More evidence arrives that most state and local tax incentives don't work. But try telling that to the elected leaders of a hollowed-out region — or even a prosperous one that sees one of its leading economic clusters in danger.
Do business tax incentives really provide sustained job creation and expand state and local economies? Virtually everyone who has studied the phenomenon says, No. The latest and probably most detailed research comes from Timothy Bartik of the W.E. Upjohn Institute for Employment Research and backs this assertion up.
Bartik examines a variety of economic-development tax breaks for companies and industries from 1990 to 2015. And lest I be accused of “burying the lede,” Washington state actually comes in lowest in the use of these devices — even with the nearly $9 billion for Boeing in 2013.
But overall, he writes, “Incentives are still far too broadly provided to many firms that do not pay high wages, do not provide many jobs, and are unlikely to have research spinoffs. Too many incentives excessively sacrifice the long-term tax base of state and local economies. Too many incentives are refundable and without real budget limits. States devote relatively few resources to incentives that are services, such as customized job training. Based on past research, such services may be more cost-effective than cash in encouraging local job growth.”
Urban scholar Richard Florida, a longtime critic of incentives, provides a useful roundup of Bartik’s conclusions and other research on the effect of tax breaks here. Bartik’s database should be valuable to anyone looking at tax incentives and their usefulness.
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The incentives for Boeing were eye-poppers. As my colleague Danny Westneat pointed out at the time, the 2013 deal was the biggest single state tax break to a private business in U.S. history (this from an advocacy group, and I suspect it would be far below the value given to land-grant railroads by the federal government and states in the 19th century — but it was big).
Yet Washington comes in as the least tax-break dependent state in this report for at least a couple of reasons. First, unlike many Southern and Midwestern states (and New York), Washington doesn’t desperately hand out abundant corporate welfare. Second, the Boeing incentives were targeted at high-wage jobs (they were decisive in keeping the 777X here, just as an earlier round won the 787). Boeing claims it invested $13 billion in Washington in 2015 alone.
Our situation is far different from the famous debacle of the United Airlines heavy maintenance center in Indianapolis or the routine waste of money where states hand out incentives for such things as data centers that create few jobs at great cost to state revenues.
Bartik concedes his work, even with its extensive database, is preliminary. Scholars don’t see their Career Destruction light flashing when a big employer threatens to leave or dangles job creation before them — governors and state legislators do. As with Donald Trump and Carrier, state incentives (corporate welfare to critics) translate into saved or new jobs. But as I warned then, most of these deals don’t perform as advertised. But by the time that happens, the media have largely move on.
The routine blood sport of companies pitting states against each other for economic assets is relatively new, starting around the 1980s. In the past, companies had selected cities and regions based on a combination of natural assets and good fortune. Or not — in the mid-19th century, Cincinnati’s riverboat interests worked hard to keep out railroads, giving Chicago even more of a boost to become the nation’s rail center and much more. The auto industry only slowly coalesced in Detroit, but once in place created a self-perpetuating critical mass for decades.
But since the 1980s, so many local companies have been merged away, so many industries “disrupted,” that state and city leaders are under great pressure to produce results — and such things as investing in livability, infrastructure and great schools don’t attract the headlines or, often, a majority of voters. So don’t expect the use of tax incentives to go away, whether they ultimately work well or not.
Today’s Econ Haiku:
Handout or hand up?
Or is that too judgmental?
Free-attle’s problem