Property Tax Gifts To Business Don’t Work

Rethinking_Property_Tax_Incentives_For_Business-coverThe sober analysts at the Lincoln Institute of Land Policy issued a report in 2012 entitled “Rethinking Property Tax Incentives for Business.” They don’t waste any time cutting to the chase.

“The use of property tax incentives for business by local governments throughout the United States has escalated over the last 50 years. While there is little evidence that these tax incentives are an effective instrument to promote economic development, they cost state and local governments $5 to $10 billion each year in forgone revenue.

Three major obstacles can impede the success of property tax incentives as an economic development tool. First, incentives are unlikely to have a significant impact on a firm’s profitability since property taxes are a small part of the total costs for most businesses—averaging much less than 1 percent of total costs for the U.S. manufacturing sector. Second, tax breaks are sometimes given to businesses that would have chosen the same location even without the incentives. When this happens, property tax incentives merely deplete the tax base without promoting economic development. Third, widespread use of incentives within a metropolitan area reduces their effectiveness, because when firms can obtain similar tax breaks in most jurisdictions, incentives are less likely to affect business location decisions.”

Here are two diagrams that pretty much tells the story.

Increasing_use_property_tax_incentives
Notice the almost universal adoption of the tax give-aways across the USA over the past 50 years.

Now look at the trend in manufacturing employment over the same time period.

 

 

 

 

U.S._maufacturing-1950-2010

Whoa. What happened to all the jobs that these public subsidies were supposed to create? A recent series of reports in The New York Times raised the same question.

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