Columns » Max Brantley

Lawmakers still lavishing welfare checks on the undeserving

In spite of the tight budget, lawmakers pushing for tax breaks for corporations.



Arkansas lawmakers are still intent on lavishing welfare checks on the undeserving. No, not poor folks.

Even though the budget is tight, many lawmakers are pushing for new tax breaks, particularly to benefit corporations. And the desire to lavish welfare on corporate executives doesn't end with tax breaks. There's a movement afoot to amend the Constitution to allow diversion of sales tax revenue to private businesses, even retail stores. Jefferson County just last week approved a sales tax for a local corporate welfare slush fund.

The magic words used to justify the giveaways are "economic development." Cut taxes enough, give away enough tax money and prosperity will pour down on bedraggled Jefferson County and the rest of Arkansas.

The belief in this theory, particularly among politicians supported by fat cats who want the taxpayers' dough, is strong. It just happens to be wrong.

Study after study has debunked corporate welfare as a driver of economic prosperity. But corporations like handouts and thousands of people are employed in the business of funneling such loot to the unneedy.

Just in time for legislative deliberation is a study from the Iowa Fiscal Partnership. It's written by Peter Fisher, an emeritus professor of urban and regional planning at the University of Iowa and research director of the Iowa Policy Project. His Ph.D. in economics specialized in public finance.

The report is available on-line and goes into much more detail than I can repeat, but I'll boil it down.

• State corporate taxes are such a small part of the cost of doing business that differences are usually trivial from state to state.

• States with low taxes don't have more rapid growth, where other factors are equal.

• Since tax breaks are costly, they must be offset by increases in other taxes or cuts in state services. The latter option can increase business costs and negatively affect growth.

• Even worse are local incentives (think the growing fad of assessing local sales taxes for corporate welfare slush funds). These might affect a business decision within a metro area, but produce no benefit for the state as a whole or even the local labor market. "State governments should not facilitate such beggar-thy-neighbor competition," Fisher writes.

• Tax breaks are costly and if they are simply a windfall for an already growing company, they will have no effect on growth. "In fact, the loss of public sector employment and purchasing power brought about by the tax breaks will have a detrimental effect on sectors dependent on local consumer purchases."

In a nutshell, Fisher says claims about a tie between state tax rates and growth "are vastly overblown and sometimes completely misleading. Business tax breaks turn out to be an expensive and inefficient way to attempt to stimulate a state economy."

Don't tell it to Arkansas legislators, who think that elimination of the capital gains tax would transform the Natural State into another Silicon Valley. They forget that capital follows yields and there's still not a great promise of high yield in a poorly educated state with spotty infrastructure and an inability, if not reluctance, to invest in quality of life.

But don't all states play the corporate welfare game? Indeed. Let them, Fisher writes. He counsels, "... pursue instead a smarter and more cost-effective approach to economic development that focuses on long-run fundamentals: quality education, job training and infrastructure."

If only.

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