Tax Breaks for Economic Development Purposes

An article written by the executive director of the Georgia Budget and Policy Institute in a recent edition of Creative Loafing blasted the state for using tax breaks to lure and keep businesses here.

First, low tax enticements reduce the state’s ability to generate revenue. Second, corporations can facilitate bidding wars among states to obtain huge tax concessions without ever offering assurances that a move to Georgia is for the long term. Third, the enticements are designed to favor large corporations, rather than the thousands of small businesses that truly provide the potential and fuel for Georgia’s economic growth.

Most significantly, research hasn’t shown that corporate tax incentives are a deciding factor in luring or keeping major businesses. In fact, many corporate executives have stated on the record that an educated work force with a solid work ethic is far more important.

I’m sure that the education system is an important factor, but I couldn’t disagree more with the remaining contentions.

Share your thoughts . . .

15 comments

  1. Ben King says:

    for what it’s worth

    Toyota turned its back on hundreds of millions of dollars in subsidies offered from several American states in favour of building a second Ontario plant

    He said Nissan and Honda have encountered difficulties getting new plants up to full production in recent years in Mississippi and Alabama due to an untrained – and often illiterate – workforce. In Alabama, trainers had to use “pictorials” to teach some illiterate workers how to use high-tech plant equipment.

    “The educational level and the skill level of the people down there is so much lower than it is in Ontario,” Fedchun said.

    In addition to lower training costs, Canadian workers are also $4 to $5 cheaper to employ partly thanks to the taxpayer-funded health-care system in Canada, said federal Industry Minister David Emmerson.

  2. Harry says:

    What specifically causes you to disagree? Why does the state need to subsidize big corporations? As stated, in recent years Georgia’s economy is sustained and grown by way of development of small and mid-sized business. Nobody should get a subsidy just to locate here.

  3. Bill Simon says:

    Harry’s right! The best way to attract a company to Georgia would be to build some Gold-Club like facilities all over Georgia and invite the corporate boys in there to checkout some of our fine amenities.

  4. Harry says:

    To take it a step further – the states have been prostituting themselves to Fortune 500 companies, offering up the family jewels in the form of ridiculous tax and other subsidies – meanwhile cutting faithful local companies out of the largesse.

  5. Chris says:

    Best way to attract large and small businesses to Georgia is to have low taxes across the board for corporations and individuals. Combine that with a regulatory policy that doesn’t go overboard in micromanaging the employer-employee relationship and you have a formula for success.

    I think there is a really big fish tank in downtown Atlanta that is an example of how that worked out well for us.

  6. The reality of the situation is that you have to cut these major corporations tax breaks in order to get them to locate here . . . if Georgia doesn’t, they’ll find a state that will (or take their business overseas or to Canada where the tax burden is offset by cheaper labor or other savings). Unless you’re able to convince all states to drop this practice, these tax breaks will remain very necessary.

  7. Part II

    “low tax enticements reduce the state’s ability to generate revenue”

    A state is certainly not going to make a deal that will have a negative fiscal impact. Having a corporation here with a lesser tax burden is absolutely better than not having them at all (which is the other option).

    “Second, corporations can facilitate bidding wars among states to obtain huge tax concessions without ever offering assurances that a move to Georgia is for the long term.”

    These companies are laying out huge bucks to build facilities in Georgia, and they’re not going to spend that kind of cash just to up and leave on a whim.

  8. Harry says:

    I’m not saying Georgia is a major culprit in giving such breaks; by comparison our neighboring states are going whole hog.

    I question the utility. As was previously stated, low/no income taxes would do far more for the overall economy. The multiplier effect from lower taxes would be kept instate.

  9. buzzbrockway says:

    Best way to attract large and small businesses to Georgia is to have low taxes across the board for corporations and individuals.

    Right On!

    The fact the State needs to offer tax breaks to attract big corporations suggests our taxes are too high.

  10. Obviously just providing some sort of incentive isn’t enough – you’ve got to top other states’ offers. In the Chiquita case, we would have had to make it worth their while (financially) to pick up and move – apparently we didn’t quite get that done.

  11. Harry says:

    Why bother, other than for the bragging rights which are never a smart idea anyway? Not that many jobs involved – let’s grow our own (jobs I mean, not bananas).

  12. Joeventures says:

    Best way to attract large and small businesses to Georgia is to have low taxes across the board for corporations and individuals.

    The only reason to say something like this is entirely partisan, and is not based in reality. If a silver bullet existed, it would be obvious and everybody would be in favor of it. Tax breaks are not a silver bullet, and the goal of bringing in jobs should not be the only goal.

    Economic development is about generating wealth. That’s not going to happen through tax breaks alone, much less bending over backwards to attract corporate headquarters. It happens with a well-educated workforce, a critical mass of stable jobs (that’s the corporate jobs), and an environment conducive to entrepreneurship and creativity.

  13. Chris says:

    Joeventures,

    I disagree that a silver bullet solution would be a non-partisan issue. Politics in this country is a zero-sum game. If the Dems benefit, the GOP loses and vice-versa. Except for the issues where Americans are virtually united (oppositon to child abuse for example) when one side takes a position, the other side takes the opposite position. Each side can’t let the other side get their stuff passed because doing so weakens themselves.

    Take Iraq. The democrats know that if Bush’s little endevor overseas brings a stable peaceful Iraq, the GOP is going to take the credit and be in a good position going into the 06 and 08 elections. They’ve got to make it look like everything is falling apart to put the pressure on the Administration to bring the troops home sometime before Iraq becomes stable. Then the perception is that the GOP screwed up and the voters will elect more democrats. I don’t know if they do this deliberatly or subconsciencly.

    Cynical? You bet.

    Also you said Economic development is about generating wealth….It happens with … an environment conducive to entrepreneurship and creativity.

    A low tax and regulatory structure is exactly the environment needed for entrepreneurship and creativity.

  14. Joeventures says:

    I disagree that a silver bullet solution would be a non-partisan issue.

    That’s nice, but I didn’t say that. My point was that a silver bullet solution is a partisan way of thinking.

    A low tax and regulatory structure is exactly the environment needed for entrepreneurship and creativity.

    It all depends on how you look at it. The big corporations that don’t need the tax breaks and can afford to treat their employees conscientiously won’t be swayed by big incentive packages except in marginal cases. That’s why many taxes and regulations affect firms based on their size.

    Entrepreneurship and creativity doesn’t just spontaneously happen in the absence of taxes and regulations. There are more active things that communities and governments have engaged to spark entrepreneurship and creativity. Having an educated workforce is a great start because it greases the wheels. Incubators, low-interest loans, and physical access to related facilities are just a few ways that economic development agencies help bring jobs and wealth that stays and grows.

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