Wednesday, March 08, 2017

This memo goes out to One Southern Indiana: "Handing Out Tax Breaks to Businesses Is Worse Than Useless."

With a courtesy copy to Mr. Duggins.

Handing Out Tax Breaks to Businesses Is Worse Than Useless, by Richard Florida (CityLab)

A new study exposes the futility of the $45 billion that states spend on economic development incentives.

Even before being sworn in as President, Donald Trump jumped up and down at the chance to showcase the great deal he and Vice-President Mike Pence made to keep a Carrier plant in Indiana. The company pocketed $7 million in tax breaks in exchange for about 800 jobs. But the broad consensus among economists who study the subject is that such business incentives do little to alter the location decisions of companies. In fact, they’re often worse than ineffective—they’re counterproductive. My own take on this site is that they are a useless waste of taxpayer dollars.

Timothy Bartik of the W.E. Upjohn Institute for Employment Research, who is perhaps the leading student of incentives and economic development, has a new report that provides the most detailed assessment of incentives across states and their effects on economic development. His database contributes a useful tool for state and local economic developers and others to take a hard look at incentives, what they cost, and whether they are worth it or not.

Stop me if you've heard this one before.

Basically, states hand over the money to companies and then do not even follow up to see if they are working or not. As Bartik puts it:

Incentives are still far too broadly provided to many firms that do not pay high wages, do not provide many jobs, and are unlikely to have research spinoffs. Too many incentives excessively sacrifice the long-term tax base of state and local economies. Too many incentives are refundable and without real budget limits. States devote relatively few resources to incentives that are services, such as customized job training. Based on past research, such services may be more cost-effective than cash in encouraging local job growth.

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