Are business incentives worth the cost to taxpayers?

Victor Joecks

"Are business incentives worth the cost to taxpayers?" asks the Reno Gazette-Journal.

NPRI answers: No.

From the RGJ:

Northern Nevada economic development officials say that they recently lost a manufacturing plant, planned by a company headquartered here, to another state because the other state offered a better incentive—not a tax abatement or government-back bonds but a check—for cash.

There haven't been any reports of Nevada officials seeking authorization to write checks to convince companies to open shop in the state, but lawmakers should keep that incident in mind when they debate the future of such economic-diversification tools as redevelopment districts and STAR bonds.

This raises the question: Why does Nevada even have a Commission on Economic Development? It gives away money (in the form of tax breaks) to favored businesses, but the job of government isn't to pick winners or losers in an economy. Its purpose is to provide a level playing field for alla.k.a. a low tax and regulatory burden that's the same for every business. The same principle can and should be applied to STAR bonds, which Reno uses to give sales tax money to developers that build in certain areas.

The good news is that lawmakers, including Assembly Speaker Barbara Buckley, D-Las Vegas, Assemblyman Bernie Anderson, D-Sparks, and Assemblywoman Marilyn Kirkpatrick, D-Las Vegas, have recently questioned the effectiveness of tax abatements and exemptions.

Assemblywoman Marilyn Kirkpatrick, D-Las Vegas, who has overseen the study, said Nevada has fallen into the same trap as many states.

"People were just giving away incentives to bring folks to their community, to draw businesses and be the hub of a certain type of empire," she said. "But nobody was looking at the long-term fiscal impact."

It's not just about the fiscal impact, though. It's flat out wrong for the government to attempt to pick the winners and losers in an economy. The Soviet Union was based on that very concept, and how well did that end up working out?

Bonus practical reasons, along with the long-term fiscal impact, to eliminate business subsidies: They can lead to ethical lapses and end up hurting the very companies that receive them.

Bonus reading: The author of the last link, Dr. Burt Folsom, has written an absolutely awesome book on the difference between businessmen who relied on government protection and those who relied on innovation to produce a quality product at a good price. It's very applicable to what's happening here in Nevada and it's only 170 pages long.