{"id":1233,"date":"2011-11-02T12:00:59","date_gmt":"2011-11-02T18:00:59","guid":{"rendered":"http:\/\/stateimpact.npr.org\/idaho\/?p=1233"},"modified":"2011-11-23T09:55:42","modified_gmt":"2011-11-23T16:55:42","slug":"one-take-on-how-tax-incentives-work","status":"publish","type":"post","link":"https:\/\/stateimpact.npr.org\/idaho\/2011\/11\/02\/one-take-on-how-tax-incentives-work\/","title":{"rendered":"One Take on How Tax Incentives Work"},"content":{"rendered":"<div id=\"attachment_1236\"  class=\"wp-caption module image right\" style=\"max-width: 140px;\"><a class=\"fancybox\" title=\"Michael Mazerov \" href=\"http:\/\/stateimpact.npr.org\/idaho\/files\/2011\/10\/MichaelMazerov_CBPP.jpg\" rel=\"\"><img decoding=\"async\" loading=\"lazy\" class=\"size-full wp-image-1236\" title=\"MichaelMazerov_CBPP\" src=\"http:\/\/stateimpact.npr.org\/idaho\/files\/2011\/10\/MichaelMazerov_CBPP.jpg\" alt=\"\" width=\"140\" height=\"200\" \/><\/a><p class=\"wp-media-credit\">Center on Budget Policy and Priorities<\/p><p class=\"wp-caption-text\">Michael Mazerov<\/p><\/div>\n<p><a href=\"http:\/\/www.cbpp.org\/experts\/index.cfm?fa=view&amp;id=30\" target=\"_blank\">Michael Mazerov<\/a> is a Senior Fellow with the State Fiscal Project at The Center on Budget and Policy Priorities.\u00a0 I contacted the center to discuss the potential shortfalls of Idaho tax incentive programs after coming across <a href=\"http:\/\/www.cbpp.org\/cms\/index.cfm?fa=view&amp;id=3100\" target=\"_blank\">this article<\/a>. <em><\/em><\/p>\n<p><a href=\"http:\/\/www.cbpp.org\/\" target=\"_blank\">The Center on Budget and Policy Priorities<\/a> is a non-partisan research and policy institute which works at the federal and state levels on fiscal policy and public programs that affect low and moderate income families and individuals.<\/p>\n<p class=\"question\"><span class=\"abbr\" title=\"question\">Q: <\/span>How do state tax incentives work?<\/p>\n<p class=\"answer\"><span class=\"abbr\" title=\"answer\">A: <\/span>There\u2019s a wide variety of incentives that state governments and local governments use to try and attract new businesses or encourage businesses that are already in the state to expand their investment or job creation.\u00a0 Basically, a tax that a state imposes on a business could theoretically have an incentive added to it.\u00a0 At the state level the most common kinds of incentives are reductions in the state corporate income tax based on increasing investment or increasing the number of employees a company has or increase the amount of R &amp; D in the state.\u00a0 Some states have credits or reductions in the state corporate income tax if the company moves its headquarters to a state.\u00a0 But, they all basically involve cutting a tax in exchange for doing something the state thinks will benefit its economy.<\/p>\n<p class=\"question\"><span class=\"abbr\" title=\"question\">Q: <\/span>Does the state end up losing money?<\/p>\n<p class=\"answer\"><span class=\"abbr\" title=\"answer\">A: <\/span>Certainly, when the state first grants the credit, they\u2019re definitely reducing the revenue from the tax that they\u2019re allowing the break on.\u00a0 What they\u2019re doing is hoping that in the long run what they\u2019re doing will generate enough economic activity as a result of the credit that the economic activity will recoup some of the revenue lost that they initially lost by granting the credit.\u00a0<!--more--> <div class=\"related-content alignright\"><h4 class=\"related-header\">Related<\/h4><div class=\"links\"><h5>Posts<\/h5><ul><li class=\"link\"><a href=\"http:\/\/stateimpact.npr.org\/idaho\/2011\/11\/01\/idahos-investment-tax-credit-explained\/\">Idaho\u2019s Investment Tax Credit Explained<\/a><\/li><li class=\"link\"><a href=\"http:\/\/stateimpact.npr.org\/idaho\/2011\/11\/01\/idaho-tax-incentives-whats-the-tradeoff\/\">Idaho Tax Incentives: What\u2019s the Tradeoff?<\/a><\/li><\/ul><\/div><div class=\"topics\"><h5>Topics<\/h5><p class=\"topic\"><img class=\"alignleft\" src=\"http:\/\/stateimpact.npr.org\/idaho\/files\/2011\/08\/Tax_BobTravaglione_getty-60x60.jpg\" height=\"60\" width=\"60\" \/><a href=\"http:\/\/stateimpact.npr.org\/idaho\/topic\/tax-credtis\/\">Your Guide to Idaho\u2019s Tax Credits<\/a><\/p><p class=\"topic\"><img class=\"alignleft\" src=\"http:\/\/stateimpact.npr.org\/idaho\/files\/2011\/10\/Taxes_RitaMaas_getty-60x60.jpg\" height=\"60\" width=\"60\" \/><a href=\"http:\/\/stateimpact.npr.org\/idaho\/topic\/state-tax-commission\/\">Understanding the Idaho State Tax Commission<\/a><\/p><\/div><\/div><\/p>\n<p class=\"answer\">But, there is just an overwhelming amount of research that suggests that &#8212; some of these incentives can stimulate economic activity that might not otherwise occur in this state &#8212; it never generates enough activity for a credit to quote unquote pay for itself.\u00a0 And any policy maker who makes that claim just is doing it without any support from economic literature.<\/p>\n<p class=\"question\"><span class=\"abbr\" title=\"question\">Q: <\/span>If the benefit doesn&#8217;t outweigh the loss why do states keep doing this?<\/p>\n<p class=\"answer\"><span class=\"abbr\" title=\"answer\">A: <\/span><del><\/del>Even if it doesn\u2019t pay for itself, they might think that it\u2019s a worthwhile expenditure of state tax revenue to try and create jobs.\u00a0 But what you have to consider is the revenue loss also can result in a loss of jobs.\u00a0 The revenue that&#8217;s being foregone from the tax incentive was being used to hire people to work on roads, or state police officers or teachers.<em>\u00a0 <\/em>And the revenue is also frequently used to create jobs in the private sector.\u00a0 States spend a lot of money hiring private contractors to provide various kinds of services to the state.\u00a0 Whether we\u2019re talking about the people who build roads for the state or supply food to the correctional institutions, all that state spending creates both public and private sector jobs.\u00a0 So, when the revenue isn\u2019t there to do that because it\u2019s been given to private business, you\u2019re losing jobs <em>initially<\/em> in the hope that jobs will be created as a result of the incentive down the road. But, usually at best, it\u2019s a wash and there are no net jobs created.<\/p>\n<p class=\"question\"><span class=\"abbr\" title=\"question\">Q: <\/span>So, it\u2019s a matter of trade-offs, or priorities?<\/p>\n<p class=\"answer\"><span class=\"abbr\" title=\"answer\">A: <\/span>There\u2019s a notion that private sector jobs are just inherently preferable to public sector jobs and that\u2019s why there are so many people &#8212; policy makers &#8212; who are willing to give away tons of state revenues in order to stimulate private job creation.\u00a0 But, it ignores the fact that many of the public sector jobs are performing functions that we all need, and that private businesses need.\u00a0 So it can be very harmful to states&#8217; economic prospects if the consequences of providing additional tax incentives means a cut back in education, which means a less skilled workforce for the private sector, deteriorating roads that may impose costs on businesses in the state that need those roads to get their goods to market and so forth.\u00a0 So, it can be very counterproductive for economic development to give away too many tax cuts in the name of job creation.\u00a0It can be self-defeating, in other words.<\/p>\n<p class=\"question\"><span class=\"abbr\" title=\"question\">Q: <\/span>Are states offering more credits or incentives now than in the past?<\/p>\n<p class=\"answer\"><span class=\"abbr\" title=\"answer\">A: <\/span><del><\/del><del><\/del>Unfortunately, they\u2019ve been around for a long time.\u00a0 Most people would say that most of these incentives were first instituted in states in a limited way during the recession of the 1930s.\u00a0 And in part because that was really the first time they had enough revenue to be able to devote to this, what was called \u2018smoke stack chasing\u2019.\u00a0 So it has a long history, but I think it\u2019s also true that it\u2019s really accelerated in the last couple decades because the international economy has become so much more competitive, because the U.S. has lost so many manufacturing jobs, which has worried state policy makers.\u00a0\u00a0So I think unfortunately it\u2019s kind of a growing trend.<\/p>\n<p class=\"question\"><span class=\"abbr\" title=\"question\">Q: <\/span>How do policy makers determine if the tradeoff is worthwhile?<\/p>\n<p class=\"answer\"><span class=\"abbr\" title=\"answer\">A: <\/span>There has been a great deal of research that\u2019s been done on this issue over the years and one thing it\u2019s important to understand is that even the studies that show incentives <em>can<\/em> have some impact, some positive impact on job creation or economic growth, conclude it\u2019s a very small impact that isn\u2019t realized for a very, very long period of time.\u00a0 The consensus of the research concludes that you have to cut the entire state and local tax burden of a business by about 10 percent to encourage even just a two percent increase in job creation in a state.\u00a0 And no state can afford to give away 10 percent of a business tax base.\u00a0 So you\u2019re talking about a very small pay off given the amount of revenues that states can realistically forgo through this.\u00a0 <del><\/del>It\u2019s just much better for states to be focusing their economic development efforts on doing their basic job well.\u00a0 Having a good education system, having a well-functioning road system so businesses have the services they need and the skilled workforce they need, <del><\/del>in the long run that\u2019s the best economic pay off for the state.<\/p>\n","protected":false},"excerpt":{"rendered":"<p>Michael Mazerov is a Senior Fellow with the State Fiscal Project at The Center on Budget and Policy Priorities.\u00a0 I contacted the center to discuss the potential shortfalls of Idaho tax incentive programs after coming across this article. The Center on Budget and Policy Priorities is a non-partisan research and policy institute which works at [&hellip;]<\/p>\n","protected":false},"author":40,"featured_media":1236,"comment_status":"open","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":[],"categories":[15],"tags":[94,102,42],"acf":[],"_links":{"self":[{"href":"https:\/\/stateimpact.npr.org\/idaho\/wp-json\/wp\/v2\/posts\/1233"}],"collection":[{"href":"https:\/\/stateimpact.npr.org\/idaho\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/stateimpact.npr.org\/idaho\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/stateimpact.npr.org\/idaho\/wp-json\/wp\/v2\/users\/40"}],"replies":[{"embeddable":true,"href":"https:\/\/stateimpact.npr.org\/idaho\/wp-json\/wp\/v2\/comments?post=1233"}],"version-history":[{"count":26,"href":"https:\/\/stateimpact.npr.org\/idaho\/wp-json\/wp\/v2\/posts\/1233\/revisions"}],"predecessor-version":[{"id":2246,"href":"https:\/\/stateimpact.npr.org\/idaho\/wp-json\/wp\/v2\/posts\/1233\/revisions\/2246"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/stateimpact.npr.org\/idaho\/wp-json\/wp\/v2\/media\/1236"}],"wp:attachment":[{"href":"https:\/\/stateimpact.npr.org\/idaho\/wp-json\/wp\/v2\/media?parent=1233"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/stateimpact.npr.org\/idaho\/wp-json\/wp\/v2\/categories?post=1233"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/stateimpact.npr.org\/idaho\/wp-json\/wp\/v2\/tags?post=1233"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}