Pew study: States overspending on tax incentives

Cynthia Quiroz holds a sign reading, ' 1 Days To File', as she directs people to the Liberty Tax Service office on April 17, 2012 in Miami, Fla.

A new report from the Pew Center on the States points out some pitfalls of tax incentives for businesses. The report says states don’t realize how much the incentives will eventually cost them. 

The Pew Study analyzed 16 economic development bills from various states. It concluded state legislatures often approve tax incentives designed to lure in new businesses and jobs, without good cost estimates. 

Bob Zahradnik is a research director  at the Pew Center on the States.

“A lot of states don’t even know what the cost per job is," he says.  "They put these policies in place and then, when they fail to evaluate them, they don’t really know what might be the most effective way to create jobs.”

For example, Zahradnik says, Louisiana’s tax exemption for horizontal natural gas drillers cost $285,000 in FY2007.  But, after the discovery of a large natural gas deposit, the exemption cost the state $239 million three years later.

Zahradnik says states can figure out how much an incentive will cost before they pass legislation creating it. And he says they should also put a cap on tax incentives.   

About the author

Nancy Marshall-Genzer is a senior reporter for Marketplace based in Washington, D.C. covering daily news.
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This will not change the states' political leaders regardless of their party affiliation for at least a few reasons. First, in some ways this is about ideology. Second, in more ways this is about individual voters finding employment. Thus, if the job rate in the state is good the better chance of getting re-elected as governor or state legislator. Third, due to the fall of Communism, the global labor supply increased exponentially and drove down wages. In addition, the rebuilding of whole nations after World War II and entrance of emerging nations into mature industries such as auto and steel manufacturing has created an over supply of those goods. This creates a race towards the bottom, which is what we are facing. States could ban together and quit racing towards the bottom and boost the common good as a whole, but unfortunately Americans don't think that way.

THANKS so much for reporting this. As our tax bases are eroded by erroneous economic myths, we need to get the facts out to the public so they can start to champion and vote for other policy options. Gold stars!!

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