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HOW POLITICS WASTES TAX DOLLARS IN TAX INCENTIVES


Over the course of the last few months, we’ve been digging deeply into the world of tax incentives given by states and local governments to help encourage economic development. And we’ve emerged with a sense of frustration with many of the nation’s elected officials who boast to the public about businesses they’ve attracted with incentives even when there’s ample evidence that, for the most part, they aren’t the real motivation for corporate site decisions.



We can’t tell for sure whether the politicians genuinely know that their boasts are based on unrealistic assumptions. But they should.


For columns about various elements of the topic for Route Fifty and the GFOA’s Government Finance Review, and a Q&A for the Government Finance Research Center at the University of Illinois Chicago, we interviewed many of the leading authorities about the topic along the way, including Nathan Jensen, a professor in the department of government at the University of Texas Austin; Timothy Bartik, senior economist at the Upjohn Institute for Employment Research; Shayne Kavanagh, senior manager of research for the Government Finance Officers Association; Greg LeRoy, executive director of Good Jobs First; David Brunori, visiting professor of public policy at George Mason University; Ellen Harpel founder of Smart Incentives and others.


The evidence and commentary provided by these experts points clearly to the idea that a relatively small portion of the money that goes to tax incentives truly attracts or retains jobs in individual cities or states.


And yet, many elected officials seem addicted to the pleasure of issuing press releases and giving speeches that claim to the public that the latest big economic development coup has come to pass because of their clever use of tax breaks.


It’s no surprise that people who run for office would want to boast to taxpayers about their roles in attracting new jobs (or at least the potential of new jobs in the future). But the real reasons behind most economic development deals aren’t things for which they can take credit.


An educated workforce, for one, is something that takes years to accumulate, and rarely can a single elected official lay claim to its development. Ironically, it may even be that when money is going to tax incentives it’s being diverted from spending on education, which would, indeed, have better results when it comes to bringing in or retaining corporations.


There’s more. When elected officials are pushing for tax incentives in order to get votes, they may be disinclined to utilize these tools for the distressed parts of cities that need them the most.


As Timothy Bartik, one of the most respected researchers in this field told us “There’s a tendency to send dollars to places that are already growing.”


We’ve been researching state and local governments for long enough that this state of affairs shouldn’t come as a surprise. But it’s particularly ironic, we think, that in a day when there’s growing emphasis on supporting policies only when they can be demonstrated as effective through real-world evidence, this is an expensive area in which evidence is routinely cast aside in favor of political considerations.


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