NCPA - National Center for Policy Analysis


January 24, 2005

States are violating sound tax policies by giving corporations large tax incentives to come to their state, or to stay put if they threaten to leave the state, says David Brunori of George Washington University.

Some recent examples include:

  • When Marriott Hotels indicated it might move its headquarters out of Maryland, Virginia politicians offered them $6 million in tax incentives to relocate; Maryland counter-offered $58 million.
  • Mercedes-Benz has received $250 million worth of tax breaks from the state of Alabama.

While politicians wish to attract investment to their states, "corporate welfare" policies are a bad idea for several reasons, says Brunori:

  • Cash-strapped states can hardly afford to extend tax subsidies for corporations, especially when such tax revenue is needed to balance their budgets.
  • Corporations choose states based on other factors besides tax burdens, such as access to markets, the education of the local labor force and labor costs.
  • Tax incentives are unfair to companies that already operate in a state without the help of tax incentives.
  • Politicians and the public generally have little idea as to whether companies that receive tax breaks are delivering promised benefits.

While there is nothing wrong with states competing for businesses based on their tax burdens, it is unfair to single out corporations for tax subsidies, says Brunori.

Source: David Brunori, "It's Time to End State Tax Giveaways," Heartland Institute, November 2004.


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