Corporate welfare versus good business sense

The Iowa Progress Project, a conservative group which lobbies for consumer's rights, started running a radio advertisement last week about "corporate welfare." The impetus for the ad was an announcement that Microsoft is creating 50 new jobs in Iowa by locating a new data center there.

The state is requiring Microsoft to invest at least $200 million in the project, and will receive about $50 million in tax incentives in return. The incentive package includes a six-year exemption from taxes on computers, electricity and equipment used in the data center. A similar deal was struck with Google in 2007 to lure the company to Iowa.

Microsoft is planning on building about 24 of these data centers around the country, and of course, competition is fierce to bring the business to a state. Consumer advocates say the $50 million offered to Microsoft is too high, at $1 million per job created. But is it really that simple of an issue?
I have to think that Iowa officials are looking down the road toward the future jobs and economic impact that might be created by Microsoft. If the state isn't actually losing money on the deal, why shouldn't it make strategic decisions that bring in good companies?

Well, there is a basic fairness principle that does come into play. Ordinary people pay their taxes and feel that companies like Microsoft should have to do the same. I don't disagree with that argument, and I think there needs to be a reasonable balance between attracting good companies to a state and making sure that people and companies pay their fair share. Governments around the country have been raising taxes on citizens, and therefore the increased scrutiny related to these special deals seems warranted.

Tracy L. Coenen, CPA, MBA, CFE performs fraud examinations and financial investigations for her company Sequence Inc. Forensic Accounting, and is the author of Essentials of Corporate Fraud.