The RGJ’s recent report, Nevada got a fraction of the jobs, investment promised by Tesla-style tax breaks, confirms what experts have been warning about for years: Nevada’s corporate welfare program is a bad deal for taxpayers.
The Governor’s Office of Economic Development (GOED) provides billions of dollars in tax breaks to large corporations like Apple and Tesla, based on the idea that the added jobs and investments they bring to Nevada will more than offset the cost.
But that claim has been repeatedly debunked by academic research, which finds that programs like GOED tend to be a wash or, in some cases, a net negative. A study published in the peer-reviewed Journal of Regional Science, for example, found that tax incentives actually reduced job growth and business expansion. The study also found that businesses who received the incentives consistently overestimated the economic benefits they would deliver, just like what has happened here in Nevada.
Unfortunately, while the promised benefits have failed to fully materialize, the costs imposed on taxpayers are here to stay. In an effort to quantify that cost, experts at the Mercatus Center recently estimated that eliminating corporate incentives would yield enough savings to reduce Nevada’s sales tax by 7 percent.
That bears repeating: Nevadans are effectively paying more in sales tax just so some of the world’s richest companies can receive a tax break, like the $13.6 million tax abatement given to eBay for a project which created a grand total of two new jobs.
While free markets require that businesses serve the needs of consumers in order to profit, politics rewards insiders who can afford to hire the best lobbyists. This explains why so many legislators support giving tax breaks to giant corporations rather than ordinary Nevadans: the former tends to spend much more on lobbying efforts than the latter.
There is also the issue of concentrated benefits and dispersed costs. Jobs created through GOED give politicians a great opportunity for free press, while the costs are widely dispersed and thus unseen.
Speaking of that which is unseen, it was quite troubling to read that GOED refused to answer the RGJ’s questions “about whether or how it pushed companies to meet the state’s performance measures,” particularly given the tax-funded agency routinely claims it does just that when responding to reports of underperformance.
It is time for the Legislature to abolish GOED. Even when things go well, such distortive measures create a host of negative consequences, like the soaring rents in Sparks, which have devastated those living on a fixed income ever since the Tesla plant opened.
GOED’s core insight is correct: lower taxes create jobs and prosperity. But rather than applying this principle in an economically distortive way that benefits the well-connected at the expense of taxpayers, the Legislature should apply it uniformly, so that all Nevadans can benefit.
This commentary was originally published in the Reno Gazette-Journal.