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Frankfort’s favorites

(from the Bluegrass Institute)

The U.S. Supreme Court ruled recently that Ohio’s government-sponsored tax incentive program is constitutional. Still, it doesn’t mean that such an approach to economic development is good for states or their taxpayers.

It simply means that economic bureaucrats and their supporting cast of politicians can still play favorites with taxpayers’ dollars by deeming certain companies eligible for government-funded handouts.

In Kentucky, the consequence of such unsound economic policy was exposed in a series of newspaper articles last year analyzing the work of the state’s Cabinet for Economic Development. The Lexington Herald-Leader reported that while Kentucky handed out than $1.8 billion in economic incentives during the past 25 years, the state remains at the bottom of the barrel in national rankings of poverty, pay and economic vitality.

An example of the ineffectiveness of such an approach occurred when Kentucky eliminated Lexmark International’s income tax bill in 2001, 2002 and 2003 even though most of the company’s jobs had relocated to foreign countries.

TexStyle, Inc. received a $750,000 grant in order to increase its workforce from 100 to 180 employees. After the company managed to add only 41 new workers in four years, the state asked the business to pay back more than $121,000 of the grant. The company then filed for bankruptcy.

Picking economic winners and losers usually benefits operations that do not stay in Kentucky while harming taxpayers who end up subsidizing these short-term operations. It’s time for all states, including ours, to terminate the wasteful practice of planting poisonous money trees in the front yard of corporations who may – or may not – remain.

Sources:

“Michigan Should End Its Tax Favoritism” by Michael LaFaive and Thomas Washburne, Mackinac Center for Public Policy, May 25, 2006.

“We Give, They Take” by John Stamper and Bill Estep. Lexington Herald-Leader, Nov 6, 2005.

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