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.