Disney story makes case against tax breaks and special treatment for any business
If you have looked at the news lately, chances are you have read that the Florida legislature passed a bill that will dissolve the private government that Walt Disney World currently operates.
Disney currently operates in a special tax district called Reedy Creek Improvement District, originally created in 1967. The district exempts the company from some fees and taxes and allows it “to manage its theme parks and resorts in the state with little red tape”. In return, Disney undertakes its own municipal services, like wastewater management, roads, and drainage.
All that would likely come to a stop due to a bill signed by Florida governor, Ron DeSantis.
What’s at stake?
Disney stands to pay millions of dollars more in taxes. But taxpayers in surrounding counties could also be stuck with a big bill. According to the Wall Street Journal,
If the bill is signed into law, responsibility for Reedy Creek’s governance would likely fall to Orange County and to a lesser extent Osceola County, according to Mr. Ramba.
“Orange County Government is monitoring the special session in Tallahassee, particularly when it comes to unfunded cost shifts to local governments,” Mayor Jerry Demings said in a statement. An Osceola County spokeswoman said the county is monitoring the legislation, but declined to comment further.
Disney currently pays property and other taxes to both counties. In addition, the company, as the primary landowner at Reedy Creek, provided most of the $153 million in revenue from taxes and fees that the district collected in fiscal 2021. That money covers all of the district’s governing expenses, including paying about 400 employees’ salaries and servicing about $977 million in long-term bond debt that Reedy Creek has issued over the years.
If the district is dissolved, that debt would become the responsibility of the taxpayers in Orange and Osceola counties, Mr. Ramba said, but the counties would likely set up a new special taxing district in order to tie bond payments to the tax revenue produced by Disney’s properties within Reedy Creek. Also, some of the taxes and fees Disney currently pays Reedy would go instead to local governments.
It’s crony capitalism
It remains to be seen whether taxpayers will be stuck with the bill, but it is more likely that Disney will fight this move in court. Regardless of the outcome, Disney’s special tax treatment is something that consumers should be concerned about. It is an illustration of how big business colludes with big government to get special treatment, undermining the free market process.
Outside of its special tax district, Disney enjoys numerous other benefits in Florida at the expense of taxpayers. In 2021, Disney was granted a total of $570 million tax break to move 2,000 employees to Florida. Disney also benefits from a law in Orange County that earmarks hotel room taxes to improve tourism.
Florida is not alone in offering businesses tax breaks in order to lure them from the competition. Take Amazon, for example. When the company announced that it was looking for a location for its second headquarters, states and cities scrambled to offer billions in tax breaks to get Amazon to locate in their respective vicinities. Maryland, for instance, offers Amazon $8.5 billion in tax and infrastructure incentives. Amazon ended up splitting its headquarters between New York and Virginia, where it was given about $2 billion in tax incentives. The list of examples is endless.
The ongoing Disney story brings to light something that happens more commonly in our economy than most people realize — sometimes state and city lawmakers choose to weaken competition by giving special tax treatment to businesses of their choice giving them an undue advantage in the economy.
Politicians might argue that these tax incentives are necessary to spur job creation and growth, but the research evidence heavily disagrees. Business incentives don’t work. They are merely a transfer of money from taxpayers to businesses.
The bigger picture
The Disney story is part of a much bigger problem in the economy. Florida is not the first state, nor will it likely be the last to offer special tax treatment to businesses. Just last year, state legislators in the northeastern region of Minnesota voted to approve a forgivable loan to a company that was looking to build a wood manufacturing facility in the region.
Taxpayers, even outside of Florida, need to be more concerned about the fact that there exists an environment that has enabled Disney to enjoy more than 50 years of special tax treatment and will still enable Disney to get hundreds of millions in tax breaks over the next 20 years.