THE BLOG
12/29/2014 07:35 pm ET Updated Feb 28, 2015

Subsidized Success: Corn, Cabernet and Caterpillar

If you make it cheaper and less risky to produce corn, more people will grow corn.

Farmers know that. Even though the recently signed Farm Bill eliminated direct payments to farmers, it still provides for nearly $90 billion in "crop insurance" over 10 years.

Corn production continues to rise. In October 2014, the U.S. Department of Agriculture estimated a record yield of 174.2 bushels an acre.

But "corn" could be anything. It could be oil.

Or it could be wine.

From 2011-2013, the state of Illinois gave Cooper's Hawk Holding LLC $131,766 to purchase bottle-washing equipment.

The winery and restaurant chain, which has seven locations in Illinois and many others across the country, is the nation's fifth-largest winery outside of California.

Cooper's Hawk continues to grow, with another location set to open in the Chicago suburbs. In 2011, Cooper's Hawk's profits were $45.8 million. In 2014, profits grew to $94.4 million, and the business ranked 24th in Crain's Chicago Business' Fast Fifty, a roundup of the city's fastest-growing companies.

Why did the state of Illinois feel the need to give Cooper's Hawk so much money?

Illinoisans subsidized this new equipment purchase for a multimillion-dollar company at the same time politicians passed an income-tax hike that forced the average taxpayer to give an extra $1,000 to state government.

Proponents of things like government-distributed tax credits and grant money to big business claim these mechanisms are necessary to attract jobs and improve a state's economy.

But when politicians give handouts like these, they are picking favorites, often throwing money at healthy companies just because they threaten to leave (see: Deere & Co., Boeing Co. and Caterpillar Inc.).

In Illinois, the agency that administers tax credits is called the Department of Commerce and Economic Opportunity, or DCEO. Many states have agencies like this - in Texas there's the Economic Development and Tourism Division. California has the Governor's Office of Business and Economic Development.

Since its inception in 2001, the DCEO has handed out nearly $500 million in state-funded grants and $950 million in Economic Development for a Growing Economy, or EDGE, tax credits to businesses as of November 2014.

For decades, the DCEO has been the mechanism through which politicians give special favors to chosen businesses.

Just look at some of the examples. In the months leading up to the November 2014 gubernatorial election, Gov. Pat Quinn handed out $37.4 million in grant money to four big companies and two influential incubators. That includes $15 million to AAR Corp., a private airplane-maintenance company worth $2 billion, in exchange for 500 new jobs; $2.5 million in DCEO grants to Chicago-based Coyote Logistics on Oct. 27 ("500 new jobs").

The tendency after reading these examples may be to blame the crony businesses. They don't need the help, so why are they taking millions of dollars in handouts from the government?

The real problem, however, is that departments like the DCEO and the favors they grant paper over the fiscal and regulatory problems that make it necessary to bribe businesses so they don't leave.

And when the government commits to big tax breaks for select companies, politicians almost always fail to cut spending to make up for it. The extra burden just falls to smaller businesses with less income to spare. Illinois squeezed an extra $30 billion in tax hikes out of businesses and residents while continuing to give out lavish tax credits to politically favored companies.

When government plays the role of favor-granter, it directly shapes local economies. Often, tax credits and special favors go to companies like Caterpillar and Boeing, but even when they go to smaller - but still relevant - players like Cooper's Hawk, someone else loses.

The economy needs less government favoritism.