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Handing Out Tax Breaks to Businesses Is Worse Than Useless

A new study exposes the futility of the $45 billion that states spend on economic development incentives.
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Carlos Osorio/AP

Even before being sworn in as President, Donald Trump jumped up and down at the chance to showcase the great deal he and Vice-President Mike Pence made to keep a Carrier plant in Indiana. The company pocketed $7 million in tax breaks in exchange for about 800 jobs. But the broad consensus among economists who study the subject is that such business incentives do little to alter the location decisions of companies. In fact, they’re often worse than ineffective—they’re counterproductive. My own take on this site is that they are a useless waste of taxpayer dollars.

Timothy Bartik of the W.E. Upjohn Institute for Employment Research, who is perhaps the leading student of incentives and economic development, has a new report that provides the most detailed assessment of incentives across states and their effects on economic development. His database contributes a useful tool for state and local economic developers and others to take a hard look at incentives, what they cost, and whether they are worth it or not.

Bartik’s fastidious research compiles data on economic development incentives for 45 industries that compose more than 90 percent of U.S. labor compensation in 33 states. That makes up more than 90 percent of U.S. GDP from 1990 to 2015. It collects detailed information on five different types of incentives: job creation tax credits, property tax abatements, investment tax credits, research and development tax credits, and customized job training credits. He compares their impact on three different types of taxes—property taxes, sales taxes, and income taxes. The study includes data from 47 cities within those states; Bartik plans to analyze that data more specifically in a forthcoming report.