Property Tax Incentives for Business–Another Folly

A Worthy Report on Property Tax Incentives for Business

The Lincoln Institute of Land Policy has issued an exceptionally valuable report on state and local misuse of property tax incentives for economic development. Its authors are Daphne A. Kenyon, Adam H. Langley, and Bethany P. Paquin. Ms Kenyon is well known as the principal author of the New Hampshire Business Enterprise Tax, an income VAT, enacted during the Hugh Gregg administration while she was Budget Secretary in that state. She and Mr. Langley are co-authors of a companion monograph on Payments in Lieu of Taxes: Balancing Municipal and Nonprofit Interests.

The study of property tax incentives for business amounts to a devastating critique of the practices of the City of Baltimore, where scarcely a new commercial building has been erected in the last 25 years without a tax abatement of some sort. The study declares the following conclusions:

“Several characteristics mark successful policies for promoting local business growth. First, these strategiees are focused on increasing local productivity, not merely reducing business costs. Policies that boost productivity are usually more effective than tax incentives or cash subsidies, because profits can increase directly through financial incentives that lower business ciosts and indirectly with higher productivity. . . Second, these policies should build on local competitive advantages, such as existing industrial specialties, advantageous geographic locations or local universities. . . Third, policies should focus on export-based firms that sell a large share of their goods and services outside the region. Finally, policies focused or small or medium sized firms may be more successful.. .

Most Effective Options

Customized job training. Businesses are treated as clients under these programs, with training designed to meet the specifications of each firm. Research suggests that thse programs are ten to 25 times more cost-effective in creating jobs than tax incentives. The most cost-effective programs cover the costs of training, but not salaries, and require firms to share training costs to ensure that they are useful from their perspective. North Carolina’s customized training programs offer an excellent example.

Labor market intermediaries. These programs focus on matching unemployed workers with firms lookibng to hire. “First source” programs consult with businesses on their labor needs and screen them for local employers, so a larger percentage of new hires are productive. . .

Regulatory assistance. Government staff is in a good position to assist firms with complex eregulations and taxes, provide information on useful programs, and resolve issues with state and federal agencies.”



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