Paul L. Caron

Tuesday, April 30, 2024

Thimmesch Reviews Layser's State Tax Incentive Reform

Adam Thimmesch (Nebraska; Google Scholar), Opportunity and Obstacle: State Tax Incentives and the Fight Against Poverty (JOTWELL) (reviewing Michelle D. Layser  (San Diego; Google Scholar), Removing Barriers to State Tax Incentive Reform, 171 U. Pa. L. Rev. 5 (2023)):

Jotwell Tax (2023)The stark contrast between the United States’ widespread prosperity and the deep-seated poverty afflicting many of its people and communities underscores the nation’s complex economic landscape. Equally complex are the political and legal landscapes surrounding our nation’s anti-poverty efforts. States currently have much of the responsibility for administering federal anti-poverty programming and for directly serving the people and places suffering from economic hardship. Simultaneously, however, states are restricted in their abilities to pursue social welfare goals because of the mobility of capital and labor within the United States. States have responded to these challenges by turning to investment-based tax credits to drive development, but that approach has been disfavored by many progressives and often fails to deliver help to the in-state people and places in need.

Michelle D. Layser offers a unique assessment of this difficult situation in her recent article, Removing Barriers to State Tax Incentive Reform.

In that piece, Layser weaves together her knowledge of the political economy of community development, place-based tax incentives, and the federal constitutional restrictions under which states operate to argue that tax incentives likely remain the best path forward states under current conditions. However, states will need help to overcome some key barriers, including the dormant Commerce Clause, to ensure the success of those programs.

Layser and others have previously explored the many problems that exist with the federal government’s place-based tax credit programs, and there is no shortage of criticism for provisions like the Opportunity Zone Tax Credit that was implemented as part of the 2017 Tax Cuts and Jobs Act. Those programs tend to increase investments in the targeted locations, but often without helping the current residents in those areas. Against this backdrop, we might expect that Layser would promote an entirely different approach for the states, but she identifies a critical factor suggesting caution in abandoning place-based tax incentives at the state and local level—the political economy of community economic development. Her article is thus unique and refreshing in that it does not just dwell in the negative aspects of the current system. Instead, she offers a new way to think about reform from within the current construct. ...

Despite the “War on Poverty” being waged in America since the 1960s, deeply impoverished people and places continue to exist throughout the country. Layser’s article provides an important explanation of how state-level approaches are being undermined by the political economy of community economic development, by poorly designed state incentives, and by federal law that prevents states from doing better. Her article is a must read for anyone interested in helping to improve place-based tax incentives and our overall national approach to addressing poverty in America.

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