Tags: corporations | tax incentives | Michigan | Rick Snyder

Corporate Tax Incentives Draw Increased Scrutiny

By    |   Thursday, 12 Feb 2015 12:47 PM

During the economic downturn many states turned to corporate tax incentives as a way to boost employment and attract new businesses, but while the subsidies may have produced some new jobs, they also contributed to an increase in budget deficits, reports The Wall Street Journal.

As elected officials in Michigan attempt to deal with a projected $454.4 million deficit in 2014-2015, the efficacy and future of corporate tax incentives has become a matter of debate, particularly as the state is one of the largest recipients of the breaks.

This week, Michigan Gov. Rick Snyder announced he would begin to take on the costs of the business-tax credits by cutting more than $100 million in state department spending and an additional $500 million cuts through 2017, according to the Journal.

Snyder has defended the incentives, instead attributing blame to tax credits issued against the Michigan Business Tax (MBT) as the primary cause for the deficits, and has significantly cut corporate taxes by eliminating the MBT in favor of the corporate income tax, reports The Lansing State Journal.

But others argue that corporate subsidies come at a cost to taxpayers.

Kenneth Thomas, a political-science professor at the University of Missouri-St. Louis, estimates state and local incentives to businesses nationwide cost taxpayers at least $70 billion annually and that they do not achieve the stated goal of luring businesses to a particular state.

Last year he told The Los Angeles Times 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."

And, he noted in a 2013 column, total business subsidies could be used to hire 1.4 million government workers at $50,000 per year in salary and benefits.

"Instead, what we have seen in state after state is that there have been sharp cuts to these very areas, even extending to such economic development crown jewels as the state university systems in California and North Carolina, among others," he argued in US News & World Report.

According to a 2014 report issued by the watchdog group Good Jobs First, three-quarters of all the economic development dollars awarded and disclosed by state and local governments throughout the United States went to 965 large corporations.

For example, Boeing, which topped the recipient list, received $13 billion in tax subsidies, while Warren Buffett's Berkshire Hathaway has received 310 subsidy awards totaling $1.06 billion to subsidiaries. The company with the largest number of awards is Dow Chemical, with 416, according to the report.

"In our Megadeals study last year, we found that since 2008, there has been a spike in the number and cost of gold-plated deals, even though overall deal flow remains depressed," said Good Jobs First Executive Director Greg LeRoy. "It looks like the corporate rich are getting richer at the expense of public goods that benefit all employers."

Nebraska, which issued approximately $175 million in tax credits and refunds in 2012 and 2013, is one state where legislators are re-evaluating how to analyze the economic impact of business-tax incentives.

"There's a lot of question marks about how these programs work and how to make them work better," Robert Zahradnik, a research analyst with Pew Charitable Trusts and who advised Nebraska lawmakers in crafting a plan to place evaluations on a three-year cycle, told The Lincoln Journal Star.

Several other states that have processes in place to review all of their major economic development tax incentives include Connecticut, Florida, Indiana, Maryland, Mississippi, and Rhode Island, and those states generally have required that incentives be reviewed at least once every three to five years, noted Zahradnik in a report he presented to Nebraska's special Tax Incentive Evaluation Committee.

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During the economic downturn many states turned to corporate tax incentives as a way to boost employment and attract new businesses, but while the subsidies may have produced some new jobs, they also contributed to an increase in budget deficits, reports The Wall Street Journal.
corporations, tax incentives, Michigan, Rick Snyder
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2015-47-12
Thursday, 12 Feb 2015 12:47 PM
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