Paul L. Caron

Saturday, January 11, 2020

WSJ: Economists Question The Benefits Of $30 Billion/Year Spent By State & Local Governments On Targeted Tax Breaks

Wall Street Journal, Economists Question the Benefits of Targeted Tax Breaks:

State and local governments across the U.S. spend at least $30 billion a year to attract and keep companies, but the biggest deals generate little in the way of economic benefits.

The research calls into question the common practice of using narrow, firm-specific tax breaks to attract businesses and boost employment. The largest deals appear to be associated with job growth in the targeted industry but don’t clearly produce the hoped-for benefits for the broader regional economy, according to the study from Columbia Business School economist Cailin Slattery and Princeton University economist Owen Zidar [Evaluating State and Local Business Tax Incentives]. ...

The study provides some of the clearest national data to date on the size, composition and effect of state and local incentives—which are about equal to what states spend on unemployment benefits each year.

To study the effects of targeted tax breaks, Ms. Slattery and Mr. Zidar analyzed incentive deals worth at least $5 million in the 16 years through 2017, when states competed aggressively with each other for factories, corporate headquarters and data centers and officials debated how much they were willing to pay for jobs. ...

The researchers also found that larger, more profitable companies are more likely to get richer incentives. “This whole competition really discriminates against smaller companies,” said Timothy Bartik, an economist at the W.E. Upjohn Institute for Employment Research in Kalamazoo, Mich., who reviewed an early draft of the study. ...

Ms. Slattery and Mr. Zidar identified Oregon and Washington as spending the most per job on deals for specific companies—more than $300,000 each—largely because of incentives for Nike and Boeing, respectively.


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At least these local deals are semi-transparent, so we can have the debate and praise or punish our politicians like I did at citizens' time over the Prince William County datacenter "incentives." And they're usually tied to an activity with some value, if not more value than the others forced to subsidize it.

But the feds give away many times as much with abstruse international rules and secretive selection standards and settlements (which TIGTA repeatedly shows are NOT GOOD and it's hard to imagine are so generous for the little guy) for foreign-registered frivolity like "holding intangibles" that does NOTHING for America - nor it would seem anyone but its own tawdry cottage industry. While GILTI and BEAT are a *yuge* step in the right direction Congress should order tax administration to come clean on their statistics and soft spots and finish the job.

Posted by: Anand Desai | Jan 12, 2020 9:06:39 AM