Little Correlation Between a State’s Tax Breaks and Subsidies to Firms, and the State’s Unemployment and Income Levels

(p. A27) It’s politically difficult for city and state officials to offer incentives to one firm and not another, Timothy Bartik, an economist at the W.E. Upjohn Institute for Employment Research, told me. Like Lay’s potato chips, “you can’t hand out just one,” as he put it. He fears that after the hysteria over Amazon’s HQ2 and the recent $4.1 billion deal struck between the state of Wisconsin and the Taiwanese electronics company Foxconn, incentive amounts will only climb.
Unfortunately, incentives and tax breaks don’t work. Research by Mr. Bartik indicates that there is not a large correlation between a state’s giveaways and its unemployment rate or income levels.
. . .
Lavish benefits also don’t have much influence over the choice of a location. The typical package changes a decision only 25 percent of the time or less — about two-thirds of the incentives are handed to companies that would have moved to the state offering them, regardless.
Instead, the deals often end up being a burden on budgets. Texas schools have lost an estimated $4 billion to the state’s economic development program and Cleveland schools lost over $34 million in one year alone. New Jersey’s budget is at risk of bleeding $1 billion a year, while Michigan’s liability for its business tax credits is set to soar to $9.38 billion over the next two decades and incentives have already led to a $325 million budget deficit. None of that accounts for the extra outlays to upgrade infrastructure and services for the people who move in to take advantage of any jobs that are created.
. . .
The solution, . . . , must be an armistice. States and cities need to collectively swear off big-dollar economic deals aimed at particular companies. If no one offers them, corporations will have to figure out where to locate on their own.
There’s nothing to love about these incentives. Republicans should be outraged by the idea of government picking winners and insist instead that companies be left to choose locations based on the conditions they need to operate their businesses, not sweetheart deals. Democrats should oppose them because they are starving state and city coffers of funds needed for important services, such as schools.

For the full commentary, see:

Covert, Bryce. “HQ2 Winners Are Losers.” The New York Times (Wednesday, Nov. 13, 2018): A27.

(Note: ellipses added.)
(Note: the online version of the commentary has the date Nov. 13, 2018, and has the title “Cities Should Stop Playing the Amazon HQ2 Bidding Game.” Where there are minor differences in the versions, the passages quoted above follow the online version.)

The research by Bartik, mentioned above, is:
Bartik, Timothy J. “A New Panel Database on Business Incentives for Economic Development Offered by State and Local Governments in the United States.” W.E. Upjohn Institute for Employment Research: Prepared for the Pew Charitable Trusts, 2017.

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