How did Nevada do w/ Tesla?

Unanimously, the Nevada Legislature has passed a generous list of subsidies in order to lure the Tesla “gigafactory” to a site near Reno. A few thoughts follow:

1) Any and all special incentives are sub-optimal policy. The best thing to do is to have low taxes and reasonable regulations.

2) Nevada already has a right to work law and no personal or corporate income taxes. It is also the most logical location for such a factory as it is the closest to the company’s headquarters without being in California which has previously given the company outrageous incentives, but is generally not friendly to business;

3) Since Nevada is already business-friendly and offers the best location, it is hard to understand why Nevada’s politicians were so generous to the company, but they were. Tesla will pay no property or payroll taxes for 10 years, no sales and use taxes for 20 years, and will receive another $195 million in tax credits. The total loss to the treasury (not cost) is $1.3 billion. The good news is that taxpayers will NOT pay anything out-of-pocket for the factory as we at RGF advocated.

4) As generous as Nevada’s subsidies are, they are more economically-defensible than those given to New Mexico’s film industry or were given to Schott Solar or Eclipse Aviation.

That’s because it appears that most or not all of the Tesla subsidies will be in the form of tax breaks as opposed to outright expenditures of taxpayer dollars. It’s also because this battery factory is not entirely reliant on the success of one company. Rather, batteries are a growth industry and even in the absence of Tesla, the factory will likely be useful.

5) Where Nevada could really do well is in the spinoff industries that will likely locate near the gigafactory. These businesses will pay full-freight mostly in terms of taxes and should be plentiful.

Conclusion

Could the Nevada Legislature have driven a harder bargain and gotten a better deal? Probably. Will Nevada ultimately come out just ahead in the Tesla deal despite the very generous subsidy package? I’d also say “yes.”

Can New Mexico make the policy changes necessary to make itself competitive with states like Nevada and Texas? I hope so.

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4 Replies to “How did Nevada do w/ Tesla?”

  1. I’m sorry, I feel that New Mexico didn’t have a chance of getting the battery plant. I think the company put out the names of several states to see what kind of competition the states would do. I think they were going to select Nevada all along. This state doesn’t have the resources to draw that kind of technology and I’ve lived here all my life.so it’s not that I’m unaware. Until the “big wigs” in Santa Fe change their attitude, New Mexico will always be poor.

  2. Is it correct to call a tax break to a company a subsidy? After all,when the company earns a profit by producing a product that people want to buy, the money is rightfully earned and belongs to the company. To treat tax breaks as equivalent to government subsidies implies that the money actually belonged to the government to begin with, and the government is being generous by giving that company a tax break. Do we want to make that implication?

    Of course, if Tesla gets a tax break from Nevada, so should other companies, otherwise Nevada is engaging in preferential treatment of Tesla. That preferential treatment is the right thing to be worried about. All entities should be treated the same under the law.

    1. Nell,

      It is a tough issue. I try not to call a tax break a “subsidy,” but it really is a matter of degree. At some point the level of benefits offered to one specific company becomes something that is what I’d call a “subsidy.” I don’t claim to have a clear line and do believe that not paying one tax or another is not a “subsidy,” but Tesla’s deal with Nevada is a rather extreme example.

      1. Yes, Tesla’s deal is a rather extreme example. And I am still glad that New Mexico did not get saddled with that project!

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