Politicians are using public policies, from renaming a city to offering billions of dollars in grants, infrastructure improvements and tax abatements, to take credit for companies’ location decisions. ...
In all likelihood, incentives are overpaying firms, leading to lost resources that could be used for other purposes. If the incentives don’t pay for themselves, they must be paid for by either higher taxes or decreases on government spending. Local school districts are vocal opponents of incentives; they see their tax base being given away in the name of economic development.
But in fact it is most likely the quality of the work force that will be the deciding factor for Amazon, not the billions in incentives. Proponents of incentives often claim that these subsidies pay for themselves, and voters often support these efforts, believing the promises of good jobs. But this is possible only if governments perfectly target the companies that require incentives and pay just enough, and not a penny more, to sway a company’s decision.
...Political pandering is behind this explosion. But there is also some of what Brink Lindsey of the Niskanen Center and the political scientist Steven Teles call the “captured economy.” In between these politicians and corporations are economic incentive consultants, tax professionals and lobbyists all providing ways for businesses to maximize their take, and getting a percentage of these incentives in return.
There is a role for government in economic development. State and local governments can help businesses without access to finance survive and expand, provide worker training that is valuable to residents and companies, and invest in traditional education from pre-K to college. There are certainly worthy investments that can be made. But $7 million for Carrier, $3 billion for Foxconn and billions for Amazon is just using the public coffers for political theater.Highly recommended reading in full for anyone interested in tax competition.