Sunday, September 19

How to deplete your tax base for no benefit

Richard Florida in Los Angeles Times:

The reality is that incentives play little if any role in companies’ location decisions, which are based on more fundamental factors like labor costs, the quality of the workforce, proximity to markets and access to suppliers. But companies have learned to game the process. Once they have decided on the best location, some even create a fictitious competition to extract whatever incentives they can from overzealous governments.

Political scientist Kenneth Thomas, a leading expert on incentives, points out that “companies have learned that the site location decision is a great opportunity to extract rents from immobile governments, and invest considerable resources into doing just that.” …

Virtually all of the published research on the subject shows that most economic development incentives are a senseless waste of taxpayer money. The Lincoln Institute of Land Policy, for example, studied the issue and found that “instead of creating new jobs or spurring employment, the main effect of incentives is simply to deplete a community’s tax base.” Poorer, less advantaged communities often take the biggest hit, being more likely to gamble public funds on the hope of new factory jobs. My own analysis found no connection between incentive dollars spent per capita and such measures of economic success as wages, incomes, human capital levels or unemployment.

Full article is Want to deplete your tax base? Give ‘job creators’ what they want.