much stricter about the tax benefits and other forms of financial assistance that can be given to companies. What is called state aid is not banned entirely, but it is supposed to be used only when it is “exceptionally justified” and does not distort competition.

Moreover, the European Commission can bring legal action when it believes that a member state has awarded state aid improperly, with the remedy being that the company has to give back the money.

Some state and local governments in the U.S. use procedures know as clawbacks to recover economic development assistance from companies that fail to meet job-creation or other promises they made to receive aid. The European Commission cases, by contrast, are not related to company performance but are instead based on an argument that the aid was illegitimate to begin with.

EU member states are supposed to get prior approval for state aid awards. Yet they often adopt practices, especially with regard to taxes, that the Commission may later decide constitute improper aid. That is what happened with Apple, which had received special rulings in Ireland dating back to the early 1990s that allowed it to avoid paying billions of euros in taxes in that country. Those rulings allowed two Irish subsidiaries of Apple that held valuable intellectual property licenses to exclude profits linked to those licenses from their taxable income in Ireland.

In 2016 the Commission challenged that arrangement and ordered Ireland to recover the aid. At the behest of both Apple and the Irish government, a lower court rescinded that order in 2020. The EU’s highest legal authority, the Court of Justice, just ruled the other way and put Apple on the hook for about 13 billion euros.

Legal disputes over state aid are common in the EU. Since 1999 the Commission has brought more than 300 challenges and forced companies to repay billions of euros. Yet it is also common for deep-pocketed corporations to appeal those decisions—and often they succeed. Amazon, for example, successfully appealed a ruling by the Commission against its tax deal with Luxembourg.

From what I can tell, the largest case prior to Apple in which a Commission challenge survived appeals was one in which the electric utility EDF had to pay back over 1 billion euros to the French government. When the Commission announced its action in 2015, the EU’s top competition regulator, Margrethe Vestager, was quoted as saying: “Whether private or public, large or small, any undertaking operating in the Single Market must pay its fair share of corporation tax. The Commission’s investigation confirmed that EDF received an individual, unjustified tax exemption which gave it an advantage to the detriment of its competitors, in breach of EU State aid rules.”

The Apple ruling reinforces the idea that special tax breaks are harmful both to competition and to fair taxation. We are a long way from that realization in the U.S., where tax deals and other incentives are widely treated as corporate entitlements.

Note: The Apple and EDF cases, along with much more, will be included in the forthcoming Violation Tracker Global.

Tax Credits and Fraud

The relentless corporate pursuit of special tax breaks is bad for the fiscal health of cities and states, but it is usually completely legal. An exception to this rule is taking place in New Jersey, where a well-connected company has been the target of a criminal investigation.

Holtec International, the company in question, is involved in various energy-related businesses, including the decommissioning of defunct nuclear power plants. In 2014 it was the recipient of a $260 million tax-related subsidy from the Grow New Jersey Assistance Program to create jobs at a facility in the struggling city of Camden. As the advocacy group New Jersey Policy Perspective pointed out, the deal had weak provisions relating to local hiring, training programs and even the number of jobs the company would actually have to create to get the tax benefits.

Despite benefitting from that largesse, Holtec got itself in trouble when it allegedly tried to cheat a different tax incentive program, the Angel Investor Tax Credit. The company qualified for a credit based on a $12 million investment it made in the battery company Eos Storage. That credit is capped at $500,000.

According to the New Jersey Attorney General Matthew Platkin, Holtec sought to circumvent that limit by trying to make it appear that it and a related company called Singh Real Estate Enterprises had each separately invested $6 million in Eos and thus could each claim the $500,000 credit. Holtec allegedly did so by submitting misleading documents to the state’s Economic Development Authority (EDA).

In announcing the resolution of the case against Holtec, the AG recently said: “We are sending a clear message: no matter how big and powerful you are, if you lie to the State for financial gain, we will hold you accountable — period.”

Yet Holtec is getting off easy. The AG allowed the company to enter into a deferred prosecution agreement instead of facing criminal charges. Under that agreement, Holtec must pay $5 million in penalties, forgo the angel investor credit and retain an independent monitor to oversee future dealings with the state.

Instead of showing appreciation for the leniency agreement, Holtec issued a sharply worded statement alleging that the entire investigation was retaliation after the state failed in a previous legal action against the company relating to that $260 million subsidy deal. The EDA had sought to rescind the award because the agency said it belatedly discovered that the company’s original application had not disclosed a disciplinary action brought against it by the Tennessee Valley Authority. That action, a temporary debarment, stemmed from a case in which Holtec was linked to improper payments made to a TVA manager to help secure a contract.

Holtec’s claim that its failure to mention the TVA debarment was inadvertent was accepted by the New Jersey courts and the tax credit was upheld.

This entire episode should serve as a reminder of the drawbacks of a system in which companies come to believe they have an absolute entitlement to tax breaks—and states don’t do enough to monitor the eligibility of applicants and the compliance of recipients. It also raises the question of whether there is more fraud in the economic development subsidy system than we have assumed.

Strings Attached

The Biden Administration is causing a stir with its decision to place some conditions on the massive subsidies that are to be awarded to semiconductor companies under the CHIPS and Science Act. A front page story in the New York Times quotes some economists and business advocates expressing concern that the requirements will detract from the main objectives of the law.

What has these critics upset are provisions that would require giant corporations such as Intel to provide child care for employees, pay union wages to construction workers, run the plants on low-emission sources of energy and avoid stock buybacks. An official at the U.S. Chamber of Commerce told The Times that such practices would “increase cost and delay bringing production online.” Not surprisingly, he argued that the administration should instead focus on “removing regulatory barriers.”

What these protestations ignore is that there is nothing new about attaching strings when government provides financial assistance to corporations. This is done frequently at the state and local level, where agencies providing tax abatements, cash grants, loans and other aid to companies in the name of economic development require the firms to meet job quality standards relating to wages and benefits. The practice is not universal but neither is it uncommon.

Until now, the federal government has tended not to offer large subsidy packages to individual companies, yet it has applied strings when bailouts were provided. For example, in 2009, amid the financial meltdown, the Obama Administration issued guidelines restricting executive compensation at large companies receiving help through the Troubled Asset Relief Program.

In the related area of federal procurement, there are long-standing policies promoting job quality standards. The Davis-Bacon Act, which became law in 1931, requires that contractors on public works projects pay their workers the prevailing wage in the area. The Walsh-Healey Public Contracts Act of 1936 set certain minimum labor standards for companies providing goods to federal agencies, and the McNamara-O’Hara Service Contract Act of 1965 did the same for service providers. In 2021 the Biden Administration raised the minimum wage federal contractors have to pay to $15 an hour, and it mandated project labor agreements, which usually raise pay to union levels, for federal construction projects costing more than $35 million.

This is not to say that the laws are always effective. Worker advocacy groups frequently point out employment abuses committed by federal contractors. Violation Tracker contains more than 9,000 cases in which employers were fined for failing to obey federal or state prevailing wage regulations. Hopefully, these fines led to higher levels of compliance.

Those challenging the CHIPS Act provisions promoting job quality and other public policy objectives are repeating arguments that have been made for decades by Big Business and its defenders. Despite all their free market-rhetoric, large corporations are happy to accept taxpayer-funded financial assistance. Yet they cannot accept the idea that the aid might come with some obligations.

The strings the Biden Administration is attaching to the semiconductor subsidies are actually not very radical, but they are a helpful step in the direction of making sure that companies receiving government assistance meet higher standards in their treatment of workers, communities and the environment.

A Major Rebuke to Corporate Arrogance

New York City’s progressive elected officials, unions and community activists have just delivered what may be the most remarkable rebuke to corporate influence ever seen in the United States. In forcing Amazon.com to drop its plan for a satellite headquarters campus with 25,000 employees, arranged through a deal including some $3 billion in subsidies, progressives have up-ended a decades-old dynamic in which large corporations have used job creation promises to get state and local officials to hand over vast amounts of taxpayer funds to underwrite private business expansion.

Traditionally, opponents of big subsidy deals were accused of being job killers and of ruining the “business climate.” Amazon’s opponents in New York overrode those criticisms with their arguments that the giant retailer did not need or deserve enormous tax breaks and that the city should be devoting its financial resources to more pressing public needs.

Part of what fueled the opposition was Amazon’s reputation as a low-road employer, especially in its distribution centers. The company made no attempt to hide this fact. When asked during a city council meeting whether Amazon would remain neutral during any organizing drives at its facilities, a company executive quickly replied: “No.”

What also helped is that New York’s economy is far from desperate and is much larger than the arenas in which Amazon is used to operating. For many places, the prospect of thousands of jobs could be a matter of survival. That’s why southeastern Wisconsin was willing to offer Foxconn billions in subsidies for a flat-screen plant that probably will never be built.

In New York, 25,000 jobs were seen less as the basis for an economic transformation and more as a recipe for a worsening of the city’s severe housing and transit problems. The side effects of a major project, which in the past were usually an afterthought, in this case took center stage.

More broadly speaking, what probably did Amazon in was its arrogance. It had spent more than a year conducting an elaborate HQ2 competition in which officials from more than 200 localities eagerly participated. Amazon came to view itself as kind of corporate divinity, to which communities were supposed to bow down.

Although Gov. Cuomo and Mayor de Blasio were among those participants, the people of New York were a lot less inclined to play the game. They simply could not understand why a megacorporation controlled by the wealthiest man in the world needed a handout from them in order to expand its operations. By scorning Amazon, New Yorkers are sending a powerful message to all large corporations: you should no longer assume that by dangling dubious promises of job creation you can raid public resources and ignore the social impacts of your expanded operations. Ask not what our communities can do for you, ask what you can do for us.

Should Taxpayers Foot the Bill for Rebuilding the Gulf Coast’s Petrochemical Industry?

Much of the Gulf region remains flooded, people are still being rescued, and the full magnitude of the damage is not yet known. But soon the center of attention will be the rebuilding effort and how to pay for it.

Texas Gov. Greg Abbott is talking about the need for a federal aid package well in excess of $100 billion. Whatever the amount turns out to be, the critical issue will be how the money is distributed.

It’s already clear that the petrochemical facilities clustered in southeastern Texas have been hard hit by the flooding, and there will no doubt be calls to use both federal and state financial resources to help repair these plants.

While there should be no hesitation about using public funds to help the people of the Gulf rebuild their lives, we shouldn’t automatically do the same for the petro giants.

The first reason is that these companies can well afford to rebuild on their own dime. Exxon Mobil, which owns the giant refinery in Baytown, earned more than $130 billion in profits during the past five years. The Motiva refinery in Port Arthur, another massive facility, is owned by Aramco, which in turn is owned by the fabulously wealthy government of Saudi Arabia.

Second, taxpayers made enormous financial contributions to the construction and operation of these facilities. As shown in Subsidy Tracker, the Motiva refinery was awarded a $257 million state and local subsidy package in 2006 to help underwrite its expansion. Earlier this year, Exxon and SABIC, another Saudi company, were granted a $460 million package to jointly build a petrochemical plant near Corpus Christi.

Apart from being subsidized, many of the Gulf region’s petrochemical plants have horrible compliance records regarding toxic emissions and worker safety. The most notorious example is the refinery in Texas City between Houston and Galveston that was previously owned by BP and subsequently sold to Marathon Petroleum. In the wake of a 2005 explosion at the facility that killed 15 workers, BP was fined a then record amount of $21 million by OSHA for a pattern of egregious safety violations in Texas City. The company failed to make the necessary corrections and was later hit with an even larger penalty. BP also had to pay nearly $180 million to settle a federal environmental case involving the refinery.

As shown in Violation Tracker, in 2013 Shell Oil had to pay more than $117 million to resolve Clean Air Act violations at its Deer Park refinery outside Houston. The chemical plant in Crosby, Texas owned by the French company Arkema, where flooding has caused explosions, was fined $107,918 earlier this year by OSHA for serious safety violations (company later negotiated a reduction down to $91,724).

Providing more subsidies for these facilities would in effect negate the impact of the penalties the corporations paid for their negligence.

Finally, there is the difficult question of whether all these facilities should be rebuilt at all, especially if taxpayer funds are involved. The Gulf refineries play a significant role in an energy system that exacerbates the climate crisis, which likely contributed to the intensity of Harvey. We may not be free of fossil fuels yet, but does it make sense to use public resources to prolong the life of facilities linked to extreme weather events that threaten our future?

Is Foxconn a Con?

It’s common for governors to stage publicity events to announce major job-creating investments in their state. This allows them to take implicit credit for a project that was probably helped along with tax breaks and other financial giveaways.

When it came to the Taiwanese company Foxconn’s plan to build a $10 billion flat-screen plant in Wisconsin, the hype was taken to a new level. Gov. Scott Walker and Foxconn’s Chairman Terry Gou made the announcement not at the state capitol but at the White House, where they were joined by President Trump, Vice President Pence, Speaker Paul Ryan and a host of other high-level officials of the federal government.

As you might expect, the event quickly turned into a celebration of the Trump Administration. Walker, Pence and Ryan, in whose Congressional district the massive plant is to be sited, gushed about Trump’s economic leadership, with Pence declaring: “Under President Donald Trump, America is back.”

That apparently was not enough for Trump, who found it necessary to celebrate himself even more. Referring to Gou, the President declared: “If I didn’t get elected, he definitely would not be spending $10 billion” in the United States.

The creation of numerous new manufacturing jobs is something that will be welcomed by the working people of Wisconsin, but there are reasons, beyond Trump’s political exploitation of the deal, to remain suspicious.

The first matter of concern is the company itself. Foxconn has a long history of abusive labor practices in its overseas plants, including those used to supply Apple. Conditions in the company’s Chinese plants were so bad that in 2010 there was a rash of suicides among overworked employees. The company installed nets on its plants to discourage workers from jumping to their deaths. Foxconn later claimed to improve its labor conditions but the company is far from a high-road employer.

Then there are the claims about the terms of the Wisconsin deal. Gov. Walker claimed that the plant would directly create 13,000 jobs. That was good for generating excitement, but it is a dubious figure. Manufacturing establishments no longer employ anything close to that number of workers.

Out of curiosity, I checked with the Bureau of Labor Statistics to see how many plants currently exist with 10,000 or more workers. It turns out the BLS does not have that information because, as an analyst told me, there are so few facilities of that size. The trend, of course, is toward higher levels of automation and much smaller workforces.

Then there’s the issue of who is paying for the plant. While Trump and the others praised the deal as an example of private sector vitality, Foxconn’s plant will be underwritten in large part by the taxpayers of Wisconsin. Walker said that the state would “invest” $3 billion in the project. That would be the fourth largest economic development subsidy package ever offered by a state.

Despite the promises of public officials, extravagant subsidies rarely provide economic benefits equal to the loss of tax revenue. Wisconsin has a particularly bad record in this regard. The Walker Administration and its privatized economic development agency have been at the center of a long string of controversies about cronyism and poor job-creation outcomes.

The Foxconn deal will provide political benefits for Walker, Ryan and Trump, but it is unclear how much good it will actually do for the people of Wisconsin.

Putting Apple in Its Place

Apple’s indignant response to the European Commission tax ruling has nothing to do with an inability to pay. The company’s cash pile of more than $200 billion could cover the assessment several times over. Instead, it’s something more akin to the attitude attributed to the late New York hotelier Leona Helmsley: only the little people pay taxes.

Large corporations like Apple think that what they do is so important that they should be able to skirt their fair share of taxes. Some of their dodging is covert and some is done brazenly out in the open; some is done against the wishes of tax collectors and some is done with their full cooperation.

The covert portion of Apple’s tax avoidance started to come to light in 2012, when the New York Times published an investigation of the company’s use of esoteric accounting devices such as the “Double Irish With a Dutch Sandwich” to route profits in ways that minimized tax liabilities or eliminated them entirely. A year later, the Senate’s Permanent Subcommittee on Investigations issued a report providing additional details on Apple’s tax tricks. It also held hearings in which Apple CEO Tim Cook insisted what the company was doing was simply “prudent” management while Kentucky Sen. Rand Paul brought shame on himself by declaring that Apple was owed an apology.

While Congress has done little to thwart corporate tax dodging, the EC used the Senate report to launch an investigation of Apple that resulted in the recent ruling. Now some members of Congress are making fools of themselves by protesting that ruling.

As Apple’s global tax dodging has gotten the most attention, the company has been able to avoid some domestic taxes with much less bother. That because states and localities routinely offer the kind of special tax deals to individual companies that are banned in Europe, more so now that Ireland’s attempted end-run was rejected.

This is seen most clearly in the subsidy packages that Apple and other tech giants such as Facebook and Google receive when they build new data centers necessary to handle the ever-increasing volume of human activity taking place in “the cloud.” Although the decision as to where to locate the facilities is based primarily on considerations such as the availability of low-cost energy (data centers are power hogs), these companies want to receive large amounts of taxpayer assistance.

As my colleague Kasia Tarczynska points out in a forthcoming report on the subject, companies such as Apple regularly negotiate subsidy packages and special tax breaks worth hundreds of millions of dollars for data centers that typically create only a few dozen jobs.

In North Carolina, Apple successfully pressured the state to allow it to calculate its income taxes through a special formula that will save the company an estimated $300 million over the 30-year life of the agreement. Local officials provided property tax abatements worth about $20 million more. All this for a project that was to create only about 50 permanent jobs. Despite its $1 billion cost, the facility did little to boost the local economy. “Apple really doesn’t mean a thing to this town,” a resident told a reporter in 2011. Apple went on to receive generous subsidy packages for additional data centers in Oregon and Nevada.

Apple’s various forms of tax avoidance are reminders that large corporations, even those that profess to have enlightened social views, don’t have respect for government and resent having to follow its rules. Rather than pay taxes and follow regulations, they prefer to make charitable contributions and undertake corporate social responsibility initiatives. In other words, they want to do things on their own terms and not comply with the same obligations as everyone else. Kudos to Europe for beginning to put Apple in its place.

Defending Disclosure

In 2012 proponents of financial deregulation managed to generate bipartisan support for a dubious piece of legislation that became the Jumpstart Our Business Startups (JOBS) Act. Among the provisions of the law was the requirement that the Securities and Exchange Commission review the provisions of Regulation S-K, which determines what publicly traded companies need to disclose about their finances and their operations.

Presumably, this process was meant to get the SEC to weaken its transparency rules, but the Commission seems to be approaching the issue in an even-handed manner. In April it issued a document called a Concept Release that reviewed the various issues and asked for comments from the public.

Quite a few progressive policy groups have responded with comments urging the SEC to tighten rules regarding the disclosure of foreign subsidiaries. In recent years, many corporations have been using a loophole in Regulation S-K to avoid listing entities that are likely to be vehicles for engaging in large-scale tax dodging.

On the last day of the comment period, my colleagues and I at Good Jobs First and the Corporate Research Project submitted our own comments that support that position on foreign subsidiaries but also address several other disclosure issues. What follows are excerpts from those comments.

Subsidy Reporting. A key piece of information about a registrant’s finances has been missing from SEC filings, thus giving investors an incomplete picture of a company’s condition: the extent to which the firm is dependent on economic development incentives provided by state and local governments and other forms of financial assistance from the federal government.

It is estimated that companies receive a total of about $70 billion a year in state and local aid, while federal assistance is thought to total about $100 billion. Our Subsidy Tracker database contains information on more than half a million such awards with a total value of more than $250 billion.

For some companies (including their subsidiaries) the cumulative amount of such assistance is substantial. In Subsidy Tracker there are more than 60 firms that have each been awarded $500 million in assistance, and for more than half of those the amount exceeds $1 billion. The most heavily subsidized company, Boeing, has been awarded more than $14 billion. Other companies, including start-ups, may receive sums that are smaller but which account for a larger portion of their cash flow or assets. There are many cases in which a company’s total awards reach a level of materiality.

Investors should know to what extent a company is depending on subsidies — whether in the form of tax credits, tax abatements, cash grants, or low-cost loans. This is vital information for several reasons. First, many of the awards are contingent on performance requirements such as job creation and can be reduced or rescinded if the firm fails to meet its obligations. Second, investors currently face undisclosed political risk, since some state and local subsidy programs cause a significant fiscal burden and may be curtailed at times of budget stress.

We urge the SEC to use this review of Regulation S-K to correct the long-standing gap in financial disclosure relating to government assistance. Companies should be required to disclose both aggregate subsidy awards and breakdowns by type and jurisdiction.

Legal Proceedings. Like subsidies, corporate regulatory violations and related litigation have grown in size and significance. Violation Tracker, a database created by the Corporate Research Project of Good Jobs First, has collected data on more than 100,000 such cases since the beginning of 2010 with total penalties of about $270 billion. The database currently contains information on cases from 27 federal regulatory agencies and the Department of Justice.

Also as with subsidies, some corporations are significantly impacted by these penalties. In Violation Tracker there are 52 parent companies with aggregate penalties in excess of $500 million, including 26 with more than $1 billion. The most heavily penalized companies are Bank of America ($56 billion), BP ($36 billion) and JPMorgan Chase ($28 billion).

The Item 103 requirement that registrants report on material legal proceedings results in disclosure of the largest cases, but some companies fail to provide adequate details on other penalties that may not be in the billions but are still substantial. Since regulatory agencies and the Justice Department base their penalty determinations in part on a company’s past actions, companies omitting adequate data about their regulatory track record are denying investors information that may indicate a heightened risk for much larger penalties in the future.

At the very least, the Commission should do nothing to weaken the provisions of Item 103 and related provisions requiring reporting about regulatory matters and legal proceedings. It is also worth considering whether changes are needed in the Instruction 2 language allowing companies to omit cases with potential penalties that do not exceed ten percent of the firm’s current assets. Losses at or close to the ten percent level could have severe consequences for many companies and pose the kind of risk investors deserve to know about.

Current disclosures based on materiality should be expanded to also require registrants to indicate which of their cases involve repeat violations of specific regulations. Such recidivist behavior will be a matter of concern for many investors.

Subsidiaries. Good Jobs First joins with the numerous other organizations that are urging the Commission to strengthen rules regarding the disclosure of offshore subsidiaries that may be involved in risky international tax strategies.

We believe that better disclosure is necessary with regard to domestic subsidiaries as well. In the course of our work on the Subsidy Tracker and Violation Tracker databases, we have looked at hundreds of the Exhibit 21 subsidiary lists included in 10-K filings. We make extensive use of these lists in the parent-subsidiary matching system we developed to link the companies named in individual subsidy awards and violations to a universe of some 3,000 parent corporations. This enables us to display subsidy and penalty totals for the parent companies and thus provide our users, including investors, with what we think is valuable information about the finances and compliance records of these companies.

When looking at these Exhibit 21 lists we have seen a great deal of inconsistency. Using the Item 601(b)(21)(ii) exception, some companies are listing few if any subsidiaries, whether domestic or foreign. We find it hard to believe that any large corporation has no subsidiary of significance. The omission of subsidiary names makes it more likely that we will miss an important linkage in our databases relating to a significant subsidy award or violation. It also means that investors doing their own analyses may be working with incomplete information.

In addition to making sure that all registrants provide complete subsidiary reporting, the Commission should mandate that the information is the Exhibit 21 lists be presented in a standardized format. Currently, some companies list all subsidiaries in alphabetical order, while others group them by country. Some companies list second-tier and other levels of subsidiaries under their immediate parents, while others place the various tiers in one alphabetical list or exclude the lower levels entirely. Whichever standardized format is mandated should also have to be made available in machine-readable form.

Employees. Another area of widespread inconsistency is in the reporting on employees. Numerous companies seem to be omitting this piece of information, and a larger number have abandoned the traditional practice of indicating how many of the employees are based in the United States and how many are at foreign operations. An even smaller number of firms maintain the once widespread practice of providing information on collective bargaining.

The size of a company’s workforce is information that investors deserve to know. Given the widespread discussion in the political arena about offshore outsourcing and the talk of compelling firms to bring jobs back to the United States, the foreign-domestic breakdown is of great importance to investors. They should also be told about the extent to which both types of employees are covered by collective bargaining agreements.

And given the growing controversy over employment practices and the potential for stricter regulations, companies should also be required to provide details on the composition of their labor force, including the number of workers who are part-timers, temps or independent contractors.

Manufacturing McJobs at Nissan and Elsewhere

Bring back manufacturing jobs: For years this has been put forth as the silver bullet that would reverse the decline in U.S. living standards and put the economy back on a fast track. The only problem is that today’s production positions are not our grandparents’ factory jobs. In fact, they are often as substandard as the much reviled McJobs of the service sector.

The latest evidence of this comes in a report by the UC Berkeley Center for Labor Research and Education, which has issued a series of studies on how the growth of poorly paid jobs in retailing and fast food have burdened government with ever-rising social safety net costs. Now the Center shows how the same problem arises from the deterioration of job quality in manufacturing. The study estimates that one-third of the families of frontline production workers have to resort to one or more safety net program and that the federal government and the states have been spending about $10 billion a year on their benefits.

What makes these hidden taxpayer costs all the more galling is that manufacturing companies enjoy special benefits in the federal tax code and receive lavish state and local economic development subsidies, the rationale for which is that the financial assistance supposedly helps create high-quality jobs.

The Center’s analysis deals in aggregates and thus does not single out individual companies, but it is not difficult to think of specific firms that contribute to the vicious cycle. A suitable poster child, it seems to me, is Nissan. It is one of those foreign carmakers credited with investing in U.S. manufacturing, though like the other transplants it did so in a pernicious way.

First, it tried to avoid being unionized by locating its facilities in states such as Mississippi and Tennessee that are known to be unfriendly to organized labor. After the United Auto Workers nonetheless launched an organizing drive, the company has done everything possible to thwart the union.

Second, while boasting that its hourly wage rates for permanent, full-time workers are close to those of the Big Three domestic automakers, Nissan has denied those pay levels to large chunks of its workforce. Roughly half of those working at the company’s plant in Canton, Mississippi are temps or leased workers with much lower pay and little in the way of benefits.

It is significant that in the Center’s report, Mississippi — which has also attracted manufacturing investments from other foreign firms such as Toyota and Yokohama Rubber — has the highest rate of participation (59 percent) in safety net programs by families of production workers. The Magnolia State may have experienced a manufacturing revival, but many of those new jobs are so poorly paid that they are creating a burden for taxpayers.

At the same time, Mississippi is among the more generous states in dishing out the subsidies to those foreign investors. My colleague Kasia Tarczynska and I discovered that the value of the incentive package given to Nissan in 2000 will turn out to cost $1.3 billion — far more than was originally reported. Toyota got a $354 million deal in 2007, and Yokohama Rubber got a $130 million one in 2013.

There’s a lot of talk these days about bad trade deals and resulting job losses. We also need to worry about what happens when we gain employment from international investment but the jobs turn out to be lousy ones.

The Wrongs of States’ Rights

The publication of the Panama Papers is a bombshell, though the fallout is being felt much more in countries such as Iceland than in the United States. It’s true that the revelations about offshore tax havens have mentioned domestic counterparts such as Delaware, Nevada and Wyoming, but officials in those states don’t seem to think that any action needs to be taken. As the headline of an article in the BNA Daily Tax Report put it: STATES GIVE GROUP SHRUG TO PANAMA PAPERS.

One reason for the tepid reaction is that the criticisms have been heard before. As BNA points out, a 2006 report from the Treasury Department’s Financial Crimes Enforcement Network (FinCEN) listed the three states as being especially appealing to those seeking to create shell companies.

Another basis for complacency by the states is that their practices are part of a long and unfortunate tradition in the United States politely called federalism, but which is really a race to the bottom when it comes to oversight of corporations and the wealthy.

This trend dates back to the 19th Century, when the efforts of tycoons such as John D. Rockefeller to create vast industrial empires came up against the fact that state laws governing corporate charters put restrictions on the size and scope of a corporation’s activities, including the ownership of out-of-state companies. Rockefeller’s flagship firm Standard Oil of Ohio tried to get around this by creating the Standard Oil trust, in which affiliates were nominally independent but were actually controlled by a centralized board chosen by Rockefeller. Similar trusts were created in a variety of other industries.

Standard Oil’s transparent effort to circumvent state law was eventually struck down by the Ohio Supreme Court, but by that time Rockefeller and other robber barons had a new tool at their disposal: the willingness of some states to water down their chartering regulations to make them more attractive to big business.

The pioneer of this practice was New Jersey, which adopted a series of legislative measures from the 1870s through the 1890s to make its regulations more business-friendly. During this period, New Jersey became the destination of choice for trusts looking to legitimize themselves by reincorporating in a state that had no problem with bigness. That position was reinforced after Standard Oil made the Garden State its new base of operations. Muckraker Lincoln Steffens took to calling New Jersey the “traitor state.”

Other states sought to get in on this action. In 1899 Delaware adopted a corporation law that was even looser than New Jersey’s and had lower incorporation fees and franchise taxes. After New Jersey later changed course and went back to stricter corporation laws, it was Delaware that became the new mecca of corporations and has remained so to the present day.

Looser chartering procedures not only helped large corporations get larger but also made it easier for both businesses and wealthy individuals to set up the kind of shell companies highlighted in the Panama Papers. The ability and willingness of states to compete with one another to offer the most corporate-friendly practices goes well beyond company formation and governance.

Two areas in which the effects have been most pernicious are economic development and labor relations. Starting in the 1930s but especially during the past few decades, states have been willing to hand over larger and larger “incentive” packages to corporations to lure investments. For example, in 2014, following a multi-state competition, tax haven Nevada gave away nearly $1.3 billion in taxpayer revenue to get Tesla Motors to locate an electric-car battery plant in the state.

Some states also lure companies with the promise of weak or non-existent labor unions. Ever since the Tart-Hartley Act of 1947, states have had the right to enact laws outlawing union security provisions in collective bargaining agreements. These so-called right-to-work laws tend to weaken the ability of unions to organize while saddling existing unions with lots of free riders who don’t contribute to the cost of running the organization.

It’s widely understood that the notion of states’ rights is often a smokescreen for racial discrimination, but it’s also part of what enables other retrograde practices such as union-busting, corporate welfare and tax dodging.