Monday, June 23, 2014

Star Argues Indiana Needs to Change Rules in Tax Break Game

From the Indianapolis Star:

Almost every elected leader, from the president to small-town mayors, is under pressure to help create jobs.

So it’s not surprising that governors, mayors and others, in Indiana and elsewhere, frequently dangle tax breaks and other incentives to prospective job creators. A New York Times investigation in 2012 found that state and local governments across the nation hand out $80 billion in incentives to companies every year.

But do tax breaks and other financial incentives actually work in generating job growth? There’s considerable research indicating that they don’t.

A study by researchers from Ohio State and the University of Maine, for example, looked at tax breaks awarded to more than 300 companies in Ohio. The researchers not only concluded that incentives have “very little (or even a negative) effect” on job growth but also found that they spur companies to promise more jobs than they actually deliver.

Sadly, Hoosiers know all about that.

No case of wasted incentives is sadder than the story of economically depressed Connersville and Carbon Motors. The upstart company, with plans to develop high-tech police cars and create 1,500 jobs, received $7 million in state and local incentives. But the jobs never materialized.

Under pressure to drive job growth, state leaders have been much too lax at times in providing oversight of how tax breaks and other incentives are used. This past week,federal auditors found that a state contractor, Elevate Ventures, intentionally misused taxpayers’ money by funneling almost $500,000 to a company manged by Elevate’s founder.

Officials in the Pence administration insist new policies they’ve implemented will head off any similar problems in the future.

But the Elevate embarrassment is an opportunity to step back to evaluate Indiana’s overall approach to economic development. There’s strong evidence that states and cities, by throwing billions of dollars at companies, do more to poach jobs from one another than to drive true economic growth.