Trump’s Carrier deal sets a bad precedent

Carrier Corporation, which makes heating and cooling equipment, announced in February that it was moving facilities to Mexico where labor costs are significantly lower than in Indianapolis. The company now appears to have negotiated a deal with President-elect Donald Trump and his Vice-President-elect, Indiana Governor Mike Pence, to keep its Indiana facility in place in exchange for millions of dollars in state tax incentives. 

Promising to keep manufacturing jobs in America if elected, candidate Trump singled out Carrier in his speeches. So, over the Thanksgiving holiday, negotiator-in-chief-elect Trump got on the phone with the chair of Carrier’s parent company, United Technologies (UTC), and said, “You gotta help us out here,” according to the Washington Post. This plea doesn’t quite match Trump’s tough campaign promise to “tax the hell out of [Carrier]” if they leave.

Trump is used to negotiating agreements, particularly over tax incentives, but he is normally taking the goodies rather than doling them out. As with other ventures, though, he’s doing it with other people’s money, in this case Hoosiers’ tax dollars. Indiana has some creative incentives like its Economic Development for a Growing Economy (EDGE) credit, which lets companies keep a share of the income taxes withheld from their employees. With the new deal, Carrier will receive $5 million in EDGE credits and $2 million in training and investment grants.

On its own, this Carrier deal is unimpressive. For $7 million over 10 years, the company will retool the plant, investing about $16 million and retaining 800 jobs that were slated to move to Mexico. Not sure that’s a great return on investment and if the deal really required any new state incentives.

Carrier already received tax incentives from the state. And Carrier has already received $5.1 million for advanced manufacturing from the feds as part of the American Recovery and Reinvestment Act of 2009, which Pence voted against when he was congressman. Also, according to watchdog Good Jobs First, UTC, the parent company, has received almost $900 million in federal, state, and local grants and credits.

So the bigger question is: Are tax incentives really why Carrier stayed? They are still relocating production from Indianapolis to Mexico and one of its suppliers, United Technologies Electronic Control, also owned by UTC, is closing a plant in northern Indiana.

The reversal is great news for the Indianapolis workers who get to keep their jobs, at least for now. Manufacturing jobs pay more and usually have benefits like health care and retirement programs. But it’s a bad deal for the other Carrier workers and Indiana taxpayers. First, Governor Pence and his predecessor, Mitch Daniels, cut taxes drastically--which was supposed to spur the economy and presumably reduce the need for discretionary tax incentives. Now, all of the other companies and taxpayers will continue to pay for the incentives to keep Carrier.  

What we don’t know is what the federal government has promised by way of the yet-to-be president. But what’s worse, the Carrier deal sends a bad message to other companies in Indiana like TRW or Rexnord who’ve also announced pending closures: Trump’s plan to make the US more competitive will be negotiated one company at a time.  So line up outside Trump Tower and take a number.

This story originally appeared on TaxVox.