Municipal tax incentives for corporate re-locations

Is it fair to offer tax incentives to corporations to relocate to your town? I think it is.

Think of it in terms of free markets, a municipality should do what it can to make locating a corporate office there more attractive. The more competition the better. But sadly, many in this country, particularly here in Austin, don't believe in free markets, competition, or the good in private enterprise.

Right now there is an issue on the table for the Austin Independent School Board in which they are considering offering tax incentives to Home Depot which is considering locating a data center inside the Austin school district. Current public debate seems pretty split as far as I can tell, but the "man on the street" interviews shown on local news seem to indicate that many feel the incentives are unwise. One elderly lady went so far as to say that "there are people hungry here in Austin, we should spend money to help them." Now the implication I read in that statement is that the government should not be helping big bad corporations, but spending tax dollars to help members of the existing community.

I think the fallacy in arguments like this stem from the common perception of private enterprise and profit as evil. The amount of good that most large corporations bring far outweighs the tax revenue that the school district or city would "lose". Think about the benefits: new jobs, property taxes, sales tax, community involvement, increased corporate spending locally, and on and on and on. The bottom line is that the benefit to Austin of the new Home Depot data center far outweighs the "downsides" of the tax incentives offered.

These tax incentives are not payoffs to a corrupt corporation, they are incentives for a growing company to locate here bringing great benefits to the city.

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  • Offering tax incentives to company A while denying them to companies B, C, and D is a textbook violation of free-market principles. One of the foundations of a free market is a level playing field. This is exactly the sort of manipulation and meddling that the right abhors...when other people do it. Just because a policy seems "pro-business" doesn't make it economically sound.

    "The amount of good that most large corporations bring far outweighs the tax revenue that the school district or city would 'lose'." -- Can you back that up? Surely there must be a break-even point. If a city offers massive tax breaks to a very small company, the city will probably never recoup the breaks; if the city offers token breaks to a very large company, they'd probably recoup the taxes quickly. Regardless, though, it's still a violation of free-market principles.

    Bringing this down to the case at hand, I question whether Austin's infrastructure--already overburdened--can support large business developments. If a facility with, say, 1000 workers goes in, it's going to take a toll on road capacity in its area, rainwater drainage, electricity availability, and so on. When the city needs to increase capacity for these, we all pay for it. A truly free-market solution would be to charge any needed infrastructure improvements back to the business up-front.

    By Blogger adamrice, at 9:54 AM  

  • Thomas Frank's book What's the Matter with Kansas? had a good analysis of what happens when communities bid away their tax base to draw jobs -- jobs still go away the moment it suits the company, but the tax base diminishes and drives up costs for everybody else.

    This is another example of "big government conservatism," the new breed of conservatives who want MORE government handouts, not less, just to companies like Enron, Worldcom and, apparently, Home Depot instead of to the poor or disenfranchised. It's a bad deal. If it makes market sense for a company to move here, they will.

    By Blogger Gritsforbreakfast, at 2:57 PM  

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