Tax incentives, and any economic development tool, are one of the messy things folks don't like to talk about much. Politicos love to talk about the results (jobs, jobs, jobs) from the various economic development tools but none of 'em want to really get into the nitty-gritty details on what these toolsets are (tax breaks, cash grants, infrastructure) or how they work — for fear of a perception of pandering to big business at the expense of the peons. The truth is that Economic Development (or E.D. for short) toolsets are a necessary part of life — and it looks like the Supreme Court agrees. Since one of us used to work for an economic development entity, he's decided to go on a bit of a rant. Hear the rest after the jump.
The Supremes, like their Motown counterparts, showed much love to Detwa automakers today. They unanimously struck down individuals' ability to challenge Ohio's elected officials in a decision granting over $300 million in tax breaks to DaimlerChrysler in a case called DaimlerChrysler v. Cuno. The incentives were provided in return for Daimler building a pretty new Jeep plant in Toledo. Many may argue that these type of targeted ED incentives are nothing more than government picking "winners and losers" and are a form of "corporate welfare," but in reality those people are just wrong.
Let's take a look at one of the best, and most widely used ED incentives around — the performance-based tax break; the exact same tax break used in this case. The incentive in Ohio, called the Manufacturing & Equipment Investment Tax Credit, is based on the Michigan Economic Growth Authority (MEGA) tax incentive created twelve years ago — and it allows a tax break to be granted to a company retaining or adding a certain number of jobs over a period of ten years. Over that period, a company may receive a specific amount of money refunded from their business taxes paid — if and only if they are able to prove they've kept or created the jobs promised. The company receiving the credit must prove it every year for the totality of the years the incentive is offered. It's pretty simple actually — you bring the jobs, you get the credit. It's a huge boon to any community — mostly because business taxes represent only one type of tax paid to government — and a credit provided there doesn't stop the huge indirect gain provided by these jobs. Good deal for all, right? Seems pretty simple.
Well there is one group who doesn't agree. The people who seem to have a problem with this are the "free trade" types — the people who believe, and rightly so, that a level playing field is the best playing field for the economic game — and in the economic game, no one should be getting a free ride or "welfare" in order to play. In theory, these folks are correct — but only in theory. The reality of the situation is that in many cases manufacturing jobs are a zero-sum game — and a zero-sum game played not only between states here within our nation's borders, who would have seen serious job losses had the Supreme Court ruled differently, but with countries as close as Canada and as far as China. In this global economy, where losers are made into winners by governmental dollars and bonding authority, tying the hands of our manufacturers does nothing to either make the playing field more level or make our nation better off.
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