Though state and local governments in the United States spend more than $30 billion every year to keep or attract businesses, a new study shows that the deals that offer the biggest incentives don't clearly help the broader regional economy, "The research calls into question the common practice of using narrow, firm-specific tax breaks to attract businesses and boost employment," Richard Rubin reports for The Wall Street Journal.
The researchers studied incentive deals from 2000 to 2017 that were worth at least $5 million. Counties that used incentives typically saw jobs in the targeted industry increase by about 1,500, but the researchers found no impact on countywide employment in other industries. That contradicts common rhetoric local officials often use to sell the public on the necessity of such incentives. "The motivation is often about the indirect jobs that are created," University of Texas government professor Nathan Jensen told Rubin. "You cannot make these decisions based on indirect jobs."
Moreover, the study found that "low-income areas often provide bigger incentives than more affluent areas, perhaps because they are seen as less attractive places to do business without such offers. Counties with average annual wages below $40,000 pay over $400,000 per job, while those with wages over $100,000 pay less than $100,000, according to the study," Rubin reports. "The researchers also found that larger, more profitable companies are more likely to get richer incentives."
The broad implications suggested by the research: "state and local governments should avoid tax breaks that pay out over many years and instead consider programs that invest more directly in job training and infrastructure that help businesses and have broader public benefits," Rubin reports.
The researchers studied incentive deals from 2000 to 2017 that were worth at least $5 million. Counties that used incentives typically saw jobs in the targeted industry increase by about 1,500, but the researchers found no impact on countywide employment in other industries. That contradicts common rhetoric local officials often use to sell the public on the necessity of such incentives. "The motivation is often about the indirect jobs that are created," University of Texas government professor Nathan Jensen told Rubin. "You cannot make these decisions based on indirect jobs."
Moreover, the study found that "low-income areas often provide bigger incentives than more affluent areas, perhaps because they are seen as less attractive places to do business without such offers. Counties with average annual wages below $40,000 pay over $400,000 per job, while those with wages over $100,000 pay less than $100,000, according to the study," Rubin reports. "The researchers also found that larger, more profitable companies are more likely to get richer incentives."
The broad implications suggested by the research: "state and local governments should avoid tax breaks that pay out over many years and instead consider programs that invest more directly in job training and infrastructure that help businesses and have broader public benefits," Rubin reports.
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