honoluluadvertiser.com

Sponsored by:

Comment, blog & share photos

Log in | Become a member
The Honolulu Advertiser
Posted on: Wednesday, August 22, 2007

Tax breaks for growth criticized

By Dennis Cauchon
USA Today

Generous tax breaks given to companies that threaten to take their business elsewhere are coming under increasing scrutiny from state and local officials who say taxpayers aren't getting their money's worth.

Critics say the tax breaks and other financial incentives have gotten out of hand, costing taxpayers billions of dollars and doing little for the economy.

"There's an entitlement mentality about tax breaks today," Kansas City Mayor Mark Funkhouser says. "Every developer thinks it's his right not to pay property taxes." Funkhouser was elected mayor in May after campaigning against tax breaks to developers, including one for a luxury condo development in an affluent part of his city.

Supporters of incentives say the deals are crucial to keeping economies strong, especially in depressed areas. "A well-thought-out portfolio of incentives is vital to being competitive for quality projects," says Jim Fain, commerce secretary in North Carolina, which has been aggressive in providing economic assistance to companies. In March, North Carolina gave $212 million in state and local assistance over 30 years to lure a $600 million Google server operation to Lenoir.

State and local governments offer about $50 billion a year in tax breaks and other economic incentives, according to economists Alan Peters and Peter Fisher.

Academics say there is little evidence to show tax breaks have a lasting effect on a local economy.

Property tax breaks to manufacturers appear to boost industrial employment for a short time, says University of Nebraska economist John Anderson, a former Michigan economic developer. "But the impact of incentives dissipates quickly, so in a few years, there's no benefit to employment," he says.

Among the states re-examining economic development incentives:

  • New York. The state sent 3,000 letters in July to companies that had been given tax breaks in exchange for promises to invest money and create jobs. The letters went to companies that failed to meet 60 percent of their investment and employment goals.

  • Arizona. The Legislature passed a law in July that limits sales tax breaks that local governments can give retailers. Cities and counties had been slashing sales tax rates to attract big chains such as Wal-Mart, Home Depot and Nordstrom. That hurt local businesses, whose customers paid the full tax.