Michigan

From mlive.com:

A Fruitport Township tool and die company received approval from the board of trustees Monday night for a 10-year tax abatement.

The request from Kurt Witham, owner of Automated Industrial Motion, or AIM, is part of a state economic effort which designates "tool and die recovery zones" as a way to help "qualifying tooling companies better compete in a global marketplace," Witham said. . . .

Witham's request Monday spurred a long discussion among board members who were divided over the issue. Supervisor Ron Cooper said it may not be fair to grant the company the tax break when so many other businesses in the area would like to have the same treatment.

Trustee Chris Beck reminded Cooper that other businesses have had opportunities to come before the board and ask for a tax abatement. Beck applauded the company for staying in the township and generating highly skilled jobs there.

There should be no question on the lack of fairness of having to win the approval of a government-created monopoly in order to have access to tax breaks. More importantly, offering discretionary tax breaks is a policy that wastes time and rewards those who play politics instead of those who make a decent product.

Protectionism also lurks in the background. . .

Louisiana

2theadvocate.com reports that, upon the recommendations of the Louisiana Development staff, a state commerce board has approved approximately $103 million in tax breaks. The article leads off by telling of the incentives won by a paper mill, a chemical manufacturer, and glass manufacturer. Board Chairman Mike Thompson indicated that “[i]n this case, those were three worthwhile industries we wanted to save and keep in Louisiana. And that’s what we’re about.” I would like to know more on what constitutes a "worthwhile industry."

The 2theadvocate.com article also tells us that

The board meets bimonthly to act upon tax incentives recommended by Louisiana Economic Development staff.

Tembec of Canada, which bought the former Crown paper mill in St. Francisville in 2001, projects a loss of $235 million for its first five years of operation in the state.

The company said it believes it can make the 515-employee facility profitable again with help from the state.

Tembec, which cut 200 St. Francisville jobs in the past two years, agreed to maintain existing jobs in exchange for up to $17.5 million in exemptions from state income, corporate franchise and sales taxes for the next five years. A drop in employment would bring a similar percentage drop in aid.

It is a shame that you have to promise jobs in order to receive a break from the state. It is unclear whether tax liability saved from the $17.5 million in exemption will be greater or less than the amount paid as salary to those are able to keep their jobs. I'm guessing that the savings will be far greater and that is will be a pretty sweet deal for Tembec, one in which small business owners will never have access.

Indiana

Local officials in Fort Wayne originally estimated that Fort Wayne Newspapers would receive a $2.5 million state tax credit building a new printing press in downtown Fort Wayne. But in reality the amount approved for a tax credit was a mere $250,000.

Who knows what is going on between local and state officials in the Hoosier State. But when you rely on the state to create sound economic conditions in a distinct area, you are playing with fire. See Fort Wayne's Journal Gazette for more.

Missouri

A usual story on this blog consists of a large corporation or major industry being able to attain a significant tax break to the chagrin of small business owners. So when Missouri Governor Matt Blunt signed a law prohibiting discretionary tax breaks from going to corporate-owned ethanol and biodiesel plants, one wants to believe that Governor Blunt is offering a level playing field in this new industry.

But if it turns out that those plants that are owned by a majority of farmers are able to get such breaks, in addition to their unique ability to receive subsidies from the Missouri Agriculture Department, that's just favoring the small guy over the big corporations (to paraphrase a commenter on the Joplin Globe's website), right?

It is naive to believe that this scheme is simply for the benefit of small farmers and Missouri citizens as a whole. It would be interesting to see the average income of the farmers that are taking advantage of ethanol and biodiesel incentives and compare that with the corporations that have attempted to attain the same tax breaks. The following will hopefully illustrate my point:

The new policy would not appear to exclude tax breaks from going to a proposed ethanol plant in which the governor's brother is an investor - though it is not clear if the plant is seeking any discretionary tax breaks.

Show Me Ethanol LLC wants to build an $80 million ethanol plant in Carroll County. It is being structured to be owned by a majority of farmers, though one of the investors is a non-farming company called Central Missouri Biofuels LLC, which the governor's brother Andy Blunt helped found.

California

Governor Arnold Schwarzenegger recently agreed to change a few California regulations, which in turn allowed the continued existence of the San Fernando Valley's only economic enterprise zone.

According to the LA Daily News, local councilman Tony Cardenas "said keeping the enterprise zone will help. His office has been negotiating with a furniture manufacturer to build a plant that would employ 500 workers. 'Without the enterprise zone, it wouldn't happen,' Cardenas said. 'We're talking the potential of millions of dollars being invested.'"

I believe that Mr. Cardenas gives credit where credit is not due. Given the likelihood of a complex and burdensome tax regime at the state and local level, it is probably true that the buildling of the furniture plant would not occur without the designation as an economic enterprise zone. But reform the tax code in California, a possibility that Mr. Cardenas fails to mention, and the need for such development zones disappears.

New York

It's been way too long. Let's get back on track. . .

Over at DMI Blog, Adrianne Shropshire discusses the New York state legislature's efforts to enact tax break and economic development reform. Although lawmakers in the Empire State were unable to come together on proposed legislation, Ms. Shropshire notes that

the campaign, spearheaded by local organizations and coalitions around the state, revealed the simmering anger and disappointment directed at local IDAs [Industrial Development Agencies] across the state. From losing jobs to poverty wages to not being able answer questions about where the money went and what was the local benefit, the effectiveness of this economic strategy was called into question at every level. Let's call it the "we give away tax-payer dollars but we don't ask questions and have no expectations" strategy.

With law school just starting back up and the possibility of new readers, let's restate two of the main premises of this blog. First, lawmakers should not be in the business of deciding who and who does not get tax breaks and/or incentives. The current policy of offering these breaks as a means of development leads to benefits for only those with political access, i.e., large corporations. When large corporations are able to attain these breaks, it makes it that much more difficult for small businesses to compete.

Many people, such as Ms. Shropshire, have complained of this policy but have done so in a way that accuses corporations of stealing taxpayer money when they are granted these incentives. My second premise is that these types of arguments are misguided. If the idea behind tax breaks and incentives is to encourage economic development, then the belief that these incentives "give away tax-payer dollars" is incorrect. After all, prior to these incentives coming into place, there was no development to begin with and, therefore, no taxpayer dollars to give away. Ms. Shropshire's logic means that taxpayer revenue would exist without these incentives, which is not necessarily true.

The fundamental idea behind the two above premises is that the best way to encourage development is eliminate (or at least significantly scale-down) these highly bureaucratic and costly state development agencies and offer a low and uniform tax rate for small and large businesses alike.

Minnesota

From GrandForksHerald.com and the AP:

Challengers to two of Gov. Tim Pawlenty's favored economic development programs had their day in court, arguing the Job Opportunity Building Zones and Bioscience Zones unfairly favor a few businesses at the expense of all taxpayers.

Lawyers for both the opponents and the state argued for summary judgment Monday before Ramsey County District Judge Mary Beth Dorn.

The JOBZ and biotech program, created in 2003 at Pawlenty's urging, give state and local officials the power to choose which companies get tax breaks in exchange for investing in depressed areas.

The plaintiffs - Alec Olson, a former lieutenant governor, state senator and congressman, and Butterworth Limited Partnership, which owns and runs a Bloomington mobile home park - said that the zones violate the law by making contracts with individual entities that allow them to avoid taxation.

Such tax breaks should go to a "uniform class," for example home owners, said plaintiff's attorney Stephen Rathke. Instead, they were given to companies that answered a call of, in Rathke's characterization: "Who wants a tax break?"

The program gives income, sales or property tax exemptions to companies for as much as 12 years to relocate or expand in areas with depressed job markets. It will cost taxpayers $8 million this year and $29.2 million more through 2009, according to estimates from the Minnesota Department of Revenue.

As of January, 125 JOBZ deals had been approved, with the state estimating a return of 5,000 additional jobs and $165.8 million in capital investments.

Rita Coyle DeMeules, a lawyer for the state, argued that the plaintiffs had no standing to bring the lawsuit because they have no direct interest in the programs beyond taxpayer status, and are unable to identify how they've been affected.

Responding to the plaintiff's argument that there's no uniform class, Coyle DeMeules said the class is defined as companies that will locate to particular geographic areas and increase their employment there.

Arguing that such economic development incentives are not illegal or even unusual, Coyle DeMeules characterized the lawsuit as a "policy disagreement" that should be remedied at the polls, not in the courtroom.

This is big news. I really like the fact that the plaintiffs attacked the lack of uniformity of these tax breaks. That's a basic premise behind this blog: lawmakers should not be in the business of picking and choosing which companies do and do not get tax breaks.

This blog began after the Cuno decision, where the U.S. Supreme Court held that plaintiffs contesting an Ohio tax break to DaimlerChrysler did not have standing and the case was dismissed. I doubt the plaintiffs in this Minnesota case spent much time getting into dormant Commerce Clause issues, which was the claim for the Cuno plaintiffs. The Minnsota plaintiffs likely got more into state law and hopefully this will increase their chance of overcoming the initial hurdle of standing.

Kentucky

It's high time for state economic development officials in Kentucky to feel good and important. According to the Cincinnati Business Courier, they have "granted a $1.6 million tax credit for a proposed expansion at A-Carb LLC in Boone County that could result in an investment of as much as $55 million."

The $1.6 million tax credit is a guarantee, while the investment reaching the $55 million mark is only a possibility. $1.6 million represents 2.9% of the proposed $55 million investment. You have to wonder if smaller businesses are able to get a proportional tax break for their investments.

bbq chicken pizza

The latest rankings of barbeque chicken pizzas are below. For those new to this blog, here is the story of my fascination with the barbeque chicken pizza. Unfortunately this summer I did not sample nearly as many of these tasty dishes as I would have liked. The main reason for this is lack of time -- after spending 3 hours commuting every day it is very difficult to resist the temptation of going home to have a quick sandwich and watch some baseball. By the way, anyone catch the Reds-Cards game last night? Incredible . . .



Rankings

1) Spagio, Columbus, OH: I've missed you, Spagio. I can't wait to see you again.

2) California Pizza Kitchen, Anytown, U.S.A.: Try to go a stand-alone CPK restaurant, not the one in the STL airport.

3) Chez Katie, Lake Zurich, IL: As in Chez Katie Whiting. The only other homemade pizza I had had prior to this was Paul Grant's Sausage Surprise. Ms. Whiting's pie is far superior, although a little strong on the barbeque sauce.

4) Bluestone, Evanston, IL: Good taste, really bad crust.

5) B. Hampton's, Columbus, OH: Props to B. Hampton's for blatant lack of enforcement of the smoking ban.

6) Wool Street Bar & Grille, Barrington, IL: My experience there got off to a bad start when I found out that they don't carry any draft domestic macro brews, although that fits in with Chicago quite well. And when they put a miniscule amount of barbeque sauce on my pizza, that's when I got really upset.

expansion?

If you're looking to expand your business to another state, visit ExpansionManagement.com for info on which states are offering great incentives for your industry. For instance, there is Pennsylvania . . .

Oregon

An AP story on OregonLive.com reports that a "tax break designed to lure Intel and other chip manufacturers to Oregon is now going to smaller companies, raising questions from critics who say the investments would have been made without the incentives."

The AP story quotes Bill Conerly, an economist who works with the Cascade Policy Institute. Conerly says, "I'm very skeptical. The initial use of the SIP (Strategic Investment Program) for the semiconducor companies, there was some logic there. But as you lower the dollar threshold . . . most of these outfits don't need that."

I'd like to know more about the SIP and Oregon's tax structure, but initially I disagree. Investments are made without incentives, no matter if the investor is a small or large company. I don't know how it is necessarily true that Intel needed the initial breaks to invest in Oregon; I would like to know what the "logic" was.

My main concern though is Conerly's implication that the smaller your business is, the less deserving you are of a tax break. That's a policy for big business protectionism.

Ohio

Meanwhile, Business First of Columbus reports that the state government has approved state tax incentive programs for seven companies to either set up or expand their operations in central Ohio. As far as I can tell, the approval of most of these programs does not necessarily mean that the beneficiary of the breaks will actual increase their investment in Ohio. In short, economic development officials in Ohio could be wasting a lot of time and effort.

re: trip to Washington, part deux

I was also able to meet some of IJ's clients this past weekend. One of them was Dennis Ballen, Head Bagel (i.e. owner) at Blazing Bagels in Redmond, Washington. Ballen went to IJ seeking help on a First Amendment case. Basically, the city of Redmond will not let him use a simple sign to advertise the location of his store and its serving of fresh bagels. Conveniently, however, Redmond does allow such commercial adverstising for realtors as well as political and local government advertisements. IJ's stance is that

Small businesses use signs to communicate with their customers and their right to do so is protected by the Washington State and U.S. constitutions. The U.S. Supreme Court is wary of regulations that burden inexpensive forms of communication, finding that they are “essential to the poorly financed causes of little people,” [footnote to Watchtower Bible and Tract Society of New York v. Village of Stratton, 536 U.S. 150, 163 (2002)] and government regulation of speech through the enactment of laws, such as Redmond’s sign ordinance, must comply with constitutional free speech guarantees. Redmond’s sign ordinance violates the Washington and U.S. constitutions in two ways. It is an invalid regulation of commercial speech and it improperly discriminates against certain forms of speech based solely on the content of the speech.

I agree. And when it comes to state tax breaks and incentives, the Head Bagel agrees with me. It gives me a bit of confidence to know that small business owners like Dennis Ballen are aware of the problem. Unfortunately, the problems discussed in this blog are not theoretical but are far too real. Here is a link to a Seattle Times editorial on the Ballen's case against Redmond.

re: trip to Washington

I was fortunate to spend this past weekend at a law student conference hosted by the Institute for Justice. IJ is the country's premier libertarian public interest law firm. They represent clients in the areas of economic liberty, private property, school choice, and the First Amendment. You may know them best as the firm that represented clients in landmark cases before the Ohio and United States Supreme Courts. In fact there was much discussion on the recent victory in Ohio. The weekend as a whole was quite inspiring.

The events of this past weekend also had some relevance to my blog. For instance, there was a presentation given George Mason University law professor Todd Zywicki. Professor Zywicki served as the Director of the Office of Policy Planning at the Federal Trade Commission from 2003 to 2004. He is also an expert on public choice theory and I believe he is publishing a book on the subject in the near future.

Public choice theory is used to look into why certain political decisions are made that may or may not be beneficial to the public as a whole. For instance, why were steel tariffs put into place a few years ago, when such duties benefit few but harm many consumers in the form of higher input (steel) prices for those that do not manufacture steel and higher output prices for those that have to purchase machinery made of higher-priced steel?

Understanding the answer means understanding the problem of collective action. It is much easier for the few steel producers that are left in this country to get together as one organization and effectively lobby for tariffs than for dispersed consumers (industrial and otherwise) to voice their opinion to make sure that the tariffs are not enacted. Further, as consumers we will likely not be significantly harmed by the tariffs because the total harm will be spread throughout the country. On the other hand, the benefit of the tariffs to the steel producers is concentrated and immediate; they have much incentive to come together and push for protectionist legislation.

Professor Zywicki did not suggest that there is one sole answer to the problems that public choice examines, except maybe for the politicians to stop handing out the "prizes" of legislative favoritism. Someone did indicate however (I forget if it was Professor Zywicki or a member of the audience) that judges should be aware of the problem and perhaps could do something about it, but the likelihood of this ever happening is très slim.

For me, the most important part of the presentation was that it verified my thoughts behind this blog. We see time and time again how large corporations and those with political access enjoy tax breaks and incentives from state and local governments. Smaller businesses can only dream of such preferential treatment. Public choice theory explains why this is happening. I hope there is a solution somewhere out there.