Rolling out the red carpet for corporations with tax incentives often comes at a steep cost to cities and states, according to a comprehensive new study that tracks 25 years of such incentives. “We found that in almost all instances, these corporate tax incentives cost states millions of dollars, if not more, and the returns were minimal,” says co-author Bruce McDonald, an associate professor of public administration at North Carolina State. The agreements “ultimately left states in worse financial condition than they were in to begin with.”
The researchers studied the 32 states that provide 90% of the country’s state and local tax incentives, from 1990-2015, and evaluated both state and local tax incentives, while controlling for demographic, economic, political, and governmental data. An algorithm assessed whether attracting and retaining businesses offset the incentives. Overall, they concluded that the incentives “draw resources away from states” and “negatively affect the overall fiscal health of states.”
Just two types of tax incentives proved valuable: job creation tax credits and job training grants, which both create longterm tax revenue for people finding higher-paying work.
“The takeaway message here is that maybe states shouldn’t be offering these tax incentives, or at the very least should examine their assumptions about the impact these incentives actually have,” says McDonald, who titled the study, “You Don’t Always Get What you Want.”