watchdog.org study_ taxpayer-funded targeted investments not worth the cost » watchdog
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Study: Taxpayer-funded targeted investments not worth the cost
Posted By Steve Wilson On May 30, 2014 @ 8:50 am
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UP, UP AND AWAY: Mississippi tax dollars have been used heavily to lure businesses tothe Magnolia State.
By Steve Wilson | Mississippi Watchdog
When a new megadeal with a corporation moving to Mississippi is announced, politicianshold a news conference, cut a cake, boast about the number of jobs created and toss somedirt with gold shovels.
A study [2] by the Mercatus Center at George Mason University might put a damper on the
party. The recently published research [3] by Christopher Coyne and Lotta Moberg castsmajor doubt on whether these taxpayer-funded targeted investments meet their goals ofeconomic revitalization and job creation.
One of the costlier examples the study cited included Michigan, where the studyfound the Economic Growth Authority Tax Credit Program’s cost was $45,000 per job. Theworst offender was Louisiana, whose $1.7 billion in incentives to Cheniere Energy tocreate 255 jobs and retaining another 77 added up to $7.5 million per job.
[4]
SIGN ON THE DOTTED LINE: Mississippi governorPhil Bryant and Hikomitsu Noji, president andrepresentative director of The Yokohama RubberCo. sign documents during the groundbreakingceremony on a new tire plant in West Point,Miss.
Coyne said one of the things thatsurprised him in the course of his researchwas how little the true costs to taxpayersand the political system were discussed.
“Most treatments of the issue overlookthe various costs associated with thesetypes of policies,” Coyne said.“Specifically, that it incentivizes lobbyingand cronyism so that companies canreceive these benefits. Part of this is arhetorical issue in that the term ‘targetedbenefits’ implies a net benefit to citizens.Our study highlights that net benefitscannot be assumed and often neveremerge.”
Mississippi [5] is no stranger to thesetypes of incentive-laden deals, givingmore than a billion dollars to Nissan, $354million to Toyota and $130 million toYokohama Tire to build plants in the state.According to Good Jobs First’s Subsidy
Tracker [6], Mississippi is ranked 17th,giving out 1,479 subsidies that added upto $2.9 billion.
See Mississippi’s top 10 crony
capitalism deals here [7]
Nicole Kaeding, a budget analyst at the Cato Institute, said these kind of economicdevelopment deals are indicative of a less-than-ideal business climate in the state. The Tax
Foundation ranks the state 17th in its State Business Tax Index. [8]
Mississippi has both a corporate income tax and a corporate franchise tax [9], in addition to apersonal income tax. The corporate income tax has a step rate at 3 percent for the first$5,000 of taxable income, 4 percent on the next $5,000 of taxable income and 5 percent onincome greater than $10,000.
The franchise tax is $2.50 per $1,000 of net worth or capital used or invested in the state,depending on which is greater.
“Policymakers who offer targeted tax incentives are implicitly acknowledging thatMississippi’s tax code is burdensome and uncompetitive,” Kaeding said. “Instead ofselectively rewarding a few businesses, state and local policymakers should focus theirattention on reforming the tax code. That is harder politically, but is the better long-termsolution.
“Lowering rates and simplfying the tax code will help Mississippi’s economy grow withouthaving to award sweetheart deals that benefit only a selective few.”
Coyne and Moberg have several solutions to deal with the issue. They would:
Allow current targeted benefits to expire and end state programs that grant themMake sure targeted benefits cannot be granted on an ad hoc or informal basisCooperate with other states to form an agreement about dismantling targetedbenefitsLower tax rates to create a better business climate.
“Targeted benefits are grounded in favoritism and cronyism,” Coyne said. “General policiesaffect everyone equally. This is why we argue for a generality principle in our conclusion.Let’s say that a state or municipality wants to attract more business. Instead of offeringtargeted benefits to a few select companies (but not others), we argue for a generalreduction of taxes and/or regulations, which increase the cost of doing business.”
Contact Steve Wilson at [email protected] [10]
Get regular updates on Mississippi through our Facebook [11] or Twitter [12] accounts
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URL to article: http://watchdog.org/146949/targeted-investments/
URLs in this post:
[1] Image: http://watchdog.org/wp-content/blogs.dir/1/files/2014/05/Crony-capitalism.jpg
[2] study: http://mercatus.org/publication/political-economy-state-provided-targeted-benefits
[3] recently published research:http://mercatus.org/sites/default/files/Coyne_TargetedBenefits_v2.pdf
[4] Image: http://watchdog.org/wp-content/blogs.dir/1/files/2014/03/Yokohama-tire.jpg
[5] Mississippi: http://subsidytracker.goodjobsfirst.org/state/MS
[6] Subsidy Tracker: http://subsidytracker.goodjobsfirst.org/top-states
[7] See Mississippi’s top 10 crony capitalism deals here : http://watchdog.org/146963/top-10-crony-capitalism-deals-mississippi/
[8] 17th in its State Business Tax Index.: http://taxfoundation.org/article/2014-state-business-tax-climate-index
[9] corporate income tax and a corporate franchise tax:http://www.dor.ms.gov/info/faqs/faqs_corporatefaqs.html
[10] [email protected]: mailto:[email protected]
[11] Facebook: http://watchdog.org/wp-admin/facebook.com/mississippi.watchdog
[12] Twitter: http://watchdog.org/wp-admin/twitter.com/MissWatchdog
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