Incentives Watch: Are State Tax Credits Offered to Big Businesses Good or Bad for the Economy?

Almost all states offer some sort of tax credit to lure companies to their jurisdiction with the hope that new jobs and business will be created. Although legislators continue to enact more and more tax credits each year, is it a good idea to continue to offer these tax deals to companies?

In a recent Fresh Airpodcast on NPR, author David Cay Johnston was interviewed regarding his book, The Fine Print: How Big Companies Use "Plain English" to Rob You Blind. Johnston discusses how telephone and cable companies have gotten away with charging additional fees over the years. Johnston argues that a balanced policy is needed in our country that is written to promote the entire economy and not just these companies’ interests. So far, the companies have been able to get legislatures and Congress to enact rules that benefit them directly at the taxpayer’s expense. The companies have “worked the regulatory process and legislatures and Congress” to get rules written for their benefit.

For example, nineteen states offer tax deals where certain large companies do not have to pay income taxes because they are given a break in the form of a credit, according to Johnston. The credit is for the state income taxes withheld by these companies from their workers.

States allow these tax credit deals because, if they don’t, the companies will leave. On the other hand, these tax credits have led to more jobs and increased employment, notes NPR interviewer Terry Gross.

As a result of this situation, larger companies have an edge over smaller companies, which results in the “homogenization of the economy,” says Johnston. Smaller mom and pop businesses are dying out since they can’t compete with the larger ones.

Johnston feels that the tax credit deals given to larger companies are leading to inefficiency and the privatization of profits. For him, the issue is whether we want to continue to subsidize these larger companies or have a true market economy where the most efficient companies prosper.

California, Colorado, Connecticut, Delaware, Georgia, Illinois, Indiana, Iowa, Kentucky, Maine, Maryland, Mississippi, Missouri, Nebraska, New Mexico, North Carolina, Ohio, South Carolina, Utah offer various tax credits and incentives to attract businesses to their jurisdictions, according to the Bloomberg BNA State Tax Portfolios.

In other developments . . .

The Utah State Tax Commission ruled that a taxpayer's claim for the clean fuel vehicle tax credit is limited to 50 percent of the amount paid by the taxpayer in purchasing the vehicle, according to an article in the Bloomberg BNA Weekly State Tax Report.

By: Kathleen Caggiano

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