This month Oklahoma state lawmakers convened the first meeting of the Legislative Evaluation and Development (LEAD) Committee, proclaiming the group will review and improve state economic development incentive packages.

But experts warn that if lawmakers perpetuate incentive packages—commonly referred to as “corporate welfare”—they will harm Oklahoma’s overall economy.

Put simply, states with pro-growth environments don’t need to bribe companies to set up shop, experts note. Corporate welfare allows policymakers to ignore the real problems that are impeding job creation in a state, and incentive packages often make things worse for other businesses and taxpayers who must cover the cost of the subsidies provided to new companies.

“The challenge with this is it hides real problems,” said Grover Norquist, president of Americans for Tax Reform. “Are our permitting processes too slow? Are our property taxes too high? Are our corporate income taxes too high? Are our labor laws flawed? ‘What does it take for us to write you a check for you to come anyway?’ And then they turn around and say, ‘See, we don’t have to change anything. We just got a Fortune 500 company to come in’—that we paid through the nose for, that we could have had with good policies and no check. The reason this is a bad idea for even a relatively competent state like Oklahoma where there’s leadership that wants to go in the right direction is the idea of this is what undermines progress: ‘We don’t have to reform. We can simply write a check.’”

The 10-member LEAD committee held its first meeting this month.

State Sen. Kristen Thompson, R-Edmond, said the group’s members will “be taking an in-depth look at recruitment, expansion, and retention projects across the state and are dedicated to ensuring the state is investing wisely as we work to attract and expand economic ventures to Oklahoma.”

Thompson’s press release said the panel “will vet economic development incentive packages that offer tax benefits, funding, or other provisions outlined in SB 1447.”

State Sen. Julia Kirt, D-Oklahoma City, called the committee “a chance to work together on real solutions that help businesses create jobs and build better lives for people across our state.”

Kirt’s press release said the LEAD Committee will “review financing for large incentive packages aimed at bringing new businesses and jobs to the state and review economic development projects presented by private businesses or government entities.”

‘Wasteful at Best’

However, unless the LEAD Committee reduces the number and size of corporate-welfare incentive programs, rather than simply retooling them, experts say broad-based benefit to the state economy is unlikely.

“The effective way to add jobs is to improve the business climate,” said James Hohman, director of fiscal policy at the Michigan-based Mackinac Center for Public Policy. “Handing out favors is just a distraction from what matters.”

In 2019, the Mackinac Center and the Oklahoma-based 1889 Institute produced “Multilateral Disarmament: A State Compact to End Corporate Welfare.” The report noted, “State policies that advance ‘economic development,’ broadly defined, boil down to government support for businesses through subsidies. These usually take the form of preferential tax treatment, such as select tax credits, or direct grants of taxpayer money to specific firms or industries. There is broad consensus among academic economists that these programs are wasteful at best and actively damaging to a state’s economy at worst.”

The report found that Oklahoma provided more in business subsidies per gross state product than all but eight states.

In May 2018, the Mercatus Center at George Mason University produced a report on the “opportunity costs of corporate welfare.”

“Instead of lowering tax rates for all or improving the regulatory environment for everyone, targeted incentives privilege particular firms through tax abatements, cash subsidies, loans, loan guarantees, or in-kind donations,” the Mercatus paper stated.

There’s one major problem with that approach, Mercatus researchers noted.

“Neither economic theory nor empirical evidence suggests that these targeted incentives work,” Mercatus stated. “In fact, research suggests that those states that hand out more targeted incentives tend to have lower levels of measured economic freedom. In other words, those states that pursue the targeted approach more vigorously seem to be less likely to pursue the growth strategy that actually works.”

And the cost of incentive programs comes on the back of a state’s existing taxpayers—meaning businesses that launch without subsidies in a state like Oklahoma are effectively financially penalized by having to then pay higher taxes to support other businesses.

“The costs of corporate incentives are borne by taxpayers who finance these subsidies, tax abatements, and loan guarantees, and every incentive has an opportunity cost,” the Mercatus report noted.

That reality has played out in Oklahoma.

In the 2024 legislative session, Gov. Kevin Stitt called for cutting Oklahoma’s personal income tax rate from 4.75 percent to 4.5 percent and putting the tax on the path to full repeal by using future growth revenue to offset future rate cuts. House lawmakers approved legislation to achieve those goals, but Senate lawmakers refused to approve the tax cut, saying the state could not afford it.

Cutting Oklahoma’s top income-tax rate from 4.75 percent to 4.5 percent would have reduced tax collections by around $250 million annually once fully implemented.

While senators objected to providing $250 million in income-tax relief, in recent years Oklahoma lawmakers have cubbyholed $698 million for corporate-welfare subsidies for as few as two companies. According to reports, one of the two companies was Panasonic, which was planning to build a new plant to produce batteries for electric vehicles.

The potential corporate welfare contemplated by that plan was nearly three times the annual reduction associated with a quarter-point cut to Oklahoma’s income tax.

In their 2018 report, Mercatus researchers concluded that Oklahoma’s personal income-tax rate could be cut by 6.8 percent if the state eliminated corporate incentives.

“Selective business favors are ineffective at creating jobs, expensive to state budgets and unfair to other businesses,” Hohman said.

The Panasonic experience highlights how state government planners often fail to understand market realities that are often obvious to private-sector actors.

Panasonic ultimately chose the state of Kansas instead of Oklahoma after Kansas offered the company $1 billion in subsidies from state and local governments. NPR reported that the $4 billion Panasonic plant could receive up to $8 billion in total subsidies from federal, state and local governments.

In July 2022, when officials announced Panasonic’s decision to locate in Kansas, David Campbell, president and CEO of Evergy, proclaimed, “The electric vehicle industry is expected to grow eight times its size in less than 10 years, which is an incredible opportunity for states, communities and energy partners to support leading, innovative technology companies.”

But by February 2024, electric car manufacturers were slashing prices and/or slowing production due to consumer interest running below projections. CNN Business reported that electric vehicle sales had “become a major disappointment.”

“There is a troubling gap between expectations and reality,” CNN reported.

Rather than have government employees try to pick market winners and offer them taxpayer subsidies, experts say Oklahoma policymakers should instead focus on reducing tax rates for all Oklahomans and reducing regulatory burdens.

“Economic development policy should focus on establishing a pro-growth economic environment,” said Wayne Winegarden, a senior fellow in business and economics at the Pacific Research Institute. “In practice, this means the state and local governments should provide core public services efficiently, minimize the burden from state and local regulations, and impose a simple, transparent, and affordable tax burden. Such an environment empowers businesses and entrepreneurs to drive economic growth and generate widespread prosperity.”