Friday, April 25, 2014

Corporate incentives are bad bets

Corporations, including sports teams, have come to expect big tax breaks from local government. In return, they promise to move into a new town or stay put in their current home, promising jobs and future public revenues in return. For the stockholders, it seems like a good deal. For the rest of us, it’s a sucker’s bet.
    In 1993, United Airlines accepted a record breaking $297.5 million in tax breaks and incentives offered by Indianapolis, Ind., and surrounding counties in return for locating their billion-dollar, state-of-the-art airplane maintenance facility there. City boosters crowed that this new venture would put their city on the map. Hundreds of airline maintenance workers agreed to move, excited by affordable real estate. Government officials assured constituents that 7,500 high-paying jobs would more than make up for lost tax revenue.
    United’s workforce in Indiana never topped 3,000, and 400 of those were reservations clerks. In 2003, the bankrupt airline abandoned the plant, reneging on millions in owed lease payments. Also left behind were thousands of employees scrambling to meet the obligations of the new lives they had begun to build.  
    Despite this cautionary tale, cities, counties and states have continued awarding property-, sales- and income-tax breaks in the sweepstakes for corporate relocations. The losses in tax revenues from incentive packages have grown $30 billion to $80 billion annually since 2003.
    The payoff for all those tax incentives was supposed to be more jobs, more economic growth and more tax revenue down the line. The evidence is now clear that tax incentives do not produce either the economic growth or the local stability promised.
    A new survey of 150 founders of the country’s fastest-growing companies conducted by nonprofit Endeavor Insight found that access to transportation, skilled workers and quality of life ranked far higher than taxes in companies’ decisions to launch and to remain in their chosen states and cities.
    Public schools, dependent on the property taxes that are usually at the heart of the incentives, have taken the biggest hit from reduced revenues. Middle-class taxpayers of the communities that win the incentive races pick up the slack. Legacy companies who just stay put, paying non-incentive tax rates, find themselves at a disadvantage. Employees of incentive-chasing corporations bear the costs of selling homes, uprooting families, and rebuilding lives when forced to move.
    Still, the blackmailing of local communities by corporations continues. It’s time for states and cities to get off the incentive merry-go-round. Local and state governments should set their tax rates to meet public needs, level the economic playing field fairly, and let corporations compete for business on their own.

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