Paul L. Caron

Thursday, July 11, 2019

NY Times: Can States Just Say No To Corporate Giveaways?

New York Times editorial, Can States Just Say No to Corporate Giveaways?:

No place better illustrates the absurdities of the proliferating use of tax incentives for job creation than the Kansas City metro area, which straddles the Missouri-Kansas state line.

Over the past decade, Missouri and Kansas have offered more than $330 million in tax breaks to lure companies back and forth across State Line Road. More than 100 companies and more than 12,000 workers have moved to new offices, some headed east, some headed west. Missouri poached Swiss Re and Applebee’s; Kansas got JPMorgan Chase and AMC Entertainment.

The net result? No increase in economic activity; no improvement in the lives of workers. Just a few more jobs in Kansas, a few less in Missouri — and a big loss of tax dollars.

Corporate tax incentives are a dubious business. The giveaways frequently serve no higher purpose than rewarding businesses for moving where they already plan to move or creating jobs they already plan to create. And even when incentives prove motivational, there is often reason to question whether governments are getting value for the money.

The black comedy of corporate relocation across State Line Road is an extreme example, but it is by no means unique. Half of the nation’s 10 most populous metropolitan areas — New York, Chicago, Washington, Philadelphia and Boston — include portions of multiple states. So do smaller metro areas such as St. Louis; Charlotte, N.C.; Portland, Ore.; Cincinnati; and Memphis. And all are struggling to limit a practice that amounts to paying your furniture to rearrange itself.

A proposed peace treaty between Missouri and Kansas may show the way forward. Missouri has passed a law that would bar the use of tax breaks to lure companies from the Kansas part of the Kansas City metropolitan area, provided that Kansas agrees to keep its hands off the Missouri part. Missouri made a similar offer in 2014, which Sam Brownback, the Kansas governor at the time, chose to ignore. But Kansas is under new management. The new governor, Laura Kelly, has said that she is prepared to sign an executive order matching the Missouri law, although the exact timing remains unclear. ...

The idea of paying for jobs is easy to understand and popular. But even in cases less obviously idiotic than Kansas and Missouri swapping jobs, politicians under pressure to “do something” to promote economic development would do much better to invest in education and infrastructure, according to research by a leading scholar of tax incentives, Timothy J. Bartik. That includes long-term investments, like universal preschool and high-speed internet access, and short-term investments like job-training programs and brownfield rehabilitation. Governments should improve the playing field rather than bet on individual players.

Tax incentives, by contrast, tend to feed a vicious cycle: Areas struggling economically are more likely to offer tax breaks, starving those areas of the money that they need to grow.

It appears that metro Kansas City is on the verge of trying something new: giving less money to corporations and investing more in its own development. Other areas should try that, too.

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While the whole concept of tax jurisdictions bidding for economic growth in a zero-sum game bothers me, I suspect the NYT is spurred more by sour grapes, given the New York metro area just lost out on Amazon HQ2.

Posted by: ruralcounsel | Jul 11, 2019 4:03:31 AM