A Taxing Issue

where I'm at

2007-05-04T05:40:00.001-07:00

http://bmisc.wordpress.com/

my boy, Josh Hamilton

2007-04-13T12:32:00.000-07:00

For those of you unfamiliar with the Josh Hamilton story, you better recognize. Who knows what problems this will lead to for the Reds outfield, but baseball guy Jerry Narron will cross that bridge when he comes to it.

Kentucky

2007-04-13T12:31:00.000-07:00

According to the Kentucky Post, the Newport City Commission gave "preliminary approval Monday to a tax incentive program to attract new businesses to the city."

Montana

2007-04-13T12:09:00.000-07:00

The Great Falls Tribune reports that Montana Governor "has vetoed a bill that he said would continue an improper property-tax break for cellular-phone companies."

Imus

2007-04-13T11:34:00.000-07:00

You may be as tired as I am of discussing the Imus-Duke-Nicole's baby dramas, but the one thing I continue to ponder is the "free speech" aspects of what happened to Old Man Don.

Peter J. Riga, for instance, wrote the following to the Houston Chronicle:

The firing of Don Imus over some stupid racial remark is not only a blow against the First Amendment for free speech, it is the American version of the Danish cartoon affair. What about Imus' constitutionally protected free speech?

To be sure, there is a lot to question on what happened to Imus. Is there a double-standard, after comparing his statements to those of people like Al Sharpton? Where do the Rutgers' basketball players go from here? Should we give Imus leeway because he is a shock-jock? Did anyone actually consider Imus to be funny and worth listening to?

But when it comes to Imus' constitutionally protected free speech rights, he cannot seek recourse to them because there was, thankfully, no action taken by the government. Among other things, the right to free speech allows Americans to voice their opinions on anything and everything without fear of government interference.

That doesn't mean that your speech does not have consequences, as the Imus situation illustrates. In fact, for those who believe what happened Old Man Imus was a sham, the silver lining in all of this is that there were several instances of free speech. Imus said what he wanted, the media responded how they wanted, as did the players, corporations, and media conglomerates who eventually asked Imus to hit the showers -- all without the FCC telling us what we should listen to or watch!

Yes, there is a chance that the treatment accorded to Old Man Imus was a little too much and that there will be a chilling effect on satire in general. But the equilibrium of the marketplace of ideas is not a constant one. Societal standards will eventually move back towards the comedic end, and maybe we'll realize that Imus wasn't even funny in the first place.

For more on this, go here.

"a big orgy of lawyer-driven rent seeking at taxpayer expense"

2007-04-04T19:10:00.000-07:00

Randy Balko has a great post about the profession into which I am about to enter.

[W]e have a society that enables such a huge demand for lawyers in the first place. The enormous growth in the number of lawyers in this country is, by definition, a result of a huge increase in demand for people who can interpret, manipulate, and influence the law. That demand means there has been a corresponding increase in the influence and pervasiveness of the law (as opposed to, say, voluntary transactions). And law of course is the domain of government. We have more lawyers because we have more law.

tax incentives

2007-03-30T12:37:00.000-07:00

Too long since I last posted on tax breaks and incentives. In fact, you may have noticed above that this blog is no longer technically dedicated solely to tax breaks and incentives, but now allows for posts on other "musings." Life's too interesting to blog on just one topic, especially when that topic is tax incentives and I'm not getting paid for it.

That being said, I'm not going to forget about the issue. Local agencies giving tax breaks to certain companies but not others is a policy of which not enough people are aware, so I'm going to do my part to make hopefully at least a small difference.

Kentucky seems to pop up more often than other states in offering incentives to large corporations. Toyota looks to be another beneficiary, and other companies only get a break on their taxes when they create jobs, sadly.

Today's Los Angeles Times has on Wisconsin state tax breaks for the film industry, noting that "more than three dozen states have laws that offer tax breaks and other financial lures to filmmakers."

spring cleaning

2007-03-30T12:22:00.000-07:00

I do not have songs included with this blog anymore. Various reasons for doing this -- sometimes it was a hassle to upload the song to a server and I didn't think I was changing it often enough, not having a song will allow this blog to download (is that the right computer language?) more quickly, and people may not listen to it anyways or get any benefit from it. I can't imagine I'm disappointing too many people with this decision.

I've been introduced to blogs of three friends of mine that you may find of interest. Len is a cycling fan, blogs on the sport, and posts Katie's e-mails on her quest to do an Ironman. Matt is a law student (graduating soon, like myself) who offers right political thoughts. Mark is a priest and my former cross country coach and blogs about his work in Iraq.

DC talk

2007-03-12T18:45:00.000-07:00

"We're supposed to be fighting this war and paying for the troops -- making sure they have what they need,'' he said. "We're not supposed to be paying for avocado growers.''

That quote is from a March 6 Bloomberg article and is a follow up to my March 5 post. What's happening with the Democrats and the war also correllates with my August 2 post.

This goes to show that we should always have a healthy skepticism about politicians, right or left. Sure, there were be those public servants who do well and understand the limited role government is meant to have under the Constitution. But they are the exception to the rule, and it's better to error on the side of caution than begin with a romantic view of government. Let them earn your trust.

The lack of understanding about what actually occurs in Washington is an important issue. Many who have "normal" jobs are either indifferent to politics or feel that DC politicians have everyone's best interests in mind, and these are understandable feelings.

But the truth is that politicians, like most of our society, are self-interested. And by self-interested, I don't mean that they're looking for what's necessarily best for their constituents in the long-run. Self-interest instead means asking "What do I have to do to get re-elected?"

For me, the most frustrating aspect of this is that I was so naive to the whole process until after my first year of law school. It does not upset me that high school civics courses were taught with a romantic perspective of government. What bothers me is that I spent four and half years at a decent business school and the influence that DC has on business and vice versa was rarely discussed.

Economics was awesome--I learned that there's no such thing as a free lunch, the importance of scarcity and economies of scale, etc. International business was a waste. Basically, the only thing taught with that major is that people in other countries have different perspectives and you should learn to deal with those perspectives. Common sense if you ask me.

For all the coverage on multinational firms and their rise to power, class discussion centered on efficiency, inputs, productivity, supply, demand, and other economic and business concepts. Rightly so, but no one ever mentioned the importance of having the right people on K Street. Any Fortune 500 CEO would be lying if they said what happened in Washington wasn't important. This aspect of business should be reflected in a business school's curriculum.

new blogger

2007-03-12T18:38:00.000-07:00

I've been switched over to the new blogger for a few weeks now. So far I'm not very impressed. I had to create a new account with my hotmail e-mail address. It is so far impossible to leave comments on blogger with this new account. The other day I tried to post a Champions League goal from YouTube (I've done anything with YouTube or soccer, so you know it had to be special) but that didn't work because Blogger told YouTube that it didn't recognize my blog or account when I tried to post it.

It is only two things, but the ability to post comments and YouTube videos are fundamental aspects of the blogging experience. Maybe they will improve after I sign up for a gmail account, which will likely occur next week.

One positive aspect of the new blogger is that general posts are published more quickly.

NCAA tourney

2007-03-12T18:26:00.000-07:00

With the NCAA basketball tourney coming up, that means more Billy Packer, unfortunately. Personally, I really can't listen to games when he is the main color analyst. College basketball is supposed to be a fun game, but some reason listening to him makes it a miserable experience.

I'll probably have to find a bar for the Final Four games that he will broadcast. If you happen to meet a CBS executive in the near future, have him or her explain to you why he is chosen over Bill Raftery for marquee matchups.

More thoughts on the issue . . .

selling out

2007-03-05T11:34:00.000-08:00

In their criticism of the Iraqi war, Democrats have opposed sending more troops to the region and the war in general on the legitimate basis that innocent Americans are dying there with no real benefit to Iraqi society.

But a recent post at Cato@Liberty begs the question whether this opposition is genuine or is instead a political ploy. Would funding a war with which you apparently and fundamentally disagree be easier to digest if you got something out of it?

The Hill reports that Blue Dog Democrats are very concerned about the proper balance of powers between the president and Congress. But for a big hike in farm subsidies, they’ll forget about that little constitutional matter.

House Democratic leaders will add nearly $4 billion for farmers to a bill funding military operations in Iraq and Afghanistan to attract conservative Democrats concerned that the measure would wrongly constrict President Bush’s power as commander in chief.

The Democrats hope that moderate Republicans are just as malleable:

Democrats may also add money for children’s health insurance in the hope of winning the votes of Republicans such as Illinois Reps. Mark Kirk (R) and Judy Biggert (R), whose home state faces a $240 million deficit in its State Children’s Health Insurance Program (SCHIP).

To be fair, there’s no proof in the story that Kirk and Biggert are considering such a deal, but Republican leaders are reported to fear it.

In the civics books, they tell us that members of Congress deliberate about war, separation of powers, balanced budgets, and so on, and then make collective decisions. If you read a newspaper, though, you soon learn about logrolling and other budget games. Still, it’s one thing to trade your vote for farm pork for the other guy’s vote for urban pork; the taxpayers lose twice, but at least it’s only money. Trading your vote on a matter of life and death, which is also a fundamental constitutional issue, for a few billion in home-state pork seems entirely unbecoming to a member of the legislature of the world’s most successful republic.

I believe it was Michael Corleone who once noted to a U.S. Senator that "We're both part of the same hypocrisy."

Kentucky

2007-03-01T11:59:00.000-08:00

The Lexington Herald-Leader reports that "Lexmark International received approval for a $500,000 state tax incentive package yesterday that would help pay for an expansion of its research and development operations in Lexington."

Worth noting, however, is that "Unlike other state economic incentive programs administered by the Kentucky Economic Development Finance Authority, KEIA does not require that jobs be created. Lexmark does not anticipate any new jobs strictly related to the new expenditures . . . [but] the company continues to hire for R&D positions in Lexington."

president

2007-03-01T11:42:00.000-08:00

For better or for worse, the race for the 2008 presidential election is well under-way in early 2007. When it comes to the candidate du jour, he or she will predictably fall into the pro-choice or pro-life crowd on the abortion issue.

I look forward to the day when a candidate is asked for his views on abortion, suggests that he is pro-choice or pro-life, and then turns the table on the inquiring reporter, "Should my view really make a difference?"

Indeed, it would be quite refreshing if a presidential candidate acknowledged that, while he may have personal views on a specific matter, his role as president would be limited -- it's not the job or duty of the President of the United States to make policy on abortion (and many other issues, for that matter).

you cannot be serious

2007-02-19T18:57:00.000-08:00

I've known for awhile that this upcoming summer will not be a summer of love. Studying for the July 2007 California bar exam not only means flying solo for a few months, but it also means that I will more-than-likely miss the weddings of good friends from college, a good friend from high school, and good friends of Katie.

I received some good news last week when I received a save-the-date postcard from another high school friend. His wedding takes place on September 8 near Oakland. As that is the weekend after my first week of work, I was looking forward to making the 90 minute or so drive to there from Sacramento.

But I've just received breaking news that my cousin has decided to have his wedding on September 8 in Cincinnati. Are you freaking kidding me? Of all the weekends . . .

At this point, I'm not sure what to do. And I'm not talking about which wedding to go to. I'm talking about what to do right here, right now. The frustration and bad luck are distracting me from my studies. So many missed weddings, a complete travesty of justice. I need to vent, but am uncertain how. I could probably go for a Pantera concert, or something like that.

Virginia

2007-02-19T17:05:00.000-08:00

Today I learned of a fascinating (and shameful) case in Manassas Park. From Radley Balko's 2/3/07 post on The Agitator:

The Cliff's Notes version: David Ruttenberg hires a guy named Tom Kifer to head up security for his bar. Kifer is specifically charged with keeping drug activity out of Rack n' Roll. Ruttenberg later finds out that Kifer is working for the police, who have instructed him to set up drug deals in the bar, which they then plan use against Ruttenberg, who would later lose his license for -- wait for it -- failing to stop drug activity in his pool hall.

Note that in the audio clips, Kifer tells Ruttenberg he realizes Ruttenberg's getting screwed, but that the police are holding his probation over his head. There's a bit more to this story, too. Kifer went to jail in part because of a bad check he wrote to Ruttenberg. Ruttenberg didn't want to turn him in. But when he cashed the check and it bounced, he had no choice. When Kifer got out, he begged Ruttenberg for his job back. Ruttenberg gave it to him, mostly out of pity, and out of regret for in part being the reason Kifer went to prison in the first place.

The whole thing was a ruse, of course. Kifer was working for the local police. Not to catch Ruttenberg doing anything wrong, but to help the police establish a pattern of drug activity at Rack n' Roll -- activity that took place despite Ruttenberg's best efforts to stop it.

What do you do when you continue to report drug activity to the police, only to have them ignore it, in all likelihood because they instigated much of it? What do you do when you hire security to hunt down drug dealers, only to find out that the very same security personnel you hired are setting up drug deals on behalf of the police -- sometimes deals where the only parties are undercover cops and paid informants?

I can't believe Ruttenberg hasn't gone completely nuts by now. Imagine watching helplessly as you learn, slowly, that the people who hold power where you live have decided to take you down, and there's not a damn thing you can do about it.

The harassment of Ruttenburg is ongoing.

Now, the city of Manassas Park has sent him sent him a cease and desist letter, claiming he's publishing "false and defamatory" information about city officials and employees. He writes:
I’m actually somewhat surprised by this, as everything I’ve said is true is backed up by video, audio, transcripts of testimony under oath, sworn statements, and/or multiple sources. Everything I’ve said on this matter is not only true to the best of my knowledge, but the evidence that supports this perspective on Manassas Park’s current regime is truly massive. If the City of Manassas Park decided to pursue a defamation case against me and put themselves in the position of being subjected to the degree of discovery a case like this would likely permit, it would give me all of the evidence now held by the city which has so far been denied David Ruttenberg, and would allow him to conclusively prevail in his five million dollar lawsuit against the city and many of it’s officers. That would be a positive outcome for justice, which has been denied for far too long.

A lawsuit like this would also give tremendous visibility to this scandal. I’ve become a somewhat notable website for local politics, but my readership is nothing close to the daily circulation of the media outlets which cover the area and I harbor no illusions about my significance outside of the political junkies and the occasionally curious. Having a locality file a lawsuit against a political blogger would probably be a pretty significant story and splash the Rack & Roll Scandal into the public consciousness in a way that I could never do. That would be a positive outcome for the citizens of Manassas Park, who deserve better government which such publicity might help to cause.

He's exactly right. Which is why I think they're bluffing. Manassas Park is governed by fools, but they can't possibly be this foolish.

Hat tip: Hit and Run.

See also Black Velvet Bruce Li.

Illinois

2007-02-13T19:23:00.000-08:00

Here's a nice letter-to-the-editor that appeared in Monday's Journal Standard:

This is for our eight aldermen and aldermen-at-large. Take into consideration the following before you rubber stamp the proposed 0.25 percent sales tax increase. Yes, 35 percent of sales tax revenue generated in Freeport comes from out of town.

As we are currently expanding the bypass around Freeport, remember this road will assist in taking our town business to Pecatonica, Winnebago, Rockford or Lena, Stockton or Galena, with greater ease.

You may wish to clear up an issue with my fellow residents. How dare you give thousands of dollars in tax incentives to a multi-billion dollar company for expansion on our south side. An expansion that would have happened without said incentives. All the while, we residents take it in the neck, while you are looking at a $500,000 budget deficit.

I wonder, with this tax incentive, these companies promise so many jobs over a period of time. Who monitors this? You? What happens if the company does not apply? Another tax incentive I would suppose. See? I always thought tax incentives were for small business. I guess Wal-Mart is a small employer in Freeport.

Yes, you need to think this one over, as you sit at the Visitors Center, watching the cars heading east, I hope you think Shop Freeport First.

Neal Toepfer

it's a blog eat blog world

2007-02-06T19:30:00.000-08:00

Two new, fantastic blogs that I came across today:

riverfronttimes.com STLog

Truth on the Market

You can thank me later.

glass half full

2007-02-06T18:59:00.000-08:00

This past December, the American Bar Association's ABA Journal published an article on the Seattle and Louisville school integration cases. To put it very briefly, the issue in these cases is whether local school districts may consider race as a factor in deciding which individual school a student will attend in that district.

The February issue of the ABA Journal came in the mail today, and I particularly enjoyed a letter to the editor from Alexander Schulman of Lake Forest, California, regarding the December article:

One of the fundamental duties of schools is to prepare children for what they will encounter in later life.

Toward that end, the Seattle and Louisville, Ky., school boards are right in introducing their students to the realities of racial preferences.

Young white males, like Crystal Meredith's son, must accept the subordination of their civil rights to achieve diversity. This will prepare them for future sacrifices they will make in college admissions and employment.

To be clear, the policy of the Seattle School District (I'm not sure about Louisville) affected both black and white students -- some white students were prevented from going to a particular school because there were already enough whites at the school, and some black students were prevented from going to a particular school because there were already enough blacks at the school.

On Schulman's tongue-in-cheek point, I must admit that it sucks to know that I more than likely would have gotten into a better law school if my skin was a different color.

I think the bigger problem, however, is that school boards and universities continue to perpetuate the idea that it is appropriate to govern their admissions and other policies based on skin color. If we really are a society that wants to see each for our abilities and not our race, schools and universities need to set the example.

Kentucky

2007-02-03T17:15:00.000-08:00

The University of Kentucky's Center for Business and Economic Research recently issued a study on the effectiveness of KY's tax incentive programs. Today's Cincinnati Post offers an analysis of the study:

[T]he study suggests [that] it cost about $60,000 in tax breaks to create a single job, while training programs created one job for every $2,948 spent.

Kentucky economic development officials downplayed this portion of the report, saying it is a minor part of the larger story.

Still, the UK study calls into question the value of the tax breaks offered to businesses in exchange for locating or staying in the commonwealth. . . .

Our own perspective here at The Post is that state and local governments should do all they can to temper the tax giveaway wars. It's better, we believe, to focus on the essentials - efficient government services, a well-educated workforce, strong transportation and utility networks, for example - than to try to entice businesses with artificially low, business-specific tax breaks. Instead of picking winners and losers and giving favored treatment to new companies or old ones that threaten to move, work on developing a tax code that is fair, predictable and easy to administer.

Sound familiar?

commercials, cars, women

2007-02-02T10:40:00.000-08:00

Has anyone else noticed over the past couple of years how motorcycle and car manufactures are all using simlar advertising themes in their television commercials: male approaches vehicle parked on the street, starts gazing at vehicle and thinks about how lucky the guy who owns vehicle is, then, to his surprise, an attractive female gets in and drives away with vehicle.

I think Harley started the trend, and Mercury and Suzuki (?) are currently using it.

Florida

2007-02-02T10:30:00.000-08:00

It looks as though professional sports teams in Florida are going to get together to pressure politicians into giving them tax-breaks. From the Orlando Sentinel:

Gov. Charlie Crist signaled support Wednesday for a plan that could steer $540 million more in state taxpayer money to Florida's professional sports teams, including the Orlando Magic.

"I would look favorably upon it," Crist said in response to a question at The Associated Press' annual planning conference in Tallahassee.

"I think it's important for us to not lose these franchises. . . . It provides a lot of economic opportunities for our state," Crist added, though he said he had not yet reviewed the specific concept.

Magic officials are shopping a plan, first conceived by the Tampa Bay Lightning hockey team, that would grant each of Florida's nine professional sports teams an extra $60 million tax break to use toward arena and stadium improvements. The Florida Marlins baseball team is lobbying state lawmakers for a similar break to spend on a new stadium in Miami.

The state already offers one $60 million tax break -- $2 million a year spread over 30 years -- for teams to use in building or renovating facilities.

North Carolina

2007-01-30T17:42:00.000-08:00

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

2007-01-30T17:26:00.000-08:00

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

2007-01-30T17:16:00.000-08:00

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

2007-01-30T17:15:00.000-08:00

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

2007-01-28T19:06:00.000-08:00

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

2007-01-28T18:58:00.000-08:00

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

2007-01-28T18:27:00.000-08:00

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

2007-01-05T16:58:00.000-08:00

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

2007-01-05T16:52:00.000-08:00

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

2007-01-05T16:48:00.000-08:00

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

2007-01-04T13:14:00.000-08:00

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

2007-01-04T12:56:00.000-08:00

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

2007-01-04T12:38:00.000-08:00

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

2007-01-04T12:29:00.000-08:00

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

2007-01-03T16:04:00.000-08:00

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

2007-01-03T15:32:00.000-08:00

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

2007-01-03T15:23:00.000-08:00

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

2007-01-03T14:04:00.000-08:00

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.

end of semester

2006-12-04T09:04:00.000-08:00

The lack of posting this semester is a disappointment to me and I am sure many others. I vow to get back in shape after exams and the holidays.

Brandon

Texas

2006-11-19T13:24:00.000-08:00

As a follow up in to the last post, the San Antonio Business Journal recently conducted a poll on public opinion of tax incentives. Of the peope who disfavored incentives, "several said that there is not enough accountability among city and county officials to ensure that companies follow through on what they promise."

Nebraska

2006-11-19T12:44:00.000-08:00

Nebraskan officials seem to be happy with their state's new tax credit program, the Nebraska Advantage. From the Lincoln Journal Star:

More companies than expected have signed up for the Nebraska Advantage program, according to Richard Baier, director of the Department of Economic Development.

The agency anticipated closer to 45 or 50 applications during this time period, according to Baier.

“And the investment is considerably higher than we expected,” he said.

“We’re pleased with the results,” the geographic mix and the mix of industry types, said Baier.

There is a nice mix of manufacturing, biotechnology, a call center and high tech, he said.

Paypal in Omaha expects to create the most jobs— almost 2,000 — of the early applicants.

The BNSF Railroad anticipates spending the most, $750 million on improvements statewide.

The nine Lincoln and one Waverly application represent a potential of almost 450 jobs and more than $153 million in investment, based on the applications.

“This is a fantastic tool, a great piece of legislation that has won the attention of site selectors across the country,” said Wendy Birdsall, president of the Lincoln Chamber of Commerce.

People who help make site elections are now talking about Nebraska as “one of the best places to do business,” she said.

Sounds good, for now. I wonder about oversight. Have these companies made legitimate promises that they can keep, or do they inflate their numbers in order to get a tax break with the thought that it is unlikely that the state will keep a close eye on their employment stats?

Florida

2006-11-15T11:34:00.000-08:00

From the November 11 Florida Today:

"[A] look at two very different businesses trying to grow shows that not all businesses are created equal when it comes to incentives."

Michigan

2006-11-03T18:16:00.000-08:00

In its short history, this blog has probably discussed the state tax break and incentive problems of Michigan more so than any other state. It was with much enthusiasm, then, that I read an article on the economic proposals of the candidates for the state's 21st District state senate seat. From the Kalamazoo Gazette:

[Incumbent Republican Senator Ron] Jelinek said farmers should be given tax breaks to entice them to invest in crops that could be used for alternative fuels, such as corn and soybeans. Tax breaks also should be provided to those who invest in the manufacturing facilities for alternative fuels, such as biodiesel plants.

Jelinek's opponent, Valerie Janowski, a Democrat from Dowagiac, agrees that alternative fuels should be a priority for the state Senate but also sees the state's environment as something that should be better preserved for future generations.

The marketing of the state as a tourist destination should be strengthened, Janowski said, enticing people to come to Michigan to explore and enjoy the many natural attractions, as well as historic and cultural draws, which are present here. . .

Both candidates are concerned about the state's economy and vowed to come up with creative ways to bolster job creation and revive the sluggish economy.

The economy tops his list of Jelinek's priorities, with the senator arguing that the state should invest in the industries of the future. But that doesn't mean the state has to give up on its manufacturing past, he said, it just has to look at the industry in a different way.

``The state is equipped with a good manufacturing labor force,'' he said. ``But we need to focus on manufacturing nonautomotive goods and high-tech products.''

Jelinek proposes having state officials ``travel nationwide'' to entice industries -- both high-tech and nonhigh-tech -- to locate to Michigan.

Janowski, who has been a high school teacher, businesswoman, grant writer and tractor-trailer driver, agrees that the state has a talented work force and that more needs to be done to get the economy back on track.

With the automotive industry in decline, she said, more effort needs to be put into looking at alternative products to manufacture, such as creating the infrastructure needed to produce alternative fuels.

``We need to transform our economy from what we have been to what we need to be,'' she said.

Sadley, the article contains no mention of the idea of lowering taxes across the board.

South Dakota

2006-11-03T14:37:00.000-08:00

Interesting things going on in South Dakota. From the ever-popular site, CattleNetwork.com:

ABERDEEN, S.D. (AP)--The Brown County state's attorney says a decision to give tax breaks to a beef processing plant that'll be built just south of Aberdeen cannot be put to a public vote.

Plant developers say the tax help is crucial for the project.

State's Attorney Mark McNeary says the action of the county commission cannot be second-guessed by voters because it was an administrative procedure.

Administrative actions are not subject to public votes, but legislative actions are.

A lawyer for opponents of the beef plant says he thinks it's a legislative decision to provide a break on property taxes, and it can be put on the local ballot if about 12-hundred signatures can be obtained.

A petition campaign is planned.

The Brown County Commission on Tuesday approved a measure that will provide a tax break of $8.6 million for the new beef processing plant.

The tax break will be provided by creating a special tax increment financing district that allows the increased value of the plant to be refunded in property taxes as improvements are made.

Northern Beef Packers wants to build a plant that could process 1,500 cattle a day at capacity.

Let get's this straight. A large company entices a group of bureaucrats to give them a break on their tax burden. The bureaucrats come through, but the problem is that ordinary small business and property owners are not entitled to the same breaks. The small property owners realize that their chances of attaining the same discretionary tax breaks are slim and costs of doing so are high, so they decide to get together to oppose the corporate favoritism on the whole. But then the state's AG tells the smaller property owners that they cannot challenge the tax break -- it is set in stone.

Wow. I'm sure many of my friends out there who read this blog often wonder why the topic of state tax breaks and incentives interests me. Hopefully cases like these make it a little easier to see why: rent-seeking monopolistic government entities such as economic development boards create more problems than they solve and purport to be above the will of the people.

Texas

2006-11-02T08:55:00.000-08:00

The Heartland Institute's Budget & Tax News reports on a tax incentive program in Texas that has not gone according to plan. Here is an excerpt:

The State of Texas is demanding that Cabela's Inc. return $28,000 and forfeit another $200,000 from a state grant for failing to create enough jobs at a store that received economic incentives.

Kathy Walt, a spokesperson for Texas Gov. Rick Perry (R), confirmed to the Austin Business Journal on August 15 that the Cabela's store in Buda had failed to create the promised 400 jobs.

If Cabela's had hit its jobs target, it would have qualified for $400,000 in Texas Enterprise Fund money. The firm has to return $28,000 of a $200,000 incentive payment the state had made, as the job creation fell short of even half the promised number.

The grant was offered as an enticement for Cabela's to build stores in Buda and Fort Worth.

That's a good example of costly litigation for the state that could have been avoided if the bureaucrats had relied on the market for job creation.

Pennsylvania

2006-11-02T08:46:00.000-08:00

From today's Pittsburgh Tribune-Review:

The state is about to enact an incentive package that officials hope will provide the tax breaks needed to put Western Pennsylvania over the top in its bid to convince Westinghouse Electric Co. to select the area for a major expansion.

Legislation awaiting Gov. Ed Rendell's signature would create a maximum of four Strategic Development Areas offering tax breaks and incentives in four key geographic areas of the state targeted for economic development projects that would create or maintain a minimum of 500 jobs and involve capital investment of at least $45 million. . .

"With the acquisition of Westinghouse by Toshiba earlier this year, many other states across the country are trying to lure this expansion away from Pennsylvania," said state Rep. Joseph Markosek, D-Monroeville, one of the backers.

"We needed to offer a competitive economic development package so that the company will stay in our region and expand its operations here."

What does that say about your state's economic policies when you need to offer a discretionary package in order for a business to stay in a location?

No indication of skepticism towards the plan is given in the article.

New Jersey

2006-10-31T06:30:00.000-08:00

Perhaps lawmakers are beginning to realize that an economic policy based on tax incentives is especially prone to political favoritism. From The Express-Times:

Wary of losing revenue, city council members Tuesday put the brakes on plans to apply tax incentives to new properties.

Councilman Joseph Leeson Jr. said before he votes to OK changes to the 20-year-old LERTA program, he wants to see an analysis of how much investment the incentives have spurred compared to the tax dollars lost.

LERTA stands for Local Economic Revitalization Tax Assistance and applies only to commercial and industrial property.

Leeson also asked for the names of property owners who would benefit from 10 proposed LERTA boundary changes. He and council President J. Michael Schweder voiced concern the changes were tailored to benefit certain people. A committee of business representatives recommended the new boundaries.

The problem is that rather than correct the situation by offering everyone a low tax rate that incentivizes investment, bureaucrats will resort back to uniform but high tax scheme. See "[w]ary of losing tax revenue . . . ."

Michigan

2006-10-30T19:25:00.000-08:00

More problems from Up North. From WLNS.com:

Things are looking a little brighter in the capitol city these days. In May, biotech firm Neogen added 40 new jobs to the area. Just last month, a developer broke ground on a 13 million dollar mixed-use facility, and a state tax credit paved the way for a Lansing automotive supplier to add 300 new jobs.

Todd Cook, V.P. of Lansing Chamber of Commerce: "I think you are seeing some momentum happening, there's things going on."

But some say there is a proposal right now at City Hall that could stop some of the momentum right in its tracks. City council may force companies that get tax abatements to pay a prevailing wage. The proposal would ensure those companies pay better wages, benefits and hire Lansing residents, all of which Council Vice President Brian Jeffers says has been a problem recently.

Brian Jeffers: "Right now we have issues with developers hiring contractors outside of our region."

This should not be all that surprising. If government officials have the power to award discretionary tax breaks, any other scheme that increases the value of this power will be icing on the cake.

Kentucky

2006-10-30T19:17:00.000-08:00

From Business First of Louisville:

State and local economic development officials have made their pitch to land a major corporate headquarters for Louisville.

Now, they'll play the waiting game to see whether their efforts result in a home run.

The Kentucky Economic Development Finance Authority granted Kindred Pharmacy Services Inc. preliminary approval for $8 million in state tax incentives for up to 10 years at its Oct. 26 meeting in Frankfort.

When you think about it, it is mindboggling to consider all the time, money and other resources used to attract a company via tax incentives, simply because the government decided to make it financially unwise to relocate in an area in the first place.

Michigan

2006-10-17T16:53:00.000-07:00

Economic favoritism is rampant in the state "up north." From the Lansing State Journal:

Demmer Corp. was awarded more than $2 million in local and state government aid Tuesday to use an empty factory to build components for the military.

Lansing-based Demmer will add 300 jobs and spend $12 million to upgrade buildings at 1600 N. Larch and 736 McKinley for its operation.

It will receive a $919,500 in local and state tax capture to improve the properties. In addition, Demmer was awarded business tax breaks of $667,000 and $360,000 to redevelop the two brownfield sites.

Demmer's plan was among 14 projects across the state awarded tax credits by the Michigan Economic Growth Authority to add jobs or redevelop properties. The projects together are estimated to add about 5,000 jobs directly and nearly 3,000 from the spinoff economic effect.

Gov. Jennifer Granholm, who faces a re-election challenge by Republican Dick DeVos, said the announcements are proof that Michigan is starting to grow and diversify its economy. She likened the state to the Detroit Tigers, which is headied to the World Series after being one of the worst teams in baseball.

"I think that's a good metaphor," she said.

New York

2006-10-17T05:37:00.000-07:00

From the Buffalo News, a dispute involving a possible tax break:

The [Somerset] Town Board strongly opposes any property tax breaks for AES Corp., which is locked in a tax dispute with the town on its existing power plant and has made a pitch to build a second coal-fired power plant in Niagara County if it gets tax breaks.

A news release issued over the weekend asserts that tax breaks the company is seeking from the Niagara County Industrial Development Agency would "result in fiscal havoc and financial disaster for all of Niagara County."

But if the new plant is built, IDA Chairman Henry M. Sloma and AES President Kevin R. Pierce said, the town, the Barker Central School District and the county would receive more money from AES than they do now.

"When you bring on the second plant, everybody's numbers jump dramatically. That's the piece they're missing," Sloma said.

Michigan

2006-10-16T06:02:00.000-07:00

Today's Wall Street Journal has an article on Michigan's gubernatorial race and the tax incentive-happy incumbent, Jennifer Granholm. An excerpt:

She is offering tax incentives and cash loans in return for promises -- which critics describe as vague -- to preserve or create jobs. In April Ms. Granholm gave General Motors Corp. $40 million in tax breaks for a pair of factory retoolings. Last month she attended the ribbon-cutting of a drivetrain plant in Flint, which the company rehabbed in return for $28.2 million in state tax breaks. In August Ms. Granholm offered Ford Motor Co. $151 million for investments she claimed would retain more than 50,000 Michigan jobs.

As economic policy, the value of Ms. Granholm's corporate largess is questionable. The state aid is minuscule compared with losses the auto makers face. GM says the breaks are unlikely to swell its payroll. And even with the $151 million on offer, Ford appears bent on reducing its global work force by 40% within three years -- a move Ms. Granholm's critics say could wipe out 7,000 Michigan jobs.

"A good announcement here, a good announcement there; the fact is that government handouts don't create jobs," state Republican Party Chairman Saul Anuzis says.

The Idea Shop

2006-10-16T05:58:00.000-07:00

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.

Connecticut

2006-10-14T09:58:00.000-07:00

From the Orange Bulletin:

First Selectwoman Derrylyn Gorski and the Board of Selectmen in a unanimous vote have proposed a plan of tax incentives for area businesses.
Gorski said the BOS approved the proposal at its Sept. 25 meeting.
While Gorski said most towns have some form of a tax-incentive program to encourage businesses to expand Bethany needs to offer comparative incentives to encourage business to look at Bethany as a business-oriented community.

If the goal is to "encourage business to look at ______ as a business-oriented community," why is the answer always an incentive program instead of a lower and more simple tax regime?

TaxProf Blog

2006-10-14T09:45:00.000-07:00

TaxProf links to Brannon P. Denning's paper on state investment incentives in light of DaimlerChrysler v. Cuno.

Tax Policy Blog

2006-10-14T09:15:00.000-07:00

The Tax Foundation's Tax Policy Blog has two recent posts relevant to state tax breaks and incentives.

First, Andrew Chamberlain introduces the Tax Foundation's 2007 State Business Tax Climate Index. He points to the highlighting of simplicity in tax regimes:

It is commonly argued that more economically developed states like New Jersey and New York have slower growth rates because their economic indicators, such as population and median income, are so much higher than those of developing states. Texas, however, debunks the myth that economically developed states do not have room to grow.

One of the largest states in the union in both population and output, Texas comes in seventh in population growth, 11th in output growth, and 17th in increasing personal income. While its big-state brethren lag far behind, Texas remains near the top by embracing favorable conditions for businesses such as the absence of a state income tax.

Size is no excuse. State tax systems that are simple, fair, broad-based and low-rate can experience significant growth regardless of size or level of economic development.

Second, Curtis S. Dubay also discusses the 2007 SBTCI and points out that "[t]ax incentives- whether in the form of targeted tax incentives to specific companies, or special credits or exemptions- are bad tax policy and an ineffective form of economic development. " Dubay's post concludes that

Lawmakers can go to their respective state houses tomorrow, improve the competitiveness of their state’s business tax climate and instantly help businesses in their state and possibly attract new companies. While global competition remains a concern for all states, most business relocations occur between states. So lawmakers need to be keenly aware of where their state’s competitiveness ranks.

The top ten states in the 2007 SBTCI are as follows:

1. Wyoming
2. South Dakota
3. Alaska
4. Nevada
5. Florida
6. Texas
7. New Hampshire
8. Montana
9. Delaware
10. Oregon

The bottom ten states are:

50. Rhode Island
49. Ohio
48. New Jersey
47. New York
46. Vermont
45. California
44. Nebraska
43. Iowa
42. Maine
41. Minnesota

Obviously, Ohio's tax scheme is a major hindrance to economic growth. While the Tax Policy Blog has said that "this year Ohio residents also have a hotly contested gubernatorial race that is catching headlines in the tax policy world," I doubt whether either of the major party candidates for governor will explicitly criticize the Buckeye State's tax incentive approach to development.

Illinois

2006-10-14T09:02:00.000-07:00

A quick article from today's Daily Southtown:

Bloom Township officials last week approved a Chicago Heights industrial company's tax abatement request that is expected to have little impact on township revenues.

The abatement for Vesuvius USA, a refractory supplier, will be minimal because the township's portion of the company's tax bill is less than 1 percent, Supervisor Thomas "TJ" Somer said.

The board approved a tax abatement of 60 percent for five years and a 30 percent abatement for the next five years.

The tax rebate applies to any tax dollars paid over its current rate based on improvements made to the site.

According to information from the township, Vesuvius paid about $111,000 in property taxes in 2005. Of that bill, the township received about $250.

Somer said the company is seeking to improve its production components, not its property or facility, so it likely will not see a large tax rate increase result.

"I don't think its (the abatement) is going to affect us at all," he said.

The board Tuesday considered a 100 percent and a 50 percent abatement for the company but decided to reduce the figure at the suggestion of Trustee Robert Rossi.

"This way we're helping them out, but we're telling homeowners we're not giving the house away," he said.

Trustee Theresa Brink said she was "not quite sure" about reducing the percentage and voted against the reduced rate.

"I would hate to lose any business for Bloom Township residents," she said.

Vesuvius is located at 333 State St.

1) It's good know that, in considering $250 in revenue, Rossi wants to make sure that he is not "giving the house away."

2) Can you imagine paying $111,000 in property taxes?

Oregon

2006-10-14T08:42:00.000-07:00

If your parent company has pled guilty to criminal price fixing, should you as a subsidiary still be able to receive local tax breaks?

That is the question that faces officials in Oregon. From the Eugene Register-Guard:

[Attorney Bern] Johnson said he was glad to hear the state is trying to recover money for Oregonians who were harmed by price fixing. But he questions whether Hynix should still be getting tax breaks, including those for the latest upgrade, if corporate officials have broken the law.

"It would be too bad if with one hand the state is giving this company tax breaks, and with the other hand, the state has to be suing the company to recover on behalf of consumers who were harmed by illegal activity," he said.

"It seems that if a company is doing illegal activity that is harming people in Oregon, the state of Oregon shouldn't be giving that company tax breaks."
. . .

Eugene city councilor David Kelly said he thinks the council will want to know whether the price fixing offenses affect Hynix's tax waiver, and if Hynix in Eugene was strongly connected with the price fixing.

"The amount of tax that Eugene is forgoing is significant," Kelly said, "so I think the council would have an interest in getting answers to these questions."

That said, he added that "after a rough start-up (Hynix has) been a very good corporate citizen. So I'm not thinking of Hynix in Eugene as a bad guy in any way."

Pat Eagan, the governor's chief of staff, said that the underlying criminal behavior - the price fixing - didn't happen anywhere near Oregon.

Hynix officials "have agreed that behavior that was criminal and fit the definition of antitrust occurred," Eagan said. "They've gotten rid of those individuals, and our understanding is there's not more of that behavior going on."

The governor's June trade mission to South Korea had a duty to meet with Hynix officials in Seoul because Hynix is a large regional employer in Oregon and the company had been hinting at expansion, Eagan said. Hynix employs 1,150 workers in Eugene.

"If we had shunned them for something they had already agreed had happened and was four years old, I'm not sure that that would be wise behavior on our part, and I'm not sure that anyone would argue that that's what we ought to do," Eagan said.

Eagan is probably right that it would not be wise to kick a dog while it's down. But it would have been even wiser if Oregon officials did not have to incentivize Hynix to locate in Eugene. Had there been a low and uniform rate instead of the company receiving $50 million in property tax breaks, the issue would be moot and lawmakers could consider more important items.

Georgia

2006-10-05T10:41:00.000-07:00

I will be out of town until Monday. Before I go, however, I'll leave you with this, from GlobeSt.com:

The total economic incentives package Georgia offered Kia Motors came to $410 million or about $164,000 per job creation, according to the Georgia Department of Economic Development, as GlobeSt.com previously reported. The package includes $75.9 million in job tax credits over five years; $20.2 million for a job training center on the site; and $60.5 million to purchase and prepare the site. West Point and Troup County are offered up to $130 million in property tax abatements over 15 years.

more Michigan

2006-10-04T06:11:00.000-07:00

This is a sort of follow-up from the below post. From the Grand Rapids Press:

Siemens collected $1.5 million in tax breaks and grants for choosing to grow in Holland Township instead of a competing site in Georgia.

The biggest chunk will come from the MEDC, which approved a $1.1 million Single Business Tax credit over nine years and a $40,000 job-training grant.

Holland Township is expected to approve a $327,000 tax abatement over 12 years for the investment, Supervisor Terry Nienhuis said.

Michigan

2006-10-03T16:39:00.000-07:00

Jim Barrett, president and CEO of the Michigan Chamber of Commerce, has some sensible ideas regarding how to address Michigan's dire economic situation. From the Kalamazoo Gazette:

"We need to get beyond being totally dependent on auto-related jobs and thinking,'' he said.

Economic recovery should be aided by the repeal of the Single Business Tax, effective at the end of 2007, he said.

"The argument is that taxes aren't making much difference in business investment,'' he said. "I would ask why are there so many incentives and why are they used so broadly by the Michigan Economic Development Corp. and local units of government? We need to think of the entire business community, most of which never qualify for tax and incentive programs."

Don't expect a response from the Michigan Economic Development Corporation anytime soon.

Georgia

2006-10-03T16:29:00.000-07:00

From the Macon Telegraph:

Macon Chips Inc., a local wood mill, is planning a $40-million expansion and wants to add about 15 workers, according to information provided during Monday's Macon-Bibb County Industrial Authority meeting.

In an effort to encourage the company to expand in Macon, the authority agreed to offer a more than $3.5 million tax incentive.

"The total value of this (tax abatement schedule) over 15 years to this company is $3.781 million," said Kevin Brown, the authority's attorney. "But (the company) will have a significant inflow to the government entities for over $2.2 million in revenue that otherwise would not be received."

Of note,

Authority member Charlie Bishop, who also is chairman of the Bibb County Commission, said that while he voted in favor of the tax abatement schedule at the authority meeting, "it doesn't mean I will vote the same way" at the County Commission meeting.

"At the same time, I want to say we value our existing industries as much, if not more, as we do new industries," Bishop said.

Kentucky

2006-10-01T19:57:00.000-07:00

From the Lexington Herald-Leader:

Two University of Kentucky researchers will produce a study by year's end that tries to measure the effectiveness of Kentucky's expensive job-creation programs.

The $75,000 report, commissioned this year by the Cabinet for Economic Development's board of directors, will come one year after the Lexington Herald-Leader ran a series of articles scrutinizing the Cabinet's business incentive programs. The Cabinet has spent more than $1.2 billion recruiting jobs over the past 25 years.

The newspaper found that the Cabinet has done little to gauge the effectiveness of its incentives, is more secretive than counterparts in many other states and sometimes loosely monitors its programs.

"We are confident that the study will find that the current programs are effective in attracting new business, and in retaining and expanding existing business," Cabinet for Economic Development Secretary Gene Strong said Friday in a written statement. "However, it is important to routinely evaluate the economic development tools in our toolbox and to stay on the cutting edge by making changes if there are better ways to achieve our goals."

As long staying on the cutting edge means maintaining a monopoly on the granting of state tax breaks and incentives, I'm sure Mr. Strong will be satisfied with the findings of its funded report.

don't call it a comeback

2006-10-01T18:36:00.000-07:00

I anticipated having plenty of time to devote to this blog during this final year of law school. Alas, things have not progressed as planned, as I underestimated the efforts it would take to find a job and to effectively serve as president of a student group. Not to mention that I am by no means planning to slack off in any of my course work.

That being said, this blog has been neglected I am not going to let it die. Up to now the majority of this forum has used to discuss news blurbs concerning state tax breaks and incentives and policy ramifications. I am going to keep to that format, but I will also look more closely at the legal background of tax breaks. I will do this by looking at case law that I come across and scholarly articles. By no means, however, will I be able to cover everything I should or want to.

I just took at look at an article published last winter by the Georgetown Journal of Law & Public Policy. The article was published in conjunction with a symposium they held entitled "DaimlerChrysler v. Cuno and the Constitutionality of State Tax Incentives for Economic Development." The title of UCLA law professor Kirk J. Stark's and Federal Reserve Bank of San Francisco economist Daniel J. Wilson's article was "What Do We Know About the Interstate Economic Effects?" (available at 4 Geo. J.L. & Pub. Pol'y 133).

The authors show that while there has been quite a bit of economic research on the intrastate effects of state tax breaks and incentives, little has been done on the interstate effects. For instance, the economic studies reviewed by the authors "say nothing about either the out-of-state or nationwide effects of any one state's investment tax incentives." The authors cite only one study that lends "support for the view that a state's adoption of R&D tax credits has adverse practical effects on the level of R&D undertaken within other states."

In short, as to the question posed in the title of their article, Stark and Wilson conclude that "research in this are rarely provides unqualified guidance regardin the economic effects of state incentive programs. . . . [E]ven the most sophisticated econometric studies should be interpreted with caution. Incomplete data, contestable assumptions, and other limitations of econometric modeling limit our ability to derive strong conclusions from existing research."

According to the authors, this conclusion is important because the Supreme Court "may be looking for concerete empircal verification of the interstate economic effects of state laws challenged under the dormant Commerce Clause. Indeed, the general trend in the Court's dorman Commerce Clause jurisprudence seems to be in the direction of taking account of the practical economic effects of challenged state laws in order to determine their constitutionality." The idea of "concrete empiral verification" is taken from the recent Supreme Court case of American Trucking Associations, Inc. v. Michigan Public Service Commission, 125 S. Ct. 2419, (2005), which reviewed a $100 fee imposed by the Michigan state government on "vehicles that engage in intrastate commercial operations." Stark and Wilson find it important that the Court discussed "the importance of evaluating the practical economic effect of the challenged law. For example, the Court observed that 'the record contains little, if any, evidence that the $100 fee imposes any significant practical burden upon interstate trade.'" (emphasis added by Stark and Wilson).

And so, in spite of the dearth of research on the interstate effects on state tax breaks and incentivces,

the Supreme Court's increased emphasis on "practical economic effects" in its dormant Commerce Clause jurisprudence brings econometric research to the center of constitutional analysis. This gulf between what is knowable and what the Court wants to know raises concerns of institutional competence, calling into question the Court's role as the chief protector of the "free trade zone" among the several states. We offer no solutions to this dilemma here; however, we emphasize that judicial caution should not necessarily translate into a reluctance to declare state tax incentives unconstitutional. Striking down state laws may appear to be the more activist course, yet letting them stand is an equally consequential decision.

Overall, the article presents a nice consideration of the above issues as well as a summary of Supreme Court dormant commerce clause jurisprudence. The articles thoughts were really never put into play, as the Supreme Court decided Cuno on a standing techicality.

However, there is one troubling aspect of the article, which comes at its conclusion. The authors suggest that "[p]erhaps the best outcome for the Cuno controversy would be a decision that prompts Congress to undertake a careful and thorough evaluation of the nationwide effects of state tax incentives." This is a bad idea, as Congress is reasonbly competent at few things, let alone at engaging in a "careful and thorough" economic evaluation. Economic expertise is lacking in Congress, but partiality is not. Rather than reviewing the effects of state tax breaks from the perspective of a whole nation, those in Congress would find data that would support their constituents' view on the subject.

Ohio

2006-09-18T20:11:00.000-07:00

Last month RMI Titanium Inc. joined the growing list of companies that have sought individual tax assistance in their consideration of business expansion. Vindy.com stated that, "according to state documents, receiving the job creation tax credit will play a big role in RMI's decision to expand in Ohio." Then again, the state did not reveal whether these credits would even be necessary if the tax burden was significantly decreased for all businesses.

Arizona

2006-09-16T14:26:00.000-07:00

In paying tribute to Luis Gonzalez' tenure as an Arizona Diamondback, writers for the Tuscon Citizen question the loyalty of teams towards their marquee players, especially given the public investment in the facilities that support these teams:

But where's the loyalty today?

When I was a tadpole, there were three giants who walked the Earth: Stan Musial, Ted Williams and Joe DiMaggio. Santa Claus himself would be sold or traded before one of those guys. Were they around today, though, the Cardinals, Red Sox and Yankees wouldn't blink an eye before peddling Stan, Ted or Joltin' Joe. Let the fans go to blazes if there's big money involved.

Somewhere in a cookie-cutter home in the sprawl of Phoenix, or here in Tucson or in Flagstaff, or on some reservation, a little kid is crying his eyes out because his beloved Gonzo will not be playing for Arizona again.

Me and my buddies - Suds, Jimmy, Butch and Greasy - would have done the same thing had Musial, Williams or DiMaggio been swapped like a used car.

These teams get all kinds of tax breaks and land for stadiums paid for by the public. Then they gouge the paying customer as much as the law allows, bring in ballplayers they hope will connect with the fans in such a way that tax-breaks and gouging will be forgotten.

I think the author has a point, but I wish he would throw some of his anger towards the way of the politicians as well.

Massachusetts

2006-09-16T14:13:00.000-07:00

State lawmakers in Massachusetts have doubled the number of Economic Target Areas to 40, allowing more businesses to have access to less of a tax burden. Bureaucrats like to tout the success of these types of progams, but it should not be surprising that business owners would want a break from being highly taxed by the state. They also avoid the issue of what gives them the right to decide what businesses and localities deserve state tax breaks. The whole system is an inefficiently operated monopoly on the lowering of tax burdens.

It's also a wonder how these lawmakers come up with statistics like this one, reported in the Milford Daily News:

The sponsor of the bill, Sen. Harriette L. Chandler, D-Worcester, hopes more communities can benefit from this extra incentive. The state put $66.2 million into ETAs between 1995 and 2004. In return, the program netted $66.4 million in economic development related to some 50,000 jobs, Chandler said.

"ETAs help spur economic development and create jobs in communities most in need," said Chandler.

Actually, ETAs are an easy for politicians like Ms. Chandler to suggest to a naive public that it was they who created the jobs, not the actual owner of the business.

California

2006-09-07T16:47:00.000-07:00

The Examiner reports that "[t]housands of businesses on San Francisco’s east side will remain eligible for state tax breaks if The City wins approval from Sacramento in coming weeks." As the goal of these "Enterprise Zones" is to provide incentives to business to invest in economically depressed areas, there is a debate as to whether these incentives are appropriate in San Fran.

Jean Ross, executive director of the California Budget Project, suggests that “San Francisco stands out as an area that doesn’t need taxpayer dollars to further its economic development" and compares the Golden Gate City's situation to that southeastern California's Imperial Valley, where is a 30% unemployment rate.

Regardless of the merits (or lack thereof) of her argument that San Francisco businesses are undeserving of tax breaks, Ms. Ross falls into the classic trap of equating state tax breaks with giving away taxpayer dollars. Tax incentives either reduce the amount of taxable income in the form of a deduction or they reduce the total amount of tax liability in the form of a credit. But neither form gives money to businesses directly from the state treasury. Suggesting that tax breaks throw away taxpayer dollars incorrectly assumes that the amount of investment and income generated by a business is not influenced by tax regimes. Without a tax break, a business does not invest and hence does not generate any more taxable income or create any more jobs or offer any more products to the public. With a tax break, there will more investment, income, jobs (income tax), and products (sales tax), while the tax liability will, theoretically, remain the same. All in all, it seems fairly clear that the economy is better off when a business is able to lower its tax burden in one way or another.

That being said, we would all be much better off if state and local governments got out of the business of deciding who gets this tax break and who gets that tax break and instead concentrated on offering a simple and low tax rates for all businesses, large and small.

Kansas

2006-09-06T16:18:00.000-07:00

The Kroger Co. is looking to create an organic and soy milk operation near one of its exisiting dairy farms. In the running for the plant are locales in Kansas, Utah, Tennessee, Colorado, and Texas.

The Hutchinson News reports that while bureaucrats in Reno County, Kansas, are scrambling to decide how much to offer in incentives to Kroger, no such breaks appear to have been offered in Murfreesboro, Tennessee, as the Volunteer State has "business-friendly tax rates to help offset a no-incentives policy."

Michigan

2006-09-06T16:10:00.000-07:00

Yesterday, Bill Ford stepped down from the CEO position of Ford Motor Co. Ford Motor's performance has been terrible of late, and the great-grandson of the company's founder is apparently not the man to turn things around. Not even a generous tax incentive deal could save him, as analysts recognized that it would only be "a slight positive" for Ford.

West Virginia

2006-09-06T11:42:00.000-07:00

Immigration, legal or illegal, enters the tax incentive debate. Steve White, director of the Affiliated Construction Trades foundation, laments in Monday's Huntington Herald-Dispatch that "[t]ax credits [are] going to companies who import low-wage workers, perhaps illegally in this country, who take jobs currently held by local workers. It's a sad state of affairs."

Michigan

2006-08-29T12:11:00.000-07:00

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

2006-08-25T10:56:00.000-07:00

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

2006-08-24T17:30:00.000-07:00

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

2006-08-23T16:50:00.000-07:00

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

2006-08-23T16:24:00.000-07:00

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

2006-08-23T15:52:00.000-07:00

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

2006-08-10T09:32:00.000-07:00

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

2006-08-10T09:18:00.000-07:00

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

2006-08-10T08:50:00.000-07:00

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?

2006-08-07T20:23:00.000-07:00

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

2006-08-04T07:29:00.000-07:00

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

2006-08-02T19:16:00.000-07:00

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

2006-08-02T18:44:00.000-07:00

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

2006-08-02T17:56:00.000-07:00

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.

Utah

2006-07-26T18:06:00.000-07:00

Tax credits can be like a drug. From the Salt Lake Tribune:

A proposed wind farm could be in jeopardy because Utah no longer offers a renewable energy tax credit that Wasatch Winds officials say is needed for the project to be successful.

Tax credits for renewable energy were removed during this year's legislative session. They have been in place since 1980, but must be renewed every five years. This year, the Legislature ran out of time to renew the credits before the session ended March 1.

Tracy Livingston, Wasatch Winds' president, met with legislators last week to try to persuade them to reinstate the credits.

''I told them that incentives are necessary to promote wind energy and that our neighboring states have provided incentives and that wind energy has accelerated in those states,'' he said. ''There's a direct correlation in the adoption of state incentives and the wind energy produced in the state.''

Livingston said he needs to know within six months whether legislators will reinstate the tax credit. He said he needs to have the wind farm operating by next year to fulfill contractual obligations.

Livingston said he already has spent $500,000 on the farm and he would like the credits to help him this year. He said he will need the credits next year in order to be profitable.

Before he entered into contractual obligations, it might have been a good idea for Mr. Livingston to consider that he might not receive tax credits.

central Ohio

2006-07-26T17:46:00.000-07:00

There appears to be a tax break battle brewing amongst central Ohio locales. From the Columbus Dispatch:

Gahanna city officials lost their fight to keep a credit-card company and its 529 jobs from moving to Columbus.

Bruce Johnson, director of the Ohio Department of Development, cleared the way yesterday for Alliance Data Systems Inc. to accept tax breaks from Columbus.

Johnson found that Alliance Data Systems didn’t have enough office space and that the company could move to Texas without Columbus’ incentives, said Maria Smith, a department spokeswoman. . . .

Gahanna is still smarting over last year’s loss of EMH&T, an engineering firm that moved more than 300 employees to the Northeast Side.

Columbus has lost some smaller businesses to Gahanna such as Amerigraph in 2004 and Sort & Pack, which recently announced it would move to Gahanna. White insists that Gahanna doesn’t try to recruit businesses away from Columbus or its suburban neighbors.

Stinchcomb said Gahanna will have to move on and try to recruit new business.

While Gahanna was trying to keep Alliance Data Systems from moving, Stinchcomb received an e-mail on July 10 from Steve Campbell, the senior adviser on regional affairs for Columbus Mayor Michael B. Coleman.

In Campbell’s message, he calls for all the region’s mayors and city managers to meet and talk about a pact "that focuses on growing our region’s economy and discourages moving jobs between jurisdictions within our region."

No one should need the permission of the director of the Ohio Department of Development to offer lower taxes, regardless of whether the lower taxes are implemented uniformly or come in the form of a preferential tax break.

I also find Mayor Coleman's policy amusing: give away an individual tax break and then call for a plan that prevents other municipalities from doing the same thing.

On another note, there is very good news today from Ohio.

St. Louis

2006-07-26T14:49:00.000-07:00

Development will occur on properties located in the Saint Louis University vicinity. According to the St. Louis Business Journal, two "St. Louis companies will receive about $324,954 in state tax credits to help spur $2.2 million in redevelopment" to properties located at 3229 Washington Avenue and 4239 Lindell Boulevard (for those keeping score, that is close to the infamous Phillips 66 gas station).

The Missouri Department of Economic Development approved the tax credits throught the Brownfield Redevelopment Program, which "provides financial incentives for the redevelopment of publicly owned commercial or industrial sites that were abandoned because of contamination caused by hazardous substances."

I will not be as critical of these incentives because I think there is a difference between this program and the incentives that usually occur, where businesses get a break to move to an area that has no environmental problems. That being said, I'm still a bit skeptical. If two properties are otherwise equal except that one is environmentally unsound, that difference should be reflected in the property value.

I am willing to bet that it would cost less than the $120,977 received in tax credits to clean up the property at 4239 Lindell Blvd. If this indeed is the case, is the Missouri Department of Economic Development going to refuse to give the credits that are over the clean up costs?

the Hollywood tax break epidemic reaches Michigan

2006-07-24T13:29:00.000-07:00

From the Detroit News:

Officials at the Detroit Metro Convention and Visitors Bureau plan to fund and staff a regional film office if the state approves tax breaks for studios to shoot here. Ohio, Indiana, Wisconsin and Canada already offer such breaks and reap hundreds of millions of dollars in business, said Chris Baum, senior vice president of the bureau.

"Right now, we are in a deep hole," he said. "We need the Legislature to pass a competitive tax incentive."

The article fails to mention exactly how the regional film office will be funded and staffed. Someone is going to have to pay, and it likely won't be the tax breaks or the Visitors Bureau's budget (remember, they are in a deep hole).

Here are my two favorite parts of the article:

1) "Tourism officials want to turn Motown into Showtown." Journalism at its finest.

2) "'It's absolutely essential that Michigan have some type of incentive package that will be competitive,' said Emery King, a former TV news anchor who leads the Michigan Film Advisory Commission." Read, "'It's absolutely essential that Michigan have some type of incentive package that will keep my job relevant,' said Emery King, a former TV news anchor who leads the Michigan Film Advisory Commission."

update on United

2006-07-24T11:18:00.000-07:00

Earlier this month I posted on the competition between Denver, San Francisco, and Chicago to win the relocation of United Airlines' corporate headquarters. The game appears now to be over, as the Chicago Tribune (subscription req'd) reports that last week "the company announced it would move into the former R.R. Donnelley & Sons Co. building at 77 W. Wacker Drive [in Chicago]. The company will get $5.25 million in tax increment financing from the city and $1.35 million on top of that in infrastructure improvement and job-training funds from the state."

In addition, Illinois state lawmakers are willing to give United a break on the highest jet-fuel taxes in the country. Don't expect other carriers to stand idle while United receives a major expense reduction from a state government.

American Airlines and Southwest Airlines say they want the same fuel-tax breaks the City of Chicago and State of Illinois pledged to work out for United.

"We think the presumption is it would be unfair, and probably discriminatory, to affect the jet-fuel taxes of one carrier and not another," said Mary Frances Fagan, spokeswoman for American Airlines, United's largest competitor at O'Hare International Airport.

"I'm sure you'll find other carriers lining up, saying we want to be part of this too."

Southwest Airlines, the largest carrier at Midway Airport and United's primary competition in several markets, including Denver, also is interested.

"We would certainly want to look at the incentive package to see how we could participate in the savings," said Whitney Eichinger, spokeswoman for the Dallas-based discount carrier.

"A pledge to seek fuel-tax relief was among the promises state and local leaders made to UAL Corp., United's parent company, in exchange for the airline agreeing to keep its headquarters in Illinois." At issue is whether there will be a level playing field for all major carriers or, instead, a fuel-tax break in favor of a single company.

How many large users of fuel could be helped by a cap in Illinois would depend on the way the law is written.

If Illinois lawmakers wanted to, they likely could fashion a bill that would benefit only United Airlines, even if the new law never mentioned the airline by name, said Daniel Hamilton, a professor with expertise in legislative issues at Chicago Kent College of Law.

"It happens all the time. Legislation is written with earmarks for very specific projects," he said.

Such laws have withstood legal challenges arguing they unfairly benefit one group over another, Hamilton said.

"I would never say never, but my impression is competitors would not have a constitutional claim to challenge a narrowly tailored set of benefits for a company," he said. "It may be the most effective court would be the court of public opinion. At some point the legislature's generosity can draw negative criticism."

Professor Hamilton is probably right. The Fourteenth Amendment provides that no state shall "deny to any person within its jurisdiction the equal protection of the laws." As an economic policy decision, state tax breaks are presumed consitutional and "must be upheld against equal protection challenge if there is any reasonably conceiveable state of facts that could provide a rational basis for the classification." FCC v. Beach Commc'ns, Inc., 508 U.S. 307, 313 (1993).

In other words, if Southwest and American do not receive the break that ends up being given to United and they bring suit on an equal protection claim, they will have an extremely difficult time in convincing a court that Illinois did not act rationally in favoring United: "[T]he burden is one the one attacking the legislative arrangement to negative every conceivable basis which might supoprt it, whether or not the basis has a foundation in the record." Heller v. Doe, 509 U.S. 312, 320 (1993).

Nonetheless, I would like to see another airline bring suit if United is given preferential treatment. Further, these circumstances are interesting to consider in light of a recent decision by a federal judge in Maryland.

The case concerned the Maryland Fair Share Health Care Fund Act, also known as the Wal-Mart law. The Wal-Mart law, as the Baltimore Sun reported, "requires that companies with more than 10,000 workers spend at least 8 percent of their payroll for employee health care or make up the difference in an equivalent payment to [Maryland]. Of the four companies that size operating in the state, only Wal-Mart matched the criteria set out in the law, leading the company to charge that it had been singled out unfairly."

Because of this unfair treatment, the Retail Industry Leaders Association, on behalf of Wal-Mart, sued the Maryland Secretary of Labor to prevent him from enforcing the law. Besides a state law claim, RILA claimed, first, that the Maryland law was pre-empted by federal employment law and, second, that the Maryland law violated the Equal Protection Clause.

Wal-Mart won, but not on an Equal Protection basis. The federal, Employment Retirement Income Security Act of 1974 (ERISA) preempt "any and all State laws insofar as they may now or hereafter relate to any emlpoyee benefit plan" covered by ERISA (the judge in the Wal-Mart ruling seems to have justifiably assumed that Wal-Mart's plan is covered by ERISA). 29 U.S.C. sec. 1144(a). Noting that the "main objective of ERISA's preemption clause is 'to avoid a multiplicity of regulation in order to permit the nationally uniform administration of employee benefit plans,'" New York State Conference of Blue Cross & Blue Shield Plans v. Travelers Ins. Co., 514 U.S. 645, 657, Judge Frederick Motz found that the Wal-Mart law "is preempted . . . in accordance with long established Supreme Court law that state laws which impose employee health or welfare mandates on employers are invalid under ERISA."

That is far too brief of a summary of ERISA and its application to this case, but I am more concerned with equal protection anyways. In this Wal-Mart case, a scenario in which a company has been hurt by a legislatively enacted competitive disadvantage, the court found no equal protection violation. Because of this, in situations like what may occur in Illinois, those situations where one receives a legislatively enacted competitive advantage are that much less likely to be in violation of theEqual Protection Clause. If it's okay to single out Wal-Mart for burdensome regulations, it should be okay, under the Constitution, to single out United for a tax break.

This thought process is consistent with Judge Motz's citation of Supreme Court equal protection precedent. Quoting the Beach Commc'ns case, he suggested that "equal protection is not a license for courts to judge the wisdom, fairness, or logic of legislative choices" and that "the Constitution presumes that . . . even improvident decisions will eventually rectified by the democratic process and that judicial intervention is generally unwarranted no matter how unwisely a political branch has acted." Beach Commc'ns, 508 U.S. at 313-14.

Not that I agree with current Supreme Court equal protection analysis. When you have companies that use the "democratic process" to actively campaign for legislation that directly and adversely affects their competition on an individual basis (Judge Motz noted that Giant Food "actively lobbied for enactment" of the Wal-Mart law), isn't it time for the judiciary to play a stronger role when it comes to equal protection?

For an interesting analysis on the Wal-Mart/Maryland saga, go here.

last week

2006-07-24T08:52:00.000-07:00

My apologies on the lack of posts last week. Here are two stories that I had been planning to discuss:

"MG assembly plant planned for Oklahoma," The Miami Herald

"$8 Million tax break for company close to Rowland," Connecticut's Journal Inquirer

I'm beginning to realize that it would take more time than I have to analyze and criticize every bit of news on state tax incentives. So sometimes I will just have to let the story speak for itself.

Nevada

2006-07-17T10:45:00.000-07:00

Local officials in northern Nevada have voted to support a tax incentive program for two businesses with operations in the region, according to the Reno-Gazette Journal. The next step is statewide approval from the all-powerful Nevada Commission on Economic Development.

Lyon County Board of Commissioners Chairman Bob Milz justified his support for an incentive program by stating "You have to give to get."

There's another misleading statement by a local government official. If the incentive program does end up getting through the NCED, Milz and friends are not giving but simply taking less and doing so in an inefficient manner.

Florida

2006-07-14T08:18:00.000-07:00

It's been a busy week and unfortunately I am leaving in a few minutes for DC, so I have not had enough time to keep this blog up to my standard. I apologize to all you readers out there.

Today I'll leave you with a link to the Miami Herald's article on the incentive package Palm Beach County gave to Office Depot. In the article, an Office Depot spokesman said "Our current facility is obsolete. The new headquarters is really a vehicle for improved business performance and an enabler of profitable growth." Does that mean when other factories become obselete they will be eligible for a sweet deal from the local government? Très unlikely.

follow-up

2006-07-11T09:55:00.000-07:00

Last week I posted on an Heartland Institute analysis on state development organizations and tax breaks. The author the analysis, Michael D. LaFaive of the Mackinac Center for Public Policy, was kind enough to respond to this post by sending me some work he has done over the past six years on these organizations and incentives.

Discussing Ludwig von Mises and Friedrich Hayek, he noted in 2001 quite rightly that it "simply isn't possible to know and understand the myriad pieces of data, the ever-changing preferences of consumers, or the total impact of competition and technology in a vibrant, healthy economy." State economic developlment authorities brush this logic aside when they give tax breaks and credits to individual industries and companies.

LaFaive also provided me with a story he did in February 2000 on an "economic development package," which included tax breaks, given to a New York meat products company by the Michigan government. The story is one of the better illustrations of the unfairness of tax breaks and incentives that I have seen. Therefore, I am putting it in full below:

Last November, when Governor Engler vetoed a bill to exempt certain politically favored groups from a particular tax, he wisely declared, "Tax policy is best which is simple and uniform, and which treats similarly situated activities in the same manner." He was precisely right. It is poor economics and fundamentally unfair for government to pick winners and losers by providing special breaks, favors, or subsidies to certain firms and not their competitors. The only problem is, others within state government are doing exactly that.

Consider the case of Boar's Head Provision Company—a meat products company headquartered in Brooklyn, New York. In exchange for the company's promise to invest $14 million and create 450 new jobs in Michigan over the next three years, the Michigan Jobs Commission arranged in 1998 to give Boar's Head an "economic development package" worth up to $5.1 million in federal, state, and local resources. It includes up to $3 million for equipment leasing, an abatement of the 6-mill state education tax of up to $212,590, and as much as $1,000 per worker for training. Armed with these "incentives," the company opened a processing plant near Holland, Michigan, on December 13, 1999.

The successor agency to the old Michigan Jobs Commission is now known as the Michigan Economic Development Corporation (MEDC). Its highly paid bureaucrats will count 450 "new" jobs as the agency's contribution to the Michigan economy through the Boar's Head deal. What its press releases will not reveal is the impact of the deal on other Michigan businesses, such as Koegel Meats, Inc., in Flint.

Like Boar's Head, Koegel makes meat products. A Michigan-based family business for three generations, it produces an extensive line of cold cuts and the popular "Koegel's Vienna Frankfurters" that get grilled by the millions in Michigan back yards every summer. Its meat products still use recipes devised by Albert Koegel when he emigrated from Germany to Michigan and started the company in 1916. The firm sells 99 percent of its product in Michigan and employs 110 people at its Flint facility.

Al Koegel, son of the founder, is not one to make a big fuss about unfair competition. Like his dad before him and his son John who will carry on after him, Al would rather run the business than spend time lobbying politicians. He cannot help but point out when asked, however, that for all of its 84 years, Koegel Meats always paid its taxes and never took a dime of taxpayer money: no abatements, no subsidies. The company always trained its own employees with its own funds. In fact, when the company was once offered federal money for job training, Al turned it down because he did not want the hassle of red tape and paperwork.

So we have here the classic American Dream story: A German immigrant comes to America seeking opportunity, settles in Michigan, starts a company, works hard, and succeeds. His family keeps the business here through thick and thin in one of the most high-tax, economically distressed areas of the state. They focus on customers, not government, and grow the business—taking no public money and paying full freight in taxes year in and year out. Now along come the wizards at the MEDC who, in the name of "economic development," take money from taxpayers including the Koegel family business and give it to a New York competitor.

There is something seriously wrong with this picture. Lansing bureaucrats, most of whom probably do not know how to run a business, will take credit for their vision and thoughtfulness when they should be scolded for corrupting Michigan's economy. A state agency will claim it "created" 450 jobs without perhaps even a single reporter asking tough questions like, "How many jobs may be lost or may never come into being at other Michigan meat product companies like Koegel in Flint or Kowalski in Hamtramck?" or, "Where will Boar's Head's workers come from in the tightest labor market in 30 years, and who will pay the bill for their previous employers to go out and find replacement workers?"

The Boar's Head handout may be "economic development" in Lansing, but in the real world, it is just another example of robbing Peter to pay Paul.

Florida

2006-07-11T09:33:00.000-07:00

You may recall my post a few weeks ago on Florida's spring training tax incentives. Events discussed in yesterday's Sarasota Herald-Tribune demonstrate once again that lawmakers have no business in crediting tax breaks and credits with job creation or any sort of economic development.

Local goverment officials

used fresh renderings to sell legislators on a bill that would give tax breaks for spring training facilities in Sarasota and four other cities. The lobby worked, and Bush signed the bill late last month.

That gave the city and the Reds just a few months to come up with a complete financial plan for the stadium.

It was a daunting task, especially as city and Reds officials had expended so much energy selling their vision in Tallahassee.

"We'd been working on on the big picture for so many years," said Palmer, who made a handful of visits to the state capital this year. "And now it was on to the details."

Coming up with the rest of the money for the stadium would be incredibly difficult, just as Clearwater's Dunbar had predicted.

Isn't it sad that government officials throughout the Sunshine State spent so much time on the building of stadium that may never even happen?

When local lawmakers credit the tax incentives they approved as the reason for investment, ask two things: First, were the incentives the actual reason for the investment? Second, how did the lawmakers choose to favor a certain entity over others in the form of tax breaks?

United

2006-07-07T11:43:00.000-07:00

United Airlines is looking to move its world headquarters from its current location near Chicago's O'Hare airport. Possible locations include downtown Chicago, Denver, and San Francisco.

But for some reason, according to the Chicago Tribune (subscription req'd), United

has not requested formal proposals from any of the three cities of what they would offer to lure the nation's second-largest carrier. . . .

The lack of a formal request for possible tax breaks and other incentives doesn't mean United isn't interested in the communities, said Dennis Conaghan, executive director of the San Francisco Center for Economic Development. The airline may have adopted a wait-and-see approach, he said.

Could it also have something to do with United not really caring too much about incentive offering because that would mean wasting more time with bureaucratic government officials? That's just one man's question. You can bet that when United does make a decision the development organization for the winner will take far more credit than they deserve and neglect to point to other circumstances that are beyond their control.

Side note: Many of the articles that I cite come from the Chicago Tribune. While you will not be able to access the hyperlinked article without a subscription, you should be able to get to it through news.google.com and using an exact phrase from a quote that I have provided.

Missouri

2006-07-06T07:29:00.000-07:00

Sports teams are again benefitting from state tax incentives. Last week the Missouri Development Finance Board approved a plan to aid renovations to the Kansas City Chiefs and Royals stadiums.

Preferential treatment for sports teams is nothing new. I'm more interested in the wording of the AP article that describes the state effort. Apparently, the "stadium deal calls for the Royals and Chiefs to come up with a total of $100 million themselves, plus $425 million from Jackson County and $50 million from the state." This gives the impression that somehow Missouri is actually giving the teams $50 million to help with renovation.

Don't be so sure, however. "The $50 million in tax credits can be spread out over up to four years, starting with the state fiscal year that begins Saturday. The Chiefs will get $37.5 million of the tax breaks and the Royals the remainder." It turns out then that Missouri, rather than directly contributing $50 million to the cause, the state government there is just taking in less money. Thus, if the teams' total state tax bill is $60 million, the credit reduces this burden to $10 million. I don't think it is appropriate to label this type of policy as a subsidy or government goodwill when the government took the money in the first place.

I'd also like to point out another interesting political tidbit from the article. At one point state representative Wes Shoemyer "sponsored failed legislation that would have prohibited the [Missouri Development Finance Board] from authorizing state tax credits at sports stadiums, essentially forcing such aid to be approved by legislators." That's a great idea and it is not a surprise that it failed. Rather than be held accountable for favoring sports teams and big business, state lawmakers are more than happy to pass the buck to an unelected state government organization.

the epidemic of Hollywood tax breaks

2006-07-05T12:45:00.000-07:00

Since I started this blog this past May, by far the most common type of tax incentives that I have come across have been those targeted at the film industry. Within the past week, media outlets in Georgia, Indiana, South Carolina, and Texas have touted the alleged benefits of these incentives and issued warnings in case such breaks are not granted. Given the frequency of these types of articles, I have come to the conclusion that Hollywood has a stranglehold on state policymakers.

State-run organizations such as the Texas Film Commission and the South Carolina Film Office sound great. And it is certainly a lot sexier (politically and otherwise) to say you live in a state where Hollywood film execs come to play instead of bragging that your state attracts investment in a variety of industries.

But this favoritism needs to stop. It is unsound way to encourage long-run investment and is completely unfair to those who lack significant political access. Just because your business does not allow a governor to fulfill a childhood dream does not mean you are less deserving of low taxes.