OKPOLICY.ORG
In a recent post on our blog, Paul Shinn looked at state tax incentives and made the case for holding them to the same standards of accountability as direct government spending programs. In the new blog at Tax.com, David Brunori, who is among the most knowledgeable and sharpest tax policy experts in the nation, pulls no punches in taking aim at the bidding wars that often break out between states hoping to attract or retain manufacturing facilities. In this case, he’s discussing the competition between Indiana, Kentucky and Tennessee to lure Harley-Davidson to open a motorcycle assembly plant in their states. Brunori writes:
Tax incentives of this sort are terrible tax policy. They violate every principle of sound taxation. Here is why. Tax incentives create horizontal inequities. If Harley Davidson gets a tax break for moving into Indiana, what do you tell the corporation that has been there for years? Tax incentives violate the rule that the tax laws should have as minimal effect on economic decision making as possible. When state governments try to influence where companies should operate, it is not much different from a Soviet planned economy.
Most importantly: tax incentives do not work. State taxes are a small part of the overall cost of doing business. Companies make location decisions based on labor costs and access to markets. Wherever Harley Davidson decides to move it won’t be because of the tax incentives. Those incentives will just be a sweet, albeit unnecessary, bonus.
As we noted last time, Congress could take action under the Interstate Commerce clause to put an end to bidding wars between the states, but is unlikely to do so. Instead, we contend that the best way to avoid the worst policy outcomes is to ask the same questions of tax incentive programs that we should ask about all government programs:
- Is this tax incentive the best possible use of our public money?
- What will happen if we don’t offer the incentive?
- Who benefits from the incentive?
- Are there cheaper ways of achieving the same result?
- Is this an appropriate arena for government action?
We intend to continue monitoring policy developments in this domain while working towards the release of a report and hopefully public event as we get closer to the next legislative session
Congress SHOULD take action under the Interstate Commerce clause to put an end to bidding wars! As it is now, we are only the United States in name. In reality were the competing states. Competing against each other to see who can give working people the worst deal, for the benefit of the few.