Tax Analysts Blog

Was Oregon’s Tax Incentive Deal With Intel Unnecessary?

Posted on Aug 20, 2014

The tax incentive deal reached between Oregon and Intel Corp. has made headlines for the past week. It was a highly anticipated deal, as Intel had used nearly all of the benefit of its previous package of tax breaks. Under the terms of the agreement, Intel will make various payments to Washington County and the city of Hillsboro in return for an abatement of taxes on its facilities for semiconductor research and manufacturing.

Many of the news articles about the deal have been focused on a single number -- $100 billion. Apparently, that’s the amount of money Oregon stands to gain. The number was gleaned from a draft of the agreement made between county and city officials and Intel. The new agreement provides that the county and Intel will enter into a Strategic Investment Program agreement that would “provide a framework for potential additional Intel investment in Oregon of up to $100 billion” over a 30-year period.

Sounds good, right? One hundred billion in investment and the retention of 17,000 jobs by a high-quality employer. Oregon Gov. John Kitzhaber seems to think so. In a release, he said, “Intel not only brings the kind of jobs and economic impact that reach across the entire state, but the innovation and perseverance that embodies the Oregon spirit.” Kitzhaber says this is a “historic investment” and will make Oregon a “global leader in high-tech manufacturing.”

But did Oregon need to make the deal with Intel? Would the company have stayed and made similar investments without the tax incentives? My colleague Brian Bardwell wrote an interesting article that suggests Intel’s plans for investment in Oregon would have happened regardless of the new agreement. He notes that Intel had already committed to upgrading its Oregon facility and that given workforce reductions in other locations, it seems likely the company had plans to increase investment in Oregon.

The potential return for local governments is also questionable. While Intel was previously paying about $40 million per year in taxes and Strategic Investment Program fees, it is expected to pay $12 million less each year under the new agreement. And while the agreement is being billed as a job retention package, it doesn’t require jobs to be retained. Local governments are taking a hit on both sides -- less tax revenue from Intel and no real certainty that local residents won’t lose their jobs.

States seem inclined to throw around incentive packages like this without thinking about what they are getting or giving away. The lure -- or perhaps the politics -- of economic development is too strong. Regardless of whether the Intel tax incentive agreement is good tax policy (and it isn’t), officials in Oregon remain confident in their decision. They can tell residents that they ensured Intel would remain in Oregon. For them, that’s payment enough.

Read Comments (1)

edmund dantesAug 22, 2014

States have little choice but to "play ball" with major employers, other states
are very pleased to poach with major incentives. It's part of the beauty of

States that have called the bluff of major employers have generally regretted
the decision. It may not be good tax policy, but where in this country do you
find any good tax policy being practiced? Texas, maybe?

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