When friends from out of town come to visit me where I live in Bethesda, Maryland, there are two ways in which I can accommodate them. First, I can host them at my apartment. Second, I can pay taxes to the State of Maryland to subsidize the construction of a new $600 million Marriott International corporate campus and hotel, where they can stay. State and county officials evidently did not get the memo that I would prefer the first option.
On Tuesday, the Maryland Department of Commerce announced that hotel chain Marriott International would relocate its corporate headquarters from the current location in northern Bethesda to a new site in downtown Bethesda. Marriott will also build a 200-room hotel on the new site. The price taxpayers will pay for the privilege of having Marriott five miles further south? Sixty-two million dollars, according to a Washington Post report.
As the lease on its current headquarters expires in 2022, Marriott intimated that it would move its campus to another locality in the D.C. area. To keep the company in Bethesda’s Montgomery County, the state and county governments offered Marriott an incentive package funded by taxpayers. It was not the first time: in 1999, Marriott scrapped a plan to relocate to Fairfax County after Maryland and Montgomery County officials put up an incentive package worth up to $58 million.
The latest installment in the subsidy saga involves $44 million in grants, to be divided equally between Montgomery County and the Maryland state government. In addition, Marriott will receive $18 million in tax benefits, $12 million of which will come from the county. The bill for county taxpayers (myself included) amounts to $34 million, and the bill for state taxpayers totals $28 million.
My taxes will be higher so that Marriott’s can be lower. Specifically, the bill equates to $49 for every adult resident of Montgomery County and $6 for every adult resident of Maryland. That might seem manageable, but does real damage to taxpayers when combined with Maryland’s other tax breaks and corporate subsidies.
Maryland’s Department of Commerce argues that the incentives will keep 3,500 jobs in Maryland. But these are not new jobs – Marriott as a company will not cease to exist because Maryland refused to offer incentives. Subsidies do not create new wealth; they merely redistribute it.
It is true that Maryland’s government is diverting economic activity from Virginia (or wherever else Marriott would have built its new campus) to Bethesda. But Maryland officials should consider whether they really want to spend taxpayer money on an arms race with neighboring states. That is the sort of game that can get very expensive, very quickly.
In addition, the government may still fail to boost the local economy through such subsidy schemes. The tax incentives may cause Marriott to buy a property in Bethesda to build its new campus. That is a property that now cannot be sold to someone else—who might have built an apartment building or group of restaurants without tax incentives. Marriott will hire construction workers to build its new campus, but those are construction workers who could have been employed by another developer. The economic activity Marriott generates through the construction of its new corporate headquarters may be offset by reduced economic activity elsewhere.
Policymakers must not only consider visible economic activity – Marriott’s new campus – but the invisible losses dispersed throughout the economy. When Marriott uses up finite resources on the taxpayer dime, those resources cannot be put to other, more productive uses.
The free market generally determines the optimal allocation of resources through the price system. If a certain property is more valuable to Marriott than anyone else, it will be willing to pay the highest price. If construction workers are more valuable working for Marriott than elsewhere, Marriott will be willing to pay the highest wages. Introduce subsidies, though, and the system breaks down. If the subsidies give Marriott an undeserved edge over competing bidders for land and labor, society’s resources will flow to less valuable and less efficient uses.
Add that to all the other distortions caused by government policy, and it is easy to see why Maryland’s economy grew at a rate of just 1.5 percent in 2015 (the national figure was 2.4 percent). Maryland and Montgomery County officials should free people and businesses to determine the best way to use society’s resources, rather than meddling with the economy on the backs of taxpayers.
Preston Cooper is a fellow at the Manhattan Institute. You can follow him on Twitter here.
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