Are governments giving away too much?
The hotly fought competition for Amazon’s second headquarters and other recent megadeals to corporations looking to relocate have reignited a long-running debate over the value of economic development incentives. Proponents say these tax breaks, credits and other financial inducements are necessary to attract business and help bring jobs and investment to localities that are at a disadvantage in competitive marketplaces. Critics counter that such giveaways primarily benefit already prosperous corporations while reducing funding for education and other public services. Politicians often find it hard to resist offering subsidies, in part because they are eager to show constituents that they are fighting hard to attract jobs and investment. But public officials in several states and municipalities are now taking a hard look at incentive programs and reconsidering their value.
Among the key takeaways:
The level of corporate incentives has tripled over the past three decades, to at least $45 billion annually.
Economists say the most effective subsidies are ones that target businesses with the greatest job-creation potential and that rigorous cost benefit analysis is essential.
Some governments are conditioning incentives on performance-based standards that require companies to deliver promised jobs in advance of any payouts.
Resources for Further Study
Garofalo, Pat, “The Billionaire Boondoggle: How Our Politicians Let Corporations and Bigwigs Steal Our Money and Jobs,” St. Martin’s Press, 2019. An editor at Talk-Poverty.org, a website that explores issues of poverty, looks at why the public subsidizes so many projects for corporations and billionaires.
Jensen, Nathan M., and Edmund J. Malesky, “Incentives to Pander: How Politicians Use Corporate Welfare for Political Gain,” Cambridge University Press, 2018. Government professor Jensen and political scientist Malesky explore the political power of economic development incentives.
Rickard, Stephanie J., “Spending to Win: Political Institutions, Economic Geography, and Government Subsidies,” Cambridge University Press, 2018. A London School of Economics business professor argues that governments target subsidies to a select few at the expense of many.
Buhayar, Noah, and Lauren Leatherby, “Welcome to Tax Breaklandia,” Bloomberg Businessweek, Jan. 19, 2019, https://tinyurl.com/
Casselman, Ben, “A $2 Billion Question: Did New York Overpay for Amazon?” The New York Times, Nov. 13, 2018, https://tinyurl.com/
Cowan, Jill, “North Texas cities turn incentives arsenals against each other in fight for business, jobs,” The Dallas Morning News, March 29, 2018, https://tinyurl.com/
Isidore, Chris, “Foxconn may drop plans to build flat screens in Wisconsin,” CNN Business, Jan. 30, 2019, https://tinyurl.com/
LeRoy, Greg, “Amazon’s HQ2 and the Rise of Big-Ticket Megadeals,” CityLab, Sept. 11, 2017, https://tinyurl.com/
Schuetz, R.A., “Are federal ‘opportunity’ tax breaks going to right places?” Houston Chronicle, Jan. 7, 2019, https://tinyurl.com/
Reports and Studies
“How States Are Improving Tax Incentives for Jobs and Growth: A national assessment of evaluation practices,” Pew Charitable Trusts, May 2017, https://tinyurl.com/
Bartik, Timothy J., “Who Benefits from Economic Development Incentives? How Incentive Effects on Local Income and the Income Distribution Vary with Different Assumptions about Incentive Policy and the Local Economy,” W.E. Upjohn Institute for Employment Research, March 2018, https://tinyurl.com/
Covington, Owen, “Elon Poll on Amazon HQ2: What residents in 19 U.S. finalist cities think about the $5B project,” Elon University, April 18, 2018, https://tinyurl.com/
Irving, Will, Michael L. Lahr and Ray Caprio, “Review of Grow New Jersey and Economic Redevelopment and Growth Plans,” New Jersey Economic Development Authority/ Rutgers University, July 18, 2018, https://tinyurl.com/
Parilla, Joseph, and Sifan Lu, “Examining the Local Value of Economic Development Incentives: Evidence from four U.S. cities,” Brookings Institute, March 2018, https://tinyurl.com/
Randall, Megan, et al., “Partners or Pirates?: Collaboration and Competition in Local Economic Development,” Urban Institute, December 2018, https://tinyurl.com/
The Next Step
DeHaven, James, “Huge, Tesla-style tax breaks cost cash-strapped Nevada schools $108 million over two years,” Reno Gazette Journal, Dec. 7, 2018, http://tinyurl.com/
Ghaffary, Shirin, “Amazon’s HQ2 was supposed to be a win for New York City. Instead it has become a huge political battle,” Recode, Jan. 30, 2019, https://tinyurl.com/
Gose, Joe, “Tax Breaks for Luxury Towers Spur Redevelopment, and Backlash,” The New York Times, Sept. 11, 2018, https://tinyurl.com/
Graham, Michelai, “Virginia universities have big plans to educate the workforce around Amazon’s second headquarters,” Technical.ly DC, Feb. 4, 2019, https://tinyurl.com/
Post, Sebastian, “Why Crystal City, Virginia, Was An Easy Choice For Amazon’s HQ2,” Forbes, Dec. 5, 2018, https://tinyurl.com/
Sullivan, Patricia, “Amazon’s Va. headquarters expected to have $15 billion economic impact by 2030,” The Washington Post, Dec. 7, 2018, https://tinyurl.com/
1775 Massachusetts Ave., N.W., Washington, DC 20036
Public policy institute conducting research on domestic and global issues.
Council for Community and Economic Research
PO Box 100127, Arlington, VA 22210
Research organization that provides a database of state economic incentives.
Economic Development Tax Incentive Project, Pew Charitable Trusts
901 E St., N.W., Washington, DC 20004
A team at the research organization provides some of the most comprehensive data on tax incentives by state.
Good Jobs First
1616 P St., N.W., Suite 210, Washington, DC 20036
Policy research organization that supports public and corporate accountability.
Lincoln Institute of Land Policy
113 Brattle St., Cambridge, MA 02138
Foundation that researches and promotes the effective use, taxation and stewardship of land.
National Association of Development Organizations
400 N. Capitol St., N.W., Suite 388, Washington, DC 20001
A research and advocacy group for development organizations that promotes regional strategies to improve economic competitiveness and cooperation.
2100 M St., N.W., Washington, DC 20037
Think tank that conducts research on issues related to urban areas.
W.E. Upjohn Institute for Employment Research
300 S. Westnedge Ave., Kalamazoo, MI 49007
Institute Senior Economist Timothy Bartik maintains the Panel Database on Incentives and Taxpayers, the most comprehensive information on state and local incentives in the United States.