[bellerocky]

The comments here are ignoring the jobs this brings into Nevada. It's like an investment. Tesla gets a tax break because it will provide jobs. The jobs create economic stimulus. People spend more money, leads to economic growth, this is not corruption, this is competing for companies to bring jobs into the state. There is no evidence of personal financial gain for the officials who got this deal to be made. In the absence of evidence, all you have is speculation, based on a misunderstanding of how tax breaks for jobs usually work. So Tesla building this plant is a good thing for Nevada.

[anigbrowl]

Everyone knows that's the idea. But $1.2 billion is a lot of money. how long will it take to make this foregone revenue back in taxes? If there are 6000 employees, they're going to have generate $200,00 each plus interest in tax revenue before the state of Nevada breaks even. Nevada doesn't have a state income tax so it's going to have to get that money back through sales taxes, which means (assuming the top rate of 8.1% in the state) after each of the 6000 employees households has spent about $2.5 million within the state.

Don't hold your breath, in other words. Even with the most optimistic economic multipliers I don't see the state breaking even on this for about 25 years. I think they're gambling on the 'gigafactory' being the center of a manufacturing hub that attracts other businesses to the region, sorta like HP in Silicon Valley back in the day. Perhaps they'll call it 'Lithium Oasis' or something if it works out.

I'm neutral on this, and I hope it works out for them, but it's not the sure thing you suggest. Companies that get huge tax breaks sometimes crowd out other employers that were willing to do a better deal, only to up sticks and leave as soon as the tax break expires. I'm not saying Tesla will do this or that they shouldn't seek the best deal, just that it's not guaranteed to be a long-term benefit.

[GreenPlastic]

The state isn't writing Tesla a 1.2B check. It's not like the state is starting out in a -1.2B hole. They're starting from a slightly negative and almost 0 position (some amount of state resources went to negotiate the incentives). They have almost nothing to lose and everything to gain. It's a tax incentive which means in order for Tesla to benefit, they would have to have developed property to pay property taxes on (which is good for the state), and had net income to offset (which again is good for the state). In very rare scenarios, some of the states resources are used and Tesla pays 0. In most cases, the state can only win in a deal like this.

Not to mention, there are now 6500 new jobs, and 6500 additional middle-income wage earners paying taxes that the state never had to begin with.

[anigbrowl]

I know that, that's why I referred to it as 'foregone revenue' and talked about crowding out.

Not to mention, there are now 6500 new jobs, and 6500 additional middle-income wage earners paying taxes that the state never had to begin with.

Really? Everyone who goes to work there was previously unemployed? Economics is not so simple.

[Drakim]

But if they hadn't given any tax breaks at all, Tesla wouldn't have gone to Nevada. Which means that the full 'foregone revenue' was never an option on the table in the first place.

[anigbrowl]

Consider the middle ground. Tesla were looking for about $500m of incentives, and got a lot more than that. Now if the projections pan out it may work out very well for the state but it could end up as a white elephant, as these deals sometimes do. Also, consider that about 10% of this is coming out of reduced incentives for other industries, who will now presumably invest less in Nevada than before: http://www.rgj.com/story/news/2014/09/04/nevada-strikes-bill...

[pooper]

While I am immensely happy as a Tesla cheerleader of sorts, I am not entirely convinced that these deals are good either.

[cmsmith]

Yes, it is a good thing for Nevada in that it is better for them than if the plant was built in California. But, it is a bad thing for the country that businesses of a certain size are able to extract this type of concessions from states.

See also: why are professional sports teams able to force cities to pay for their stadiums? If the federal government disallowed this type of interstate competition, the factories and stadiums would still get built but their owners would pay their fair share in taxes.

[sounds]

You have a point when it comes to sports teams, but not factories.

Factories will _not_ "still get built" if somewhere else is a more favorable economic deal.

See manufacturing's move to Asia, from 1970-present.

[jychang]

Yep, everyone who's bought something "Made in China" should know about how job-producing factories can and will move to the cheapest location.

Nevada giving incentives to have a factory built is no more corruption than tariffs to protect imports/exports is corruption. You can argue if it's a good or bad thing, but it's definitely not illegal nor should it be illegal.

[gph]

>You can argue if it's a good or bad thing, but it's definitely not illegal nor should it be illegal.

That doesn't make much logical sense. If you think it's a bad thing you would want it to be illegal so that it doesn't happen. Just like if you think tariffs are bad that they should be illegal.

Maybe not illegal in the criminal sense, but illegal as in regulated to not be allowed makes perfect sense.

[d_luaz]

If every "bad" thing should be illegal, then tobacco, alcohol, marijuana, prostitution, lobbying, protectionism, should be banned. Then again, we have to argue what is "good" or "bad".

[gph]

Yes, people in the past (and even some currently) thought that marijuana and prostitution were "bad" so they made them illegal.

We are not living in a libertarian society, though I guess you can believe we should if you want.

[Drakim]

It's bad to be rude, but it shouldn't be illegal to be rude.

[cynicalkane]

We have federal taxes that are supposed to pay for general national welfare. Beyond that it is not clear why the state of California "deserves" to collect taxes more than Nevada, which offers more for less.

[Shivetya]

I guess by the same token its bad that wealthy individuals can choose which state they live in based on taxes and such?

Not at all. These are good things because they force states to not go out of control, to practice restraint in taxation and expenditures, while at the same time providing proper services to people and companies.

[GreenPlastic]

Personally, I think the money is better spent in Tesla's hands than in the state government's hands.

[gph]

Perhaps in this specific case, but what if it was for a company you don't think has a good chance to succeed? Or how about a company you don't agree with ideologically?

Like I said in another comment these types of deals are turning governments into quasi-investors. They put money up front with the intention that decades later it will pay off. What if some of these projects fail before the pay off?

Up to this point these deals have largely paid off. But if this starts becoming the norm, and government leaders start coming under pressure to outbid each other, I fear for what might start transpiring. Elected officials that are looking to score points for the next election are not someone I'd trust making these long-term decisions.

[15characterlimi]

You touched on the part that I don't agree with, it's the picking and choosing of specific companies to favor that doesn't sit well with me.

[ENGNR]

It seems like a pretty safe bet for the state though. $1B not collected in exchange for $100B benefit overall. And a bunch of high tech and manufacturing skills added to the labour pool, which could attract other companies for less concessions in the future.

It doesn't seem as difficult competitively as eg picking stocks on wall st is what I'm trying to say.

[gph]

>It doesn't seem as difficult competitively as eg picking stocks on wall st is what I'm trying to say.

Not yet. But I'm a bit worried about the future. The governors in California and Texas are going to take quite a bit of flack from this. The bidding war for these types of projects is likely to get fiercer. As competition between states increases, the margins will get ever slimmer.

[untog]

People who cannot afford a Tesla are likely to disagree with you.

[webXL]

What does one have to do with the other? I can't afford practically anything Bill Gates can, but that doesn't mean I should automatically oppose what he wants to do with future government tax revenue.

Many of the 6500 workers at the gigafactory won't be able to afford a Tesla, but at least they'll be able to put food on the table.

[fiatmoney]

There's a distinction between a tax break that's "profitable" because you're on the wrong side of the Laffer curve (i.e., it's self-financing because of efficiency gains & reduced deadweight loss), and a tax break that's "profitable" because you're recruiting business that would have happened elsewhere to your location in particular.

The former is undeniably good public policy, the second is more of a tragedy-of-the-commons from the perspective of those looking to maximize total tax revenue.

[thaumasiotes]

If you're going to account for deadweight loss, a tax break can be profitable while lowering tax revenue. Then it would be a tragedy of the commons from the perspective of those looking to maximize tax revenue, but good policy from the perspective of those looking to have nicer lives.

Ordinarily, the Laffer curve is just talking about tax breaks that raise total tax revenue, not tax breaks that bring a net benefit in reduced deadweight loss.

[bmmayer1]

This is not an investment, it's redistribution.

Tesla gets $1.25B from Nevada. That means that the taxpayers of Nevada, collectively, have $1.25B less while Tesla has $1.25B more. Now Tesla may spend every dollar of that money in the state of Nevada, hiring people, buying supplies, making investments, etc. But for every dollar being spent by Tesla, that's one fewer dollar being spent by a Nevada taxpayer into the same economy. Those dollars that would have been spent hiring people, buying supplies, making investments, and so on from Nevada taxpayers are now not being spent on those things.

So you can count up all the "stimulus" from the money that goes to Tesla over the next decade, but you're ignoring the money that now isn't getting spent and the jobs that now aren't getting created.

Actually, it's worse than just redistribution, for two reasons:

1) It's likely that a lot of the money will not be spent in Nevada, and I doubt anyone is auditing this deal for the next decade to make sure that it is.

2) Before, those dollars were being spent privately by millions of taxpayers who got to decide if the money they spent for X product or Y employee was worth it, and could take individualized risks with their own dollars. But now that their money has been pooled and dumped into Tesla, those taxpayers of Nevada have taken on a substantial risk with no equivalent reward. If Tesla is explosively successful, they don't see any more money than if Tesla just limps along for a couple decades. But if Tesla fails, they've lost it all with nothing to show for it (save for the few people who got a job out of the deal...but there aren't enough jobs at Tesla to compensate every taxpayer in Nevada for the risk).

In short, it's difficult to see this deal as anything more than a great benefit to a few people (Tesla investors, Tesla employees, Tesla consumers) at the expense of the taxpayers of Nevada.

[jack-r-abbit]

Tesla does not get $1.25B... they just won't have to pay $1.25B over the next 20 years. The Nevada tax payers have the same amount they would have if Tesla never got the deal and thus never built in Nevada.

[gph]

Not entirely true.

Tesla gets $195 million in tax credits that they can sell to other companies. Note that it's a credit and not simply a tax break or deduction.

Furthermore, the state and local county will have to pay large amounts of money to support the explosive growth of the community. If they expect 6,500 new workers and 22,000 new residents overall, that means huge upgrade to infrastructure, police, education, etc. That is potentially hundreds of millions that the will not be offset by property or sales taxes from Tesla. That money will be coming from Nevada tax payers.

[bmmayer1]

A tax break and a subsidy are the same thing as far as taxpayers are concerned. As it turns out, tax breaks are considered more politically palatable, but the effect is the same--all taxpayers pay more money than they otherwise would have, to make up for lost revenue from the tax break.

[refurb]

Tax payers are not paying more, likely they are paying less. Hopefully the $1.2B in tax breaks leads to an overall net gain for Nevada (why else would they do it?)

The other option is Tesla builds elsewhere. At no point was there ever an option for Nevada to get the Tesla factory and NOT give tax breaks.

[eurleif]

>At no point was there ever an option for Nevada to get the Tesla factory and NOT give tax breaks.

Because there are competing states which can offer tax breaks. But is it better for the US as a whole if states can give tax breaks to individual companies?

[bluthru]

>So Tesla building this plant is a good thing for Nevada.

But the country loses. We as Americans gain nothing by states racing to the bottom to see who can give the biggest tax breaks to businesses. These sorts of tax breaks don't create jobs--they shift them while offloading the tax burden onto individuals.

If citizens can't negotiate their tax rates amongst states, I'm not sure why some think it's ok for businesses to do so.

[onetimeusename]

The country loses? It is not zero sum, the money Tesla saves does not just go under someone's mattress, it helps make Tesla's products cheaper or improve the company in some way or raise the value of its securities that citizens of this country own.

[bluthru]

I could use the same arguments for me or other businesses not paying income tax.

>or raise the value of its securities that citizens of this country own

Right, it's the citizens subsidizing the shareholders. This is not a good thing.

[onetimeusename]

this isn't meant to be an argument that no tax ought to be paid, simply that it is not a loss for our country if fewer taxes are paid. If you are worried non shareholders pay more and gain less, they are free to invest, but shareholders inevitably pay capital gains tax.

[bluthru]

>simply that it is not a loss for our country if fewer taxes are paid

I consider citizens bearing more of the tax burden to be a loss for our country, along with less taxes being paid when we have debt.

>If you are worried non shareholders pay more and gain less, they are free to invest

You can't be serious.

>but shareholders inevitably pay capital gains tax

At a capital gains tax rate, which greatly contributes to wealth inequality: http://papers.ssrn.com/sol3/papers.cfm?abstract_id=2207372

[onetimeusename]

>I consider citizens bearing more of the tax burden to be a loss for our country, along with less taxes being paid when we have debt.

Ok, well you are making an argument about ethics and not about monetary losses because it seems that a net gain to economy through reduced taxes would still be a loss to you for above reasons.

>You can't be serious.

people earning 13k usd per year spend 9% of income on lottery tickets so it was indeed a serious point.

[nugget]

Competition between the states is one of my favorite aspects of the US structure of Government. It goes a long way towards encouraging efficiency. True democracy is being able to "vote with your feet" and move around based on personal preferences and values.

[bluthru]

Why are you labeling a business not paying taxes an "efficiency"?

[bmmayer1]

Because business taxes are a drag on the economy, and universally acknowledged to be a bad thing by economists.

[dragonwriter]

> Because business taxes are a drag on the economy, and universally acknowledged to be a bad thing by economists.

Maybe universally by Austrian school economists; certainly not universally by economists more generally (e.g., its pretty clear that neither Brad DeLong nor Paul Krugman think that business taxes are an unqualified evil, and its pretty hard to argue that they aren't economists.)

[bmmayer1]

Hardly just the view of Austrian economists. Plenty of liberal economists including Robert Frank, Dean Baker, even Matt Yglesias think that corporate income taxes are a bad idea.

It's not about "unqualified evil," it's more about the fact that business taxes decrease productivity, take money directly away from employees and consumers, and could easily be offset by any other individualized progressive tax, not to mention the repatriated corporate dollars that would result from a competitive tax scheme.

Here are some fun sources from the NY Times and NPR:

http://www.nytimes.com/2014/01/06/opinion/abolish-the-corpor... http://www.npr.org/blogs/money/2012/10/18/163106924/a-tax-pl...

[refurb]

I don't buy the "race to the bottom" argument when it comes to tax rates. When there is competition among companies that drives down prices, do you heard people complaining about "the race to the bottom"?

Competition for business between states based on tax rates drives efficiencies. The state that can offer the most for the fewest dollars wins.

[bluthru]

>When there is competition among companies that drives down prices, do you heard people complaining about "the race to the bottom"?

States and private companies are completely different. Competition is great when you can tolerate losers (such as private companies). When it comes to states, we don't want losers--we want every state to succeed.

Pitting states against one another only shifts the tax burden to individuals.

[refurb]

What would be the solution? Collusion between states to keep tax rates the same? What would drive efficiency in gov't?

If one state has a high tax rate and is wasting money I want there to be a downside. They should lose jobs to other, more efficient states.

[bluthru]

>What would be the solution? Collusion between states to keep tax rates the same?

Yes. If the result of states competing in this area is harming citizens, then it should not be practiced. It's also not fair to competing businesses. We all pay the same federal rates without issue.

I'm open, but not keen, on states having different tax rates. I'm 100% against not enforcing those rates consistently, as is the case with abatements.

[Afforess]

Agreed. The people here decrying this as near-bribery or unethical don't understand economics. If the 1.25B tax break causes a net gain in tax receipts due to the expansion of the economy, then the deal is a net positive for everyone, job-seekers, Nevada, and Tesla.

No one loses when the economic pie gets bigger. Economics is not zero-sum.

[gph]

Finding this unethical or wrong doesn't mean we don't understand economics. Even if this leads to profit for the state through higher tax receipts, I still question whether this is a good thing in the big picture.

It's one thing when an entire industry gets a tax break, like how a lot of states have tax incentives for film makers. But to give only this company a singular and specific tax break just seems wrong and anti-free market. It's one step towards a planned economic model.

Plus there is an outside chance this blows up in their face. What if some other company has a breakthrough that makes this battery technology obsolete? What if Tesla then goes belly up and the factory is shut down? That is very much a possibility. Should our government leaders be deciding what companies to bet on? It's almost like they are quasi-investors in Tesla now.

[mikeash]

I don't think the "blow up in their face" scenario makes sense. If the factory fails, then Nevada is back where they started. Since these are tax breaks, they're just cutting down on revenue they would have otherwise collected from the factory. If the factory fails, then it stops paying taxes regardless. It's not like Nevada wrote a $1.25 billion check to Tesla.

It's sort of like giving a really good chef a discount on rent if he moves into your apartment. You think it's worth it because he'll cook some great food for you. If he loses his job and has to move out, you're just back where you started. That you were planning on giving him a total discount of $100,000 over 10 years (for example) doesn't mean you're now out $100,000 whet it didn't work out.

I don't like the idea of localities competing on tax breaks like this, but the downside in my view is simply letting successful companies avoid taxes, not any trouble from extending tax breaks to failing ones.

[gph]

Not entirely. From the article:

>$195 million in transferable tax credits, which other Nevada companies will be able to buy from Tesla in order to reduce their own tax liabilities to the state.

Credits are basically the state writing them a check. Plus the article mentions the state buying the USA parkway for an additional 43 million. And I'm not completely sure how the reduced electricity bill works, but I gotta imagine that it will be passed on to the government somehow.

If Tesla went belly up 5-10 years into this project before the tax breaks are up, the state would lose out quite a lot. Might not exactly be 1.25 billion, but still a lot.

Edit: Wanted to add there is also unseen expenses and burdens placed both on the state and county government where this project occurs. Tesla wouldn't be paying property tax, yet there would be a very significant increase in population to the area. That means more police, teachers, infrastructure, etc. The burden would be placed on local individuals and other businesses. There isn't an exact number to put on this, but I wouldn't be surprised if it would be hundreds of millions of dollars.

[thaumasiotes]

> But to give only this company a singular and specific tax break just seems wrong and anti-free market. It's one step towards a planned economic model.

Why would you describe this as giving only this company a singular and specific tax break? Getting tax breaks like this is routine for all companies above a certain size; just because it's done on a case-by-case basis doesn't make any one case more special than all the others.

[gph]

This exact deal is not open to any other company. This isn't a policy that's open for everyone to take advantage of in the way that some tax breaks are, e.g. for film makers.

Just because other deals like this have also occurred doesn't mean this one isn't also singular and specific. Don't know why you're getting pedantic on this.

[thaumasiotes]

Again, this is a particular application of a long-standing, widely-applicable policy on the part of the state of Nevada. It's very similar to, and just as anti-free-market as, a company with pricing tiers of

      $50 / month: bad service
     $400 / month: we respond to your emails
    $2000 / month: you can page a support engineer at any time

    If you need more, call us: XXX-XXX-XXXX

Tesla, like so many other companies, is operating at the "call us" level of service (what you describe as "this exact deal is not open to any other company"). The currency they're spending is voter satisfaction instead of dollars.

Asking local governments for tax breaks is part of the process of siting factories. The terms vary from case to case, which is completely normal in the free market. That's how all major transactions are negotiated. But yes, this is a policy anyone can benefit from, as long as they're siting a factory or doing something similarly exciting to politicians.

[bmmayer1]

Wait. No...the taxpayers of Nevada lose. Because the taxpayers, at large, are subsidizing benefits that will be accrued by specific individuals (the new employees, Tesla consumers and investors). Even if the economy grows as a result of this subsidy (which would really be impossible to prove), such gains wouldn't take into account the equivalent loss to the tune of $1.25B that comes out in little pieces from millions of individual taxpayers and taxpaying businesses--that's money that isn't being spent in the economy.

I suspect the poorest taxpayers of Nevada will pay the most, because they are the least likely to be able to afford a Tesla, least likely to have the skills and training to take what jobs are created (and even so, not enough jobs to go around), and also the most hurt by the higher taxes that inevitably result from such a subsidy.

[bluthru]

>then the deal is a net positive for everyone, job-seekers, Nevada, and Tesla.

No, it's a net gain for Tesla and maybe Nevada, but that's about it. Tax abatements reduce the corporate tax burden and shift it towards individuals.

[mlinksva]

It is negative sum for the world.

[untog]

That's the theory, yes. But there have been a number of times when that has not worked out:

http://www.nytimes.com/2012/12/02/us/how-local-taxpayers-ban...

“Even where officials do track incentives, they acknowledge that it is impossible to know whether the jobs would have been created without the aid.”

[mendort]

Oh my goodness. We can't know what causes of a phenomenon are simply by observing it? Stop the presses.

[untog]

I suspected I shouldn't have copy and pasted that quote because everyone would react to it and not, say, the comprehensive report on the subject we're talking about that I linked to.

The point is that governments are throwing money at companies without really having any idea if it is a good idea. The data is - at best - unclear.

[_delirium]

> There is no evidence of personal financial gain for the officials who got this deal to be made.

I don't think people are alleging personal financial gain, but rather more of a political kind of corruption: buying votes with high-profile projects. The allegation is that politicians are mainly driven by short- to medium-term reelection concerns, and therefore are buying a current positive headline ("Tesla relocates to Nevada!"), and perhaps a near-term employment boost. And that they are doing this without consideration of whether in the long-term it's actually a good allocation of tax breaks. It's possible that it is, but I don't believe that Nevada politicians either know that that's true, or care whether it's true.