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A Competition with Very Few Winners

by Pablo Ros  |  December 06, 2012

The New York Times this week published an investigation in which it found that state and local governments all over the country are competing against each other to lure companies expected to create jobs in a race that is needlessly costing taxpayers $80 billion a year.

Needlessly, because this “race to the bottom,” as The New York Times termed it in an editorial, is a zero-sum game. If only the states and localities agreed with each other to end incentives for businesses that don’t need them, the money they’d save could be better spent on priorities that benefit the middle class.

The incentives began three decades ago but have intensified in recent years. And they come in various forms: cash grants and loans; sales tax breaks; income tax credits and exemptions; free services; and property tax abatements.

State and local governments in Texas and Ohio “have lavished millions of dollars in tax breaks on corporate giants like Samsung and the Big Three automakers—even as they faced budget deficits and were forced to cut spending on critical services,” The Times wrote. New York spends as much money on film credits every year as the cost of hiring 5,000 public-school teachers.

Our elected leaders are betting these businesses will help create local jobs (and they’ll benefit by claiming credit), but that promise isn’t always fulfilled. General Motors has topped the list of companies that receive such incentives, with $1.76 billion since 2007, yet it “subsequently closed dozens of facilities in state and towns that gave it money,” according to The Times.

This would be unacceptable in any historical context. But what is especially troubling is the thought that it happens even as middle-class families struggle through the worst recession in memory and elected leaders balanced state and local budgets on the backs of public workers.

Since federal money is used in state and local budgets, this should also be a matter of concern to the federal government, currently involved in negotiations to address the fiscal deficit.

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