The Idea Shop

One of the strongest and most concise criticisms of state tax incentives comes from Andrew Chamberlain's blog, The Idea Shop.

Not surprisingly, I think they’re lousy policy. Location-based tax incentives are defended on grounds that they boost employment and spur economic activity. But that’s an empirical question—and one that requires careful economic study. The problem is that location-based incentives are almost never accompanied by the requisite scientific review. And because the costs and benefits aren’t estimated and studied—either before or after implementation—tax incentives commonly end up channeling taxpayer dollars directly into the pockets of rent-seeking film companies, generating no corresponding economic benefits on a net basis.

Ultimately, the main beneficiaries are not taxpayers but lawmakers. Every incentive package that attracts a rent-seeking company allows lawmakers to make public announcements taking credit for “new jobs.” Location-based incentives can be thought of as a market transaction between lawmakers and film companies. Lawmakers purchase favorable media coverage for themselves, film companies accept payment for filming in economically unprofitable places, and taxpayers finance the deal.

When viewed this way, it no surprise some have called location-based incentives “self-imposed rape” by state and local lawmakers.