NCPA - National Center for Policy Analysis

State Subsidies To Lure Businesses

March 15, 1999

Critics say that the practice of states offering tax breaks and other goodies to business -- either to attract them or keep them from moving -- is a poor way to build an economy.

The latest example is Maryland's offer of between $49.2 million and $73.8 million in tax breaks, forgivable loans and road improvements to Marriott International to keep it from moving its headquarters to Virginia. The latter was only willing to offer $6 million.

  • The highly-questionable procedure has its roots in the 1930s -- when Mississippi began enticing northern factories with incentives such as right-to-work laws, cheap labor, free land and large tax breaks.
  • By the 1950s, most other southern states had joined in.
  • But in the 1960s, northern states were battling back by offering similar incentives.
  • In what some call a national epidemic of job blackmail, almost every state, county and city in the nation now offers financial inducements to companies either to stay in their jurisdictions or relocate there.

Of the subsidies which can be measured, states and localities provide over $15 billion annually to individual companies, according to Kenneth Thomas, a political scientist at the University of Missouri at St. Louis.

The incentives range from a small firm getting several hundred thousand dollars worth of property tax discounts, called abatements, to the $600 million New York City recently gave the New York Stock Exchange to stay in Manhattan's financial district.

Source: Robert D. Atkinson, "Paying Ransom Is No Way to Build a State's Economy," Washington Post, March 14, 1999.


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