Tax Analysts Blog

Yes, More Problems with Tax Incentives

Posted on Oct 29, 2014

People who have studied tax incentives know everything that's wrong with them: They don't work (companies choose where to locate for other reasons); they're unfair (some companies get them, others don't, and their benefits inure to the haves rather than the have-nots); they're inefficient (government bureaucrats can't make decisions better than the market). There are many more.

We also know why politicians support incentives, despite the mountains of criticism from people who know of what they say. Traditionally, it comes down to fear and greed. No politician wants to lose a company on his watch. Similarly, every politician wants to cut the ribbon opening a new plant. Then there is just cowardice. Taking a stand on principle is a rare commodity.


But there's increasing evidence of another problem with tax incentives: Politicians may be handing them out in return for campaign contributions. On October 10 a campaign rival accused South Carolina Gov. Nikki Haley (R) of not only providing tax incentives to projects that failed to deliver jobs, but also of pulling in more than $100,000 in contributions from companies that benefited from the grants. Whether the incentives led to more jobs should be irrelevant. The insinuation of pay to play should be enough.


Similarly, there have been reports that companies donating to the Republican Governors Association were more likely to get incentives from New Jersey, whose governor, Chris Christie (R), chairs the association. Lockheed Martin Corp. reportedly donated $50,000 to the association and then applied for $100 million in tax credits over 10 years in return for expanding in Camden.


I have no doubt there are more instances of companies contributing to politicians and getting economic development payouts. I'm not naïve. Corporations donate money to governors and lawmakers and expect a return on their investment. While the governors cited above were Republican, corporations and business interests don't discriminate. Indeed, Lockheed Martin donated lots of money to Democratic governors.

We likely won't find a smoking gun e-mail reading, "Dear Governor, your check is in the mail, please process my multimillion-dollar handout. Your friend, CEO." Politicians and business leaders are too smart for that. But growing evidence of tax incentives being granted by politicians who receive money should give everyone pause. It's unlikely to be a coincidence



This is an excerpt of an article that was published in State Tax Notes.

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