A favorite tactic for lawmakers on both sides of the political aisle is to use tax incentives as a way to attract jobs to their state. Texas Gov. Rick Perry (R) even referred to his trips to sweet-talk companies into moving “hunting trips.”
The theory is that, by providing tax breaks and other financial supports, a lawmaker will create more jobs in the local economy. But is that what actually happens? According to a new report from Good Jobs First, the answer is a resounding no. All these incentives do is waste taxpayer money that would be better spent on real economic development:
There are three problems with this strategy. It is wasteful because the costs are high and the benefits are low: a tiny number of companies get huge subsidies but the net impact of interstate job relocations is microscopic. It is incredibly unfair to in-state employers, who are forced to pay higher taxes or suffer lower-quality public services (or some of both) when newly arriving companies are excused from paying their fair share of taxes. And some would add that it is a tragic distraction from things that matter more to the U.S. economy, including the trade deficit. [...]
The net effect of these piracy lures and blackmail payoffs is to divert economic development resources away from helping companies expand or start up, where virtually all the job-growth action is. And when many states are still making painful budget cuts, putting lots of eggs in a few corporate baskets reduces funding available for the low-risk, high-payoff investments in education and infrastructure that benefit all employers.
The report notes several states, including Texas, New Jersey, and Georgia, that are throwing taxpayer dollars down this particular rabbit hole. One of the most egregious examples is companies receiving money to bop back and forth across the Missouri-Kansas border in the Kansas City metro area, barely moving at all but receiving huge tax breaks. In one instance, “the 12-mile move landed the company a city and state tax incentive package valued at $64.3 million over 23 years.”
Plenty of companies have no problem pocketing these subsidies and then skipping town or laying off workers. Sears, for instance, received millions of dollars in subsidies from Illinois and then laid off 100 workers.