State Revenues Still Low, Tax Breaks Still Unhelpful

From Citizens for Tax Justice (http://www.ctj.org):

New research from the Lincoln Institute of Land Policy shows “there is little evidence that property tax incentives [for businesses] actually work” to boost economic growth or create jobs, and that “the use of these tax incentives continues to reflect the triumph of hope over experience.”  Among other things, the Lincoln Institute notes that: property taxes are a very small part of doing business (less than 1 percent of costs for manufacturers); and, that incentives frequently reward businesses for behavior they would have undertaken anyway.

State revenue collections may be on the rise in many states, but the Rockefeller Institute has an important new report (http://www.rockinst.org/newsroom/news_releases/2012/08-02-SRR88.aspx) putting that trend in perspective: “After adjusting for inflation … state tax revenues are still 1.6 percent lower compared to the same quarter four years ago, in 2008.  Even in nominal terms, total tax collections in the first quarter of 2012 remained lower than the first quarter of 2008 in 21 states.”

Here (http://articles.boston.com/2012-08-06/letters/33016136_1_sales-tax-holidays-tax-free-weekend-midwest-director) and here (http://www.gainesville.com/article/20120802/OPINION/120809940/-1/entertainment?Title=Kelly-Davis-Sales-tax-holiday-a-political-gimmick), the Institute on Taxation and Economic Policy (ITEP) talks back about misguided sales tax holidays, and makes some news explaining how the holidays are a distraction from real tax reform that would make state tax codes fairer.

(Editor’s Note: Though I’m not (and never will be) an economist, I did do a thesis on the efficacy of business tax incentives nearly 30 years ago as a public policy student at Duke. My report, while almost certainly not as sophisticated, found the same—30 years ago! Taxes were low on the list of reasons why businesses make location decisions—good infrastructure, well educated/trained workers, transportation, and low union membership were all higher. Tax breaks might make a difference if the competition is between a state that scores high on the criteria listed above and one that does not, but then it becomes a race to the bottom, and states (and their residents, who carry the burden) lose.

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