North Carolina

The Charlotte Observer has a decent analysis on a tax incentive program for Google and some of the relevant problems. Here's part of it:

The cost of the incentives has renewed questions about the fairness of tax advantages offered to new industries but not to businesses that have been in Caldwell County for generations. The county and the city agreed to forego 30 years' worth of personal property taxes, plus 80 percent of real estate taxes to land the plant. Google won't have to pay sales taxes on electricity, either. The 2006 General Assembly granted that exemption.

Exempting new employers from property taxes may be a surefire way to draw new jobs that otherwise wouldn't exist. But it also means other employers and ordinary citizens bear the burden of paying for such services as police and fire protection, public schools and Medicaid. That is not fair.

But at least in the Lenoir case, the wages -- which are to average around $48,300 annually -- will be far above the local average of about half that much. That's an improvement over the average wages of about $28,000 Dell was reported to offer. The next question is whether Google can find enough trained employees locally. In exchange for the package of tax incentives, Google should make a determined effort to hire and train local workers first.

State and local officials often excuse their willingness to give away taxes by arguing that other states are doing the same or more. That doesn't make it right, but few politicians today are willing to be seen as standing idle while good jobs go elsewhere. This time, at least, they'll come to Caldwell, where they're both needed and welcome.

Utah

This post is a perfect compliment to the one below. From the Seattle Post-Intelligencer:

With 30,000 people in town for the Sundance Film Festival, Utah film commissioner Aaron Syrett is giddy at the prospect of persuading a few filmmakers to shoot their next production here.

He's got good reason to be. The state is coming off its best year ever for film productions, has a new film incentive program that could see its funding increase fivefold and Syrett's on home turf as a sponsor of the festival.

In the cutthroat world of Hollywood productions, which often spend hundreds of millions of dollars, he'll need every advantage he can get.

The competition is fierce and willing to travel.

North Carolina, Maryland, Washington and New York, among numerous other states and cities, also have recruiters here touting millions of dollars in incentives that are often more generous than Utah's.

Which is worse, the fact that many and probably most states are going to put more money into their programs than they get out of it, or that the bureaucrats don't realize that they are perpetuating the lack of quality films over the past decade or so? More tax incentives mean more bad movies [side note: I'm willing to bet that production of The Departed was not a result of tax incentives]. Here's more:

Veteran Chicago entertainment lawyer Corkey Cederal, in town giving a speech on federal film incentives, says states either need to get serious about giving large incentives or not bother. In his estimation, Utah isn't making the cut. The serious states offer at least a 20 percent rebate or tax credit, he said.

"For any state to offer a very little incentive ... is like someone being a little bit pregnant. They should decide they don't want to offer any incentives or they should really come with a reasonable incentive," he said.

If there's one thing that Hollywood knows how to do, it's fool everyone into thinking that they are in financial straits and are in dire need of tax breaks.

Georgia

Along with the film industry, biofuels seems to attract the greatest number of tax breaks and incentives. The common denominator between the two sectors is that states feel they can be national leaders in both. From the Atlanata Business Chronicle:

Gov. Sonny Perdue wants a sales tax exemption for materials and equipment used to build biofuel facilities in Georgia.

Perdue has introduced a bill, which will be sponsored in the State House by Reps. Jim Cole (R-Forsyth) and Larry O'Neal (R-Warner Robins), to make a 4 percent tax incentive available to facilities producing and processing certain biofuels (ethanol, biodiesel and butanol) derived from Georgia-grown agriculture products and biomass.

"The biofuels tax credit will help make Georgia a national leader for the development of home-grown alternative fuel sources," Perdue said. "As a nation, it is vitally important that we decrease our dependence on foreign oil and Georgia will lead the way with innovative companies making use of products grown in our state.">

It's not a perfect analogy, but the whole thing reminds me of the coach who proclaims that his team gave a 110% percent effort. That's impossible and so is the belief that every state in our union is going to be a leader in trendy economic areas.

bad news

Wings' (aka Paul McCartney's) "Band on the Run" has been in my head for three consecutive days. It's been quite a miserable experience.

Iowa

Iowa is looking to become more of player in the film industry. And so, like seemingly so many other states, they are proposing tax incentives as a way to lure filmmakers there. From the Iowa City Press-Citizen:

Rep. Mark Davitt, D-Indianola, plans to file a film incentive bill this week. He said he thinks it has a good chance of passing.

"I am very optimistic," Davitt said. "There are a lot more people really listening this year and paying attention to the discussion."

[Scott] Beck, like many Eastern Iowa filmmakers, is keeping his fingers crossed it will.

"Many" Eastern Iowa filmmakers? Let's hope someone in the Hawkeye State has the guts to point out that these tax incentives only illustrate how inefficient current tax schemes are and that only the well-connected are able to get such helpful breaks.

Ohio

From the Cincinnati Business Courier:

A proposal to tear down a building in Winton Place and replace it with a Restaurant Depot warehouse is on Cincinnati City Council's plate this week.

RD America Inc., Restaurant Depot's parent, is asking for a 15-year property tax exemption to build the facility on West Mitchell Avenue. The College Point, N.Y. company's plan is to demolish the existing structure and build a 55,000-60,000-square-foot warehouse, costing about $4.9 million, along with an 85-space parking lot.

Even if tax breaks and incentives were good policy, it seems that a fifteen year exemption is a bit too long. Businesses generally don't need fifteen year to determine long-run profitability of individual stores. Tax breaks with these long durations are just gravy.

doubt

The end of January also marks the end of another fine Australian Open. To what should be no one's surprise, Roger Federer is once again champion, losing a grand total of zero sets.

Yet, if you were paying attention to the sports world late last week, you would have thought that this year's Aussi Open would be the beginning of a new era, one in which Andy Roddick would overcome his past demons and at last triumph over Federer. It was quite unbelievable to see how much hype the sports media put into the Andy Roddick Experience -- they seemed to feel fairly confident that this would be Roddick's year.

But what gave them such confidence? In short, it was a decent start to 2007 for Roddick, strong play during the early rounds of the Aussie Open, and a newfound ability to play at the net. Unappreciative tennis fans and the sports media generally made one fatal mistake, however: they failed to consider Roger Federer himself.

If these people had spent 30 seconds or so actually looking into the world's most underappreciated athlete, they would have seen that there was no reason to think that Federer would fail. At this point, you have to give Federer the benefit of the doubt in any situation. Most people didn't, and so it was great to see Federer absolutely destroy Roddick in the semis in straight sets.

Federer should be the type of athlete on par with Tiger Woods and Michael Jordan. By that I mean that just as who those who don't pay attention to sports know of Woods and MJ, they should know about Federer as well. I think the only way this is going to happen is if Federer wins the Grand Slam. I hope he does and we'll all be able to witness history.

profile

You may have noticed the change in my profile icon from a Bengals logo to a close-up of a bottle of Negra Modelo. No, I'm not an alcoholic, but I just wanted to give free publicity to a good beer that I think more people should try.

I also wanted to get rid of the Bengals logo after a fairly disappointing season. Sure, given the heartbreaking losses of the final two weeks and the overall talent on the team, they should have made the playoffs. But I'm actually kind of glad the season's over -- the up and down roller coaster ride of the past five months was beginning to get old. If there's a benefit to be had from this past season, it's that I will be spending a lot less time listening to sports prognosticators on ESPN and the like. I probably should have realized this earlier, but these guys don't have any more clue on what's going to happen than anyone else. Their predictions on the Bengals this season is a classic case in point: their initial doubt was silenced by a hot start; they jumped on the bandwagon and the Bengals proceeded to lose 5 out of six; then everyone counted them out and they won 4 in a row; finally after they were a lock for a playoff berth, the Bengals collapsed and find themselves golfing during the NFL's first playoff weekend. Absurd.

Arizona

In exchange for building a four-star hotel, the city of Avondale has promised Avalon Commercial Corp. a sales-tax rebate in the "seven-figure range." One wonders whether the laundromat down the street from the future hotel receieved a proportional rebate.

Connecticut

Instead of a simple, flat, and broad-based tax plan, Connecticut state senator Eric Coleman wants to make his job more important during the 2007 legislative session:

"I want to see more tax incentives with small businesses in mind," he said. "We want to provide the businesses with incentives to hire more community members."

He hoped to see requirements attached to benefits like loans or tax incentives, such as hiring residents from an economically troubled community, he said.

West Virginia

Rob Capehart, a current Fulbright Scholar and Marshall University associate professor, offers a much-needed critique of tax incentives programs in the State Journal. Capehart's central criticisms of tax breaks concern fairness, questionable results, and possible legal issues, noting that "a number of well-reasoned commentaries have concluded that the Commerce Clause likely will serve as the basis for nationwide legal challenges to a state's use of tax credits by public interest groups representing the beneficiaries of state government expenditures."

Illinois

After a summer storm did major damage to his comany's buildings, Fabritech Inc. CEO Mike Morrow decided to stay in Bethalto, Illinois. Regarding new construction . . .

"[I]t will be completed, and when people walk in, they won't believe their eyes," Morrow said.

The new construction - estimated to cost more than $2 million - and the creation of permanent jobs is good news to the region, which has felt the blows of layoffs in recent years.

Several manufacturing plants in Madison and St. Clair counties have closed in the last decade. The most recent closing came in December, when the Owens-Illinois plant in Godfrey laid off more than 250 workers.

Morrow also is quick to point out that tax incentives played a key role in keeping Fabritech in Bethalto.

"We looked at moving to Missouri, looked at moving to South Carolina and a couple other surrounding states," Morrow said. "The reasons we settled in Illinois were state incentives and getting the best incentive package we can."

Local tax breaks also played a part in the company's choice. Area city councils are expected to add the company property to the Riverbend Enterprise Zone, which means Fabritech can avoid paying taxes on construction materials and not pay property taxes for five years, among other bonuses.

While keeping its employees happy is a priority, Morrow said that with business, money always takes precedent.

"Staying here makes sense. (Employees') homes were here, most of our employees were here, but when you start getting the offers from other areas, the bottom line takes effect," he said.

Michigan

Today's Jackson Citizen Patriot includes an editorial on Governor Jennifer Granholm's upcoming second term and her belief in the "Next Michigan." Regarding economic policy, the editorial suggests that

the economic recovery has simply failed to materialize for Michigan. Things continue to worsen as the state loses manufacturing jobs and the Michigan-rooted auto industry struggles to remain competitive. And this year begins with a new Legislature. Democrats have control of the House and a stronger minority position in the Senate.

Therefore the governor has more serious budget issues than she had in the first term, but she is in a stronger position now in terms of her political support in the Legislature.

The burden of leadership in that scenario is great. To propose a general tax increase, as some advocate, runs counter to the typical economic-development incentive of offering tax breaks. Legislators see a tax increase as a re-election death notice. To advocate deep budget cuts is likely to produce howls of protest from throughout the state -- especially by school districts that have seen their state aid eroded by huge legacy costs, inflation and past cuts in state aid.

It is hard to look beyond such severe budget problems to see the governor's "Next Michigan." We're pleased she has the gift of farsightedness. She will also need a strong hand with lawmakers, frequent use of her bully pulpit and the ability to persuade and inspire the people of Michigan in the long-term drive to economic renewal.

Indeed, raising taxes is not only unwise for re-election purposes but also for actual and sustainable economic growth in Michigan. The main problem in Michigan, however, as illustrated by this editorial, is that the whole state seems to think the only way out is "the typical economic-development incentive of offering tax breaks." In effect, policymakers there realize that high taxes drives business away but fail to comprehend the burden of engaging in the bureaucratic mess that comes with applying for tax breaks.

Michigan

Michigan's Tool & Due Recovery Zone attempts to help struggling diemakers.

To date, 55 small shops have created coalitions to qualify for up to 15-year tax breaks. The most recent additions were announced just before Christmas. "It's been really tough the last five years," Morren said Tuesday. "In the last month or so, things have really been turning around."

Until last year, the program to boost small tool-and-die shops was limited to those with no more than 50 employees.

That cap rose to 75 after larger diemakers complained of an unfair advantage by their competitors.

Louisiana

St. Bernard Parish wants to get in on as much as $150 million in federal tax incentives for construction and redevelopment. Apparently the parish does not have the institutional expertise to acquire the incentives themselves, so, according to the Times-Picayune they hired an outside company, CBO Financial Inc., to do it for them.

CBO's president, Craig W. Stanley of Maryland, has experience with the relatively new tax credit program and will help the parish apply for the program. Stanley will be paid only if the parish is awarded an allocation of tax credits under the program, Taffaro said.

At Stanley's suggestion, the commission is drawing up a simple legal document to create an entity that ultimately will administer the incentive program if the parish is awarded a tax credit allocation. Stanley's role is to write the application for the parish to get the authorization to administer as much as $150 million of $3.9 billion in tax credits that Congress approved to help areas affected by Hurricanes Katrina and Rita.

The program encourages investment by providing tax credits over a number of years. The tax credits could also be used to start a loan fund in distressed communities, Stanley said.

Councilman Lynn Dean was the lone commission member to oppose contracting with Stanley's company. Dean said he worries about government playing too large a role in free enterprise. Besides, Dean said, the parish should write the grant application itself so it wouldn't have to pay Stanley 2 percent from the allocation's proceeds.

For those counting at home, 2% of $150 million is $3 million. $3 million for one application (if you think the feds are going to deny incentives to New Orleans, you're crazy), not bad!

South Dakota

Do incentives lead directly to a company's expansion? It's never an easy question. Reporting on recent local projects and a controversial tax incentive program in Lead, the Black Hills Pioneer looked to Joy McCracken, Executive Director of Neighborhood Housing. McCracken was

unable to say how many of those projects were initialized solely because of the tax incentive. She did say that there are currently 13 projects in progress with the majority of them doing more than $15,000 of work. She said that while they were all made aware of the tax incentive they haven't been able to take advantage of it because the work is not yet completed. She asked the commission to extend the incentive.Commissioner Rose Burns felt the incentive was not working effectively saying, "I think it's a flawed system." Burns and Commissioner Dru Thomas voted against renewing the incentive for another year.

distortion

The concept of "distortions" is often mentioned on this blog, so you may be wondering, "What does 'economic distorion' look like?"

[E]conomic distortion is an abstract concept. It's hard to illustrate to journalists and others how millions of tiny tax-induced distortions in the economy can total up to a huge economic loss for the nation as a whole, reducing everyone's well-being simply because lawmakers have written poor tax policy into law that encourages people to waste resources on minimizing tax burdens rather than engage in productive activity like work and saving.

The Tax Foundation has further insight, with help from the Wall Street Journal.

Vermont

Outgoing Vermont State Auditor Randy Brock was kind enough to give the Rutland Herald an interview during his final days on the job. Perhaps his last task was a review on the Vermont Economic Advancement Tax Incentive Program. But . . .

While the review looks backward at past incentives, it does not address the most recent statutory changes signed into law last year as a sweeping overhaul of the program.

Those changes go into effect starting this week. Lawmakers and officials have said the changes should further streamline the program and make companies more accountable.

Under the changes, companies will not be awarded incentives until after they have expanded their workforce. And instead of tax breaks, they will get money from the state's general fund, allowing for more rapid evaluation of the benefits they receive, and more rapid reductions if they fail to meet their requirements.

It seems that past incentives, awarded only upon the promise of job creation, have not been so incentivizing. Now, under the guise of accountability, companies will be entitled to actual monetary credits only after showing documentation that there has been an expansion in the workforce.

Rules like these make the inefficient policy of tax incentives even worse. Usual incentive programs allow companies wiggle room to deal with the ups and downs of the business cycle. Under the new rules, however, a business may plan for an incentive and wish make the corresponding hiring decision, but an unexpected shift in the economy could perhaps change these plans. These are the times when such a business will be in no position to hire but will likely be in strong need for a tax break. If the original goal is to give a break to business so as to allow them to compete, the new rules prevent the businesses from getting help when they most need it.

One can look at the opposite situation and see an unintended consequence of the new rules. If a company is doing well and in a position to expand, not only will they likely do so, but they will basically be re-imbursed for doing so. My thought is that your overall tax rate should be the same in good times and in bad -- this allows for the government to get away from deciding exactly when a company is doing well and and exactly when a company needs help and instead lawmakers can concentrate on more important things, such as protecting life, liberty, and property. But if there is to be a discrepancy, tax schemes should help those in need and not those in an advantageous market position. What the Vermont rules do, however, is kick a man while he is down and distort the market so as to allow better performing companies to further separate from their competitors by giving them job creation reimbursements.

Not surprisingly, the outgoing and incoming bureaucrats also fail to discuss the cost of oversight that comes with "accountability." There is also a "but for" test, which is "the requirement that company officials testify they would not make certain investments in Vermont unless they were awarded incentives." At least the outgoing auditor had the decency to note that this test "is a decision that can be very subjective" and one that is "very hard, if not impossible, to audit."

Incentive programs began as a well-intended effort to ease the tax burdens businesses often face. But, as so often happens with such programs, the Vermont government has used the program to further entangle themselves in the day-to-day decisions of companies across the state. If you're a company in the Green Mountain State wishing to add a few jobs, be prepared to consider the time and cost of compliance if you wish to be reimbursed at all for this expansion. And if you wish to given an incentive for the essential decision to upgrade your equipment, better off moving to another state.