Although it is well-intentioned, the Republican bill to give paper company Kimberly-Clark the same tax credit package as offered to electronics manufacturer Foxconn is simply bad economics and sets a troubling, if not unsustainable, precedent for economic development. Conservatives should be very skeptical of the deal.
In January, Kimberly-Clark, a producer of many paper-based consumer products such as diapers and tissues, announced plans to cut 15 percent of its global workforce. This was likely the result of two straight years of disappointing growth numbers in a very difficult market. The Kimberly-Clark restructuring plan would result in the loss of up to 5,500 jobs nationally and the closing of 10 of its 91 manufacturing facilities – including the Neenah Nonwovens facility and the Cold Spring plant in Fox Crossing. These closings in Wisconsin would result in the loss of around 600 jobs.
In an effort to prevent the two Wisconsin plants from closing, Gov. Scott Walker and Republican lawmakers have proposed legislation to give Kimberly-Clark a similar tax credit package that was approved for Foxconn. This includes:
- A 17 percent jobs tax credit for existing jobs paying at least $30,000-$100,000 (Wisconsin law currently allows for a 7 percent credit)
- A 15 percent capital investment credit.
While Kimberly-Clark is considering the deal – which has to be approved by its union – the tax credit legislation is advancing quickly through the legislature. The Assembly is set to vote on it Thursday and the Senate next month. With session winding down, this could be one of the last legislative priorities for Republican leadership.
We understand what motivates the proposal. Governor Walker and the GOP want to respond to the troubles that they see. But in doing so, they are likely to make more. This amounts to a bailout of a struggling company in a difficult marketplace. Because the government cannot (and should not) rescue every struggling business, the bill creates an unequal playing field in which it is the government, and not the market, that decides which businesses and industries should survive and which should not.
As a result, we believe the legislation is misguided policy, bad economics, and setting a troubling precedent.
Misguided policy: The Badger State already has a strong business climate, and with historic low unemployment, businesses need more skilled workers in order to expand.
Due to reforms Gov. Walker and the Republicans enacted, unemployment is at near record lows – especially in Winnebago County where one of the Kimberly-Clark plants is located – and Wisconsin’s business climate has dramatically improved. Businesses around the state complain that they have jobs going unfilled. Workforce development and attracting labor to Wisconsin – the state is also considering spending $7 million on ads to convince workers to move to Wisconsin – is a major element of the state’s economic strategy.
So it makes no sense to pay a company like Kimberly-Clark to retain workers when we have one of the best job markets for job seekers, particularly those with a background in skilled manufacturing, in Wisconsin history. This was the criticism of the conservative Wall Street Journal Editorial Board (“Scott Walker’s Subsidy Blowback”). The goal of state government should be to ensure that hard-working citizens have the opportunity for employment. Do we need Kimberly-Clark in order to ensure that it happens?
Bad Economics: Global economic dynamics are working against Kimberly-Clark and there’s nothing the state can – or should – do to reverse that.
Kimberly-Clark’s decision to reduce its workforce and cut over half a billion in costs is one that reflects economic realities and changing demographics. No amount of tax subsidies will alter record-low U.S. birth rates that are driving down demand for some of Kimberly-Clark’s core products such as diapers and tissues.
While some businesses grow, others contract. A dynamic global economy will consistently force companies to adapt. This is altogether natural and contributes to innovation and economic growth. The rise of personal computers and digital cameras weren’t good for businesses that made typewriters and film. Trying to prevent these natural ebbs and flows in the life of a business will lead to market and labor inefficiencies.
The right thing for the State of Wisconsin to do is connect Kimberly-Clark workers to the hundreds of businesses in Wisconsin that need workers and hope to grow.
Troubling Precedent: It is unfair for the State of Wisconsin to determine which businesses to prop up and which should leave the marketplace.
We were told by Gov. Walker that Foxconn was a “transformational, once-in-lifetime opportunity for Wisconsin,” and that bringing in the Taiwanese high-tech advanced manufacturing could result in 13,000 high-tech jobs and 22,000 indirect jobs throughout the state.
But by extending the same tax credits to Kimberly-Clark, the state is creating a precedent that any business is capable of receiving the “Foxconn” treatment if they threaten to relocate or go out of business. For example, last week J.C. Penney, a department store chain, announced it is significantly scaling back their national operations, resulting in the – unfortunate – closing of their Wauwatosa, Wisconsin distribution center. Although this is resulting in 670 jobs losses, the state has not offered any taxpayer money to retain the jobs.
Bailouts are bad business. They take money that might have been put to more productive uses and divert it to whatever faltering businesses politicians want to save. Who knows how many jobs will not be created and what rising industries will not take hold in Wisconsin if the government commits itself to delaying the inevitable?
It is no doubt unfortunate that Kimberly-Clark may be closing its facilities in Wisconsin. But the State of Wisconsin cannot create a precedent whereby any company considering cutting jobs or closing a plant will receive payment from the state to do otherwise.
Rick Esenberg, President & General Counsel, Wisconsin Institute for Law & Liberty
Adam Brandon, President, FreedomWorks
Brett Healy, President, MacIver Institute
Mike Nichols, President, Badger Institute