The Details Behind Trump's Deal With Carrier Revealed

Posted on: December 1, 2016 at 13:45:22 CT

http://www.zerohedge.com/news/2016-12-01/details-behind-trumps-deal-carrier-revealed

In light of today's visit by President-elect Trump to Indiana to take credit for saving some 1,100 Carrier jobs from being offshored to Mexico, a recurring question is what was the Trump quid to Carrier's pro quo to get the deal done.

As reported yesterday, Carrier did issue a press release, perhaps to confirm that it hadn't merely caved to Trump team pressure, when it said that "the incentives offered by the state were an important consideration" adding that "this agreement in no way diminishes our belief in the benefits of free trade and that the forces of globalization will continue to require solutions for the long-term competitiveness of the U.S. and of American workers moving forward."

As we further noted, shortly after the deal, questions emerged as to what the motive behind Carrier's decision may have been. "Was Carrier pressured into doing a deal that was not in the best interest of shareholders of its parent, United Technologies? Was strongarming involved? Did Trump make a major concession as part of a political deal or did Carrier simply bend over backwards to appease the President-elect?"

Overnight, The Hill similarly focused on the nuances of the deal, adding that fiscally conservative groups are staying quiet about the deal for the time being. "But if it turns out that Trump and Pence have offered any special concessions to Carrier — either at the federal level or the state level, given that the vice president-elect is still the governor of Indiana — then those free-market groups are likely to cry foul."

“The particulars of this agreement haven’t been released, but our position on corporate welfare is well-known and that has not changed,” said Brent Gardner, chief government affairs officer at Americans for Prosperity. The group is the major grassroots organization within the network of conservative mega-donors Charles and David Koch.

Chart Westcott, a Texas-based investor who belongs to the Koch donor network, said that considering United Technologies is a major defense contractor, he would have no trouble if “Trump went in there and simply was using his leverage … saying, ‘Look, you want to do business with us? This is part and parcel of doing business, is not shipping American workers overseas.’ ”

“I’d see that as a positive,” Westcott said. “That’s just saving American jobs using the leverage and the bully pulpit of the U.S. president.”

But if Trump cut a deal with Carrier in which American taxpayer dollars are being spent, “then that’s a huge moral hazard and not necessarily a good thing for the U.S. taxpayer, even if it is great for the workers at Carrier,” Westcott added. “That’s the kind of government interference that I oppose.” “So the devil,” he added, “really is in the details.”

Conveniently, we now have the details.

As Fortune reports, citing a source close to the company, Trump called Greg Hayes, CEO of Carrier’s parent company United Technologies, two weeks ago and asked him to rethink the decision to close the Carrier plant in Indiana. Hayes explained that the jobs were lower-wage and had high turnover, and the move was necessary to keep the plant competitive, according to the source. He said the plan would save the company $65 million a year.

Trump then replied that those savings would be dwarfed by the savings UTC would enjoy from corporate tax-rate reductions he planned to put in place. During the recent campaign, Trump threatened to slap tariffs on Carrier imports from Mexico.

So what were the "incentives"? In the end, UTC agreed to retain approximately 800 manufacturing jobs at the Indiana plant that had been slated to move to Mexico, as well as another 300 engineering and headquarters jobs. In return, the company will get roughly $700,000 a year for a period of years in state tax incentives. Still, some 1,300 jobs will still go to Mexico, which includes 600 Carrier employees, plus 700 workers from UTEC Controls in Huntington, Ind.

In summary, the "math" works out to $636 per year per job saved in tax savings: hardly an egregious sum, and one which could likely be extended to other companies (unless, of course, those other companies decide to hold Trump hostage and demand escalating pay schedules) if and when Trump's fiscal stimulus package is implemented. It remains to be seen if the popular response, outside of conservative groups, will interpret this trade off as taxpayer funded "moral hazard."