26 ms·

Evaluating State and Local Business Tax Incentives [pdf]

419 points by plickdixon 7y ago

zdragnar 7y ago
> While we find some evidence of direct employment gains from attracting a firm, we do not find strong evidence that firm-specific tax incentives increase broader economic growth at the state and local level. Although these incentives are often intended to attract and retain high-spillover firms, the evidence on spillovers and productivity effects of incentives appears mixed. So, would this mean that the study is analogous to a null result being spun to mean a negative result in the title? "We do not find strong evidence" is not the same as "no evidence". I wonder if this is what would happen should more failure to reproduce papers were published to fix the reproducibility crisis- instead of encouraging more critical analysis, the abstracts will just get summed up into clickbait titles that continue to mislead.
- deleted 7y ago
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- Retric 7y ago
  Not quite, a positive result would need to be obvious to justify spending. Give away a free factory and the most useful thing to use it for does not change thus the company employees the same number of workers. It’s a function of cheap capital making infrastructure subsidies really expensive and largely worthless. There is probably some occasional benefit here and there, but that occurs with any kind of spending. But that’s offset by the usual inefficiency associated with command driven economies. PS: I was personally hopping for the opposite result as these subsides can spread out jobs across the US.
  - zdragnar 7y ago
    Since the study compares subsidies by local and state governments, changing the location will benefit one community over another. The spillover effects of hiring 1500 people in a former mining town t will be very different from hiring 1500 in an outer suburb of NYC, for example, and I suspect this I where the mixed results data come from.
    - Retric 7y ago
      I think the issue is major cities like NYC also play the game, and they have far more money to spend. Amazon’s HQ2 ends up in the same place they would have without this fight, but the government hands out a huge subsidy.
      - AmericanChopper 7y ago
        But that’s just the nature of competition. Jurisdictions are in competition to attract investment as much as companies are.
      - zdragnar 7y ago
        HQ2 ended up in virginia- they added 1500 employees to an existing office in NYC but backed out of the 25,000 they had planned for a different office. They claim that the decision was logistics rather than politics, but I don't know anyone who believes that the decision had anything to do with anything other than the loss of subsidies and bad publicity drummed up by local politicians.
- martincmartin 7y ago
  "Absence of evidence is not evidence of absence." https://en.wikipedia.org/wiki/Evidence_of_absence https://en.wikipedia.org/wiki/Evidence_of_absence
  - hexane360 7y ago
    But the headline doesn't claim "evidence of absence". It merely claims "no evidence".
  - sicromoft 7y ago
    Yes, but saying "there is no evidence of X" is not claiming evidence of absence. That would be "There is evidence of not X", which the paper does not claim.
- thenewnewguy 7y ago
  The title seems to be intentionally misleading, the words "no evidence" are presented as if they are a quote from the paper, while in reality the phrase "no evidence" appears zero times in it. Ignore the headline, read the abstract and if you have time the paper. It's much more interesting and accurately/fairly describes the data collected.
- skrebbel 7y ago
  I do not understand. If you can't say "no evidence" when you can't find any strong evidence, then when can you? What should the article have concluded to make it OK for them to say "no evidence"? Is it about the word "strong"? Because the way I understand it, the definition of "strong" in statistical analyses is "couldn't reasonably be coincidental". So then "no strong evidence" means the same as "all evidence we did find was so weak that it might've as well been a coincidence". I'm not a scientist, but it seems to me that "no evidence" conveys the right message. I mean, the way I see it, let's I see two bees today and three bees tomorrow. This is weak evidence that the bee population is increasing. But "Weak evidence found that bee population is increasing" wouldn't be the more honest headline. It's no evidence at all, I saw some bees and that's it. The way I see it, it's great that scientist report null findings and failures to reproduce as "no evidence found". The general public is not going to interpret "no strong evidence" the way scientists mean it.
  - zdragnar 7y ago
    From the second half of the quote: > the evidence on spillovers and productivity effects of incentives appears mixed. Without digging through their methodology, it seems that an interpretation of "no evidence" is unwarranted as there is a likelyhood of confounding factors that were not taken into account. "No evidence" is a positive assertion and a misreading of what the paper indicates. This is not a critique of reporting a null result, but what appears to be a misinterpretation to make a catchier headline which is equally as bad as what we have now- uncritical acceptance of whatever gets published.
- noelsusman 7y ago
  >"We do not find strong evidence" is not the same as "no evidence" Yes it is? It's not literally the same, but it conveys the same meaning.
  - useragent86 7y ago
    No, it doesn't. "No strong evidence" would convey the same meaning. In the same way, "Yes it is" doesn't convey the same meaning as "Yes it is?", because just like the presence or lack of the word "strong" matters, the question mark matters. If everyone is Humpty Dumpty, useful and accurate communication is not possible.
- hogFeast 7y ago
  This isn't a study. The only study that the paper attempted was a narrative of Volkswagen...and, tbh, I didn't really understand that (they just looked at how many workers worked in the place that got the factory, versus second place...just no logic)...with a brief quantitative study (it is there, it isn't detailed enough). Either way, this is basically a meta-analysis. Tbh, I only skimmed the paper because it just seemed very poorly put together. I would check out the papers they reference for more detail.
minikites 7y ago
"Trickle down" economics is a scam and doesn't work: https://www.nber.org/papers/w21035 https://www.nber.org/papers/w21035 https://www.theguardian.com/business/2012/jul/21/offshore-wealth-global-economy-tax-havens https://www.theguardian.com/business/2012/jul/21/offshore-we...
- themagician 7y ago
  I don’t understand why people say this. Trickle down economics couldn’t be more honest All the money collects at the top and a few pennies “trickle” down to those below. It’s not called “waterfall economics” after all. Why anyone would want this I don’t know. But it’s definitely not a “scam.”
- Bostonian 7y ago
  Do you think companies don't consider taxes when locating new factories and offices? I don't support tax incentives for individual companies, but I do support keeping state corporate and personal income taxes low to attract businesses.
  - jimbob45 7y ago
    You're not wrong but it becomes a race to the bottom.
  - 0xff00ffee 7y ago
    I think you meant "companies" and not "states". Problem is it becomes a bidding war that causes states to forego tax revenue with ZERO recourse if that company decides to pack up and move somewhere else. This is especially true of companies that are not bound by development costs (e.g., Amazon warehouse vs. a semiconductor fab). Several New England state economies are fucked because they gave away tons of money in tax breaks hoping increased sales tax and income tax (on workers for those companies!!!) would offset the tax giveaway. E.g., CT is fucked for this very reason. Eventually the state has no recourse if the company changes its mind. Go look at what's happening with Foxconn's multibillion dollar scam in Wisconsin. Or Hillsboro oregon where intel gets 30 years without paying taxes. (Granted, Intel can't pack up and move easily because they invested 10's of billions in a big ugly fab that pollutes [see the "waivers" they "negotiated" to allow them to continue dumping fluorine emissions to avoid costly fab retrofits]). One solution is to allow states to sue if a company breaches contracts. But many states are just piss poor and cannot afford to take on a trillion dollar company (Amazon, Facebook), or a company from another country (Foxconn). Another solution is to actually tax corporations federally, since the government already redistributes blue-state wealth to red-state welfare. Warren has a great idea: tax companies on their SEC revenue CLAIMS rather than their IRS filings, which tend to differ by billions.
deleted 7y ago
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sbhn 7y ago
Tax incentives stifle competition. Just reduce taxes across the board.
aqme28 7y ago
I highly recommend this talk on corporate tax breaks and poverty in Louisiana: https://www.youtube.com/watch?v=RWTic9btP38 https://www.youtube.com/watch?v=RWTic9btP38
Bostonian 7y ago
You are supposed to post with the actual title, "Evaluating State and Local Business Tax Incentives", unless it is too long.
andrewtbham 7y ago
This is propaganda, probably promoted by marxist paid trolls, and doesn't gratify my intellectual curiosity. Let's talk about disruptive technologices such as blockchain, the pirate party, direct democracy. not incremental adjustments to government.
- deleted 7y ago
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- slumdev 7y ago
  Is this comment performance art?
- Afton 7y ago
  > marxist paid trolls That phrase is the funniest I have heard in a long time.
  - merpnderp 7y ago
    You laugh, but the US overthrew Iran by paying a few people to pretend to be Marxists and prematurely start their revolution.
nodesocket 7y ago
What about stock market gains for 2019? S&P was up 30% last year which was fantastic. Before y'all reply that the stock market only benefits the wealthy, that's patently false. Weather it's your parents retirement account, pensions, your company stock options, your own trading account, nearly everybody has money in the market and beneifts from gains.
- TylerE 7y ago
  That only works so long as it doesn't collapse like a house of cards due to being overvalued beyond all justifiable reason. Asserting that the US economy as a whole is worth 50% more than it was 3 years ago is delusional.
  - merpnderp 7y ago
    Before calling millions of highly educated people who work in the stock market delusional, might it be worth considering what exactly a 50% increase in the stock market represents, which is a 50% increase in perceived future value of the market? As an example, 3 years ago Starlink was little more than an FCC filing. Now it is poised to create a brand new market conceivably worth as much as Apple.
    - mrfredward 7y ago
      A recession that costs 2% of GDP can drop the stock market 40%. That doesn't make mathematical sense, but it's been happening all through the history of equity markets because there isn't a strong mechanism to fight an irrational change in sentiment. If you think Intel is overvalued compared to AMD, you can short Intel, buy AMD, and make a bundle of money if you are right, so there is a mechanism to keep relative prices in line. If you think the 2020 market is overvalued compared to the 2012 stock market though, you can't move money back in time. Valuation doesn't tell you if/when a crash is gonna happen, it just gives a vague sense that returns will be lower over the next 10-20 years. A small positive return beats nothing, so a rational actor that knows the market is overvalued will stay invested. Hence, there isn't really any reason to believe market valuations are so rational. I tend to think the market is overvalued right now, but I'm buying stocks anyway, because I'm saving money and don't want to stuff it under my mattress.
howmayiannoyyou 7y ago
Tax incentives in the US happen (a) where an entrenched industry negotiates it using its existing jobs as leverage; and (b) where a depressed region hopes to attract new investment. In the latter case offsetting problems conspire to prevent economic growth. That tends to be labor pool mismatch, poor regulatory environment as compared to other states, and overseas competition that offers supply chain and labor advantages. In other words, tax incentives aren't enough, period.
- merpnderp 7y ago
  Labor advantages are the biggest deal. The US spends a mind boggling amount of money on education and still gets out-competed by struggling poor countries. My company just hired two H1B's to do Sharepoint work because there was literally no one in my part of the state qualified who didn't already have a job doing something more fun, and no one else wanted to move to the middle of nowhere. And we already pay 10% above market for the state to attract people to our little backwater locale.
  - learc83 7y ago
    10% above the rest of the state to move to the middle of nowhere obviously wasn't enough. When a company says they can't find anyone to hire, what they really mean most of the time is "we can't find anyone to hire for the mostly arbitrary price we want to hire them at." My guess is the company is making far more off of those employees than the labor cost, so if you didn't have access to H-1B employees you would have kept increasing the salary 20%, 30%, 50% until you found someone.
    - hobs 7y ago
      Yeah, and sharepoint administration totally needs butts in the seats to implement.
    - xnyan 7y ago
      I can't tell you how many times I've heard an org say that did a market analysis and the offered wage is "competitive" so clearly it's a labor supply issue and not possible that they are not offering enough compensation. Competitive does not mean "we're offering a little more than the minimum salary we saw on glassdoor," but often that's exactly how they determined it.
p0nce 7y ago
So why increase spending ? Tax it.
save_ferris 7y ago
This sort of reminds me of a conversation I had with a guy with a stake in a restaurant close to a major sports arena development where I grew up. It totally changed the way I looked at economic impact reports on commercial developments, particularly sports arenas. The city put up millions in taxpayer funds to get the arena built for the local high-profile college basketball team, and numerous reports were published around the positive economic impact of the stadium, citing increased spending around downtown, etc. However, the report failed to account for "micro" details that can have a major impact on local business, like traffic congestion, entertainment capacity, etc. On game days, his restaurant is overcrowded and turning away patrons, which negatively impacts his staff and quality of experience. But there are only 15 or so games per year, and the off-season attractions are hit-or-miss in terms of attendance. And when nothing is going on, business is even more varied. It's relatively easy to calculate how many people come to town for a big event and how much they spend, extrapolating that out to some great figure, but a restaurant can't reasonably rely on ~15 big days per year. Quite often, economic impact reports are commissioned by folks who have business or political interests at stake, thereby overlooking the potential bottlenecks that such developments expose. And because most of the public doesn't understand finance or real estate, and yet they love the basketball team, a more nuanced conversation around the topic is harder to find.
- ouid 7y ago
  If you don't follow the sports schedule, then you will inevitably find yourself near some stadium at a time when sports are about to happen, or have just happened. This is a mistake that you will only make once. It sometimes takes upwards of 2 hours to drive 5 miles. Since I don't want to have to follow sports to know if it's safe to drive that route, I just never drive that route. There are good things near there, but I will never plan to do them because I don't want to have to check the arena activity to determine how good my experience will be.
  - NikolaNovak 7y ago
    Good point, made me realize a bit of my own experience - since I moved out of downtown Toronto, the entire area has been a mental black hole to me precisely because on game nights, it can take 2-4 hours to extract yourself out of 3-4km of space, so I just don't risk it (especially since it's the kind of 2 hours that feels like 7...)
kryogen1c 7y ago
>In 2014, states spent between $5 and $216 per capita... Collectively, these incentives amounted to nearly 40% of state corporate tax revenues for the typical state, but some states' incentive spending exceeded their corporate tax revenues studies that need a painfully clear understanding of statistics that start off making muddy, unclear statements like this are really hard to take seriously. What is a typical state? are you comparing california and vermont? is typical a median or mean? the tax incentive data involving faang and walmart is going to be preposterously different than single-location small businesses. This abstract strongly incentivizes me to not read the article.
- dsr_ 7y ago
  The odds of a random HN reader eventually writing an economic paper are fairly low, while the odds of the original authors writing another paper are high. Perhaps you should tell them what you think.
- hogFeast 7y ago
  Don't bother. It is basically a meta-analysis. There was nothing interesting in it (just generally, this seems like a very hard area...econometrics does very well in these areas but I doubt it would ever make sense to conclude: no incentive can be good). Love the snarky reply you got...funny that those kind of comments are usually from people who haven't read the paper.
- draw_down 7y ago
  Ok, what are those incentives exactly? Just say you don’t want to read it.
0xff00ffee 7y ago
My portfolio manager told me in Dec 2018 that our 2019 strategy would depend on if companies invested their tax returns for growth or handed them out to shareholders and execs. He followed the latter path. TL;DR: My portfolio manager adjusted my strategy because tax plan was a giveaway for the rich EDIT: So many downvotes. Truth is truth, man. Truth is truth.
- deleted 7y ago
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andrei_says_ 7y ago
Maybe we can look for a relationship between tax incentives and campaign donations?
LaserToy 7y ago
Just finished reading Dictator Handbook. So, the catch is - it doesn’t matter for the politicians. They want to give those tax incentives to get re-elected. Whether it is proven or not is irrelevant as they will find another reason to do it.
- papito 7y ago
  It's almost like big money in politics is a bad thing. Citizens United will finish this country as we know it, and soon. "Money equals free speech" is just such a cynical and intellectually dishonest argument. "If you want MORE free speech, maybe you should be more rich".
  - useragent86 7y ago
    It seems unfair that those who have more money may have more influence--and in a sense, it is. But as it is, you have the freedom to speak, to collaborate with others to speak, and to gather more resources to speak more effectively--and the government may not restrict you from doing so. And what is the alternative? Allow the government to decide how much speech you may have? How much speech is worth? Catalog and index everyone's speech to ensure they aren't exceeding their quota? Disallow citizens from freely collaborating and associating for the purpose of speech? That's not freedom. We know where censorship leads. One can recognize the drawbacks of big PACs and corporate political spending, while at the same time recognizing that those are natural consequences of liberty. As they say, freedom of speech is the worst--except for the alternatives.
    - papito 7y ago
      That's not what I am saying. I can walk out and shout on the street, or buy an ad during Superbowl. Which one do you think has more power? And now, it's pretty easy for a foreign power to funnel dark money too, running ads on TV, while the rest of us losers are outside, shouting.
      - useragent86 7y ago
rolltiide 7y ago
Someone actually did a report on this? Its obvious what needs to be said to gain consensus vs actual benefits. The actual benefit was reducing the tax burden on various entities, because thats what they wanted to happen. Gaining consensus on that means saying whatever is necessary. Who is this report for? The governments revenues or budget constraints aren’t really affected by anything as long as it is willing to spend it all on military and obligations. Lower taxes just for fun!
greenie_beans 7y ago
Mississippian here, where this sort of policy is just another day. Here's more evidence that supports this paper: https://mississippitoday.org/2017/05/02/how-much-have-tax-cuts-cost-mississippi-577m-since-2012/ https://mississippitoday.org/2017/05/02/how-much-have-tax-cu...
gojomo 7y ago
Current submission headline: "“no evidence” that tax incentives given to companies increased economic growth" Such incentives usually aren't directly premised on "increased growth", but rather "local jobs" – and the linked study's abstract reports "we find that average employment within the 3-digit industry of the deal increases by roughly 1,500 jobs". The abstract also reports "mixed" results "on spillovers and productivity effects of incentives", and "unclear" effects on "equity". Now, I'm not a fan of such locality-vs-locality targeted-incentive competition – which is likely zero-sum or negative-sum across all localities. And without broader growth, the costs may be too expensive for the narrow employment gains. But the current editorialized, excerpted headline makes it sound like the thrust of this study was to find no benefits at all for such deals, and that's not the mixed story it's actually reporting.
- Barrin92 7y ago
  >Now, I'm not a fan of such locality-vs-locality targeted-incentive competition, and without broader growth, the costs may be too expensive for the narrow employment gains. I can't even see how you can theoretically expect growth from this because by definition in a common market like the US tax incentives of localities are zero sum. It doesn't really matter if jobs or growth are created in X or Y because the US has a federal government to even out imbalances anyway. So to allow this regulatory race to the bottom within a country or a market makes no sense to me at all. Only if the firm would move abroad would there be a net loss.
  - gojomo 7y ago
    Only if the firm would move abroad would there be a net loss. Indeed, and even then: there's no net-loss for the world, just the arbitrary jurisdiction-of-reference. (And if it's not-OK to play net-destructive, negative-sum games against other localities within the same country, is it OK to play negative-sum games against other friendly countries?) While I agree in the main, it's possible to contrive just-so scenarios where an incentive to shift economic to another locality might be net-beneficial. A struggling area might benefit more, from the same number of jobs or amount of economic activity, than a wealthier area. The wise creation of a synergistic cluster of related projects might create more follow-on benefits than a more dispersed set of activities. But, local authorities in a bidding-war against other localities are unlikely to identify just those scenarios, and pay the efficient amount – as opposed to just trotting out these stories as self-serving rationales for self-aggrandizing favor-trading.
billions 7y ago
Tell that to the contractors affected by AB-5
lasermike026 7y ago
When did ever use evidence to make economic, political, or social decisions?
dr-detroit 7y ago
While that may seem bad it has been proven that citizens only use tax breaks to pay down debt which is VERY VERY bad for the financial sector to keep alive so corporate welfare it is...
cs702 7y ago
The same appears to be true for individual income taxes too. I've looked at the income taxes versus growth in the US... and I've been unable to find any obvious relationship. As one of many possible examples, below is a table showing the highest marginal federal income tax rate and year-over-year real GDP growth in the US since 1950. My conclusion, so far: There's a tremendous amount of theory, and rhetoric, and posturing, and straw-man arguments... but very little or ZERO actual evidence that national economic growth is impacted one way or another. If anything, the data seems to show higher economic growth during periods of higher taxation! Highest US Real Year Tax Rate GDP Chg 1950: 84.4% 8.7% 1951: 91.0% 8.0% 1952: 92.0% 4.1% 1953: 92.0% 4.7% 1954: 91.0% -0.6% 1955: 91.0% 7.1% 1956: 91.0% 2.1% 1957: 91.0% 2.1% 1958: 91.0% -0.7% 1959: 91.0% 6.9% 1960: 91.0% 2.6% 1961: 91.0% 2.6% 1962: 91.0% 6.1% 1963: 91.0% 4.4% 1964: 77.0% 5.8% 1965: 70.0% 6.5% 1966: 70.0% 6.6% 1967: 70.0% 2.7% 1968: 75.3% 4.9% 1969: 77.0% 3.1% 1970: 71.8% 0.2% 1971: 70.0% 3.3% 1972: 70.0% 5.3% 1973: 70.0% 5.6% 1974: 70.0% -0.5% 1975: 70.0% -0.2% 1976: 70.0% 5.4% 1977: 70.0% 4.6% 1978: 70.0% 5.5% 1979: 70.0% 3.2% 1980: 70.0% -0.3% 1981: 69.1% 2.5% 1982: 50.0% -1.8% 1983: 50.0% 4.6% 1984: 50.0% 7.2% 1985: 50.0% 4.2% 1986: 50.0% 3.5% 1987: 38.5% 3.5% 1988: 28.0% 4.2% 1989: 28.0% 3.7% 1990: 28.0% 1.9% 1991: 31.0% -0.1% 1992: 31.0% 3.5% 1993: 39.6% 2.8% 1994: 39.6% 4.0% 1995: 39.6% 2.7% 1996: 39.6% 3.8% 1997: 39.6% 4.4% 1998: 39.6% 4.5% 1999: 39.6% 4.8% 2000: 39.6% 4.1% 2001: 39.1% 1.0% 2002: 38.6% 1.7% 2003: 35.0% 2.9% 2004: 35.0% 3.8% 2005: 35.0% 3.5% 2006: 35.0% 2.9% 2007: 35.0% 1.9% 2008: 35.0% -0.1% 2009: 35.0% -2.5% 2010: 35.0% 2.6% 2011: 35.0% 1.6% 2012: 35.0% 2.2% 2013: 39.6% 1.8% 2014: 39.6% 2.5% 2015: 39.6% 2.9% 2016: 39.6% 1.6% 2017: 39.6% 2.4% 2018: 37.0% 2.9% Sources: Year-over-year real GDP growth: https://fred.stlouisfed.org/graph/?g=pssP https://fred.stlouisfed.org/graph/?g=pssP Tax rates: https://www.taxpolicycenter.org/statistics/historical-highest-marginal-income-tax-rates https://www.taxpolicycenter.org/statistics/historical-highes...
beat 7y ago
Since when are political decisions evidence-based? Serious question. Tax incentives aren't there because they work, but rather because lots of people believe they work. Politics works on beliefs, not facts.
- wffurr 7y ago
  How can you even begin to counter a mistaken belief without evidence that the belief is indeed mistaken?
  - beat 7y ago
    You substitute one belief system for another. No evidence needed. It's not hard to find people who have done just that.
naiveprogrammer 7y ago
State and local business tax incentives
mikelyons 7y ago
If I owned a business, and suddenly paid way less in tax, I would want to just pocket that money as profit and increase my personal wealth, why would any other business do anything different? We're self-biased at the end of the day, it's survival.
- spectrum1234 7y ago
  Because of competition. Your competitor who lowered prices by 1% would eventually drive you out of business. There is a lagging effect, but these taxes are just a reduction in cost which eventually get passed to consumers. Assuming the market is competitive of course.
  - chungus_khan 7y ago
    Unless there are pressures to do otherwise, your competitor is likely to do the same as you. If customers accept the current price and there is no external pressure to lower it, lowering it is likely not a good idea, and unless the market is unusually competitive, sales are unlikely to increase without a substantial drop.
  - mikelyons 7y ago
    I think that you're not acknowledging businesses that don't compete solely on price, like house-cleaning, cigarettes, alcohol, massage, SEO, etc. Many many businesses would want to keep the extra money that tax breaks afford them. I don't understand how pointing this out is not adding to the conversation.
sequoia 7y ago
TFA does not say "No evidence"
- thebigshane 7y ago
  I see that the abstract doesn't say "no evidence". Did anyone download the full paper to see if "no evidence" was quoted there?
bediger4000 7y ago
Interesting conclusion from the "National Bureau of Economic Research", which is not a government agency as its name suggests, but rather a private think-tank like thing. Krugman calls it "the old-boy network of economics made flesh". That is, it's conservative in the sense of favoring the status quo, it's old and stodgy, etc etc.
- newguy1234 7y ago
  This happens on both sides. Most of these "think tanks" just craft up bogus research to push some agenda. It happens on both sides of the debate.
throwawaysea 7y ago
This is probably highly variant depending on the jurisdiction, the company, the specific terms of a deal, and so on. The Wisconsin Foxconn deal was terribly structured, and it left taxpayers holding the bag with little protection. However, the NY Amazon deal was a good one, with the city's own projections showing a 27:1 ROI. That deal was comprised mostly of existing programs like Excelsior, ICAP, and REAP. These programs only provide a subsidy for prior results, rather than up-front lumpsums. IIRC only $500M of the total subsidy package for Amazon was in the form of a grant, and it was itself tied to investments Amazon would be obligated to make contractually. The aforementioned NY/NYC programs have been used for numerous companies, and presumably the city and state agencies operating these programs view them as successful, since they continue to offer them.
jellicle 7y ago
As a reminder: every business, everywhere, already gets a 100% tax exemption on every cent spent on hiring employees, buying new equipment, etc. ANY money invested into ANY business equipment, hiring more staff, or whatever you might do to expand the business is completely tax-free and always has been. Tax incentives or corporate tax breaks apply only to money retained by the owners as profits. Therefore, any tax incentives you give are encouraging the owners to keep more of the business's money as profits and to invest less in the growth of the business.
- newguy1234 7y ago
  Right but the problem with business is that it is risky. If there are no profits, why risk your capital in the first place? Might as well just buy gold bars or art.
cestith 7y ago
Profit can be gamed and there are all sorts of little write-offs here, exceptions there, and loopholes besides. What we need is a lower rate against more receipts, and incentives only on things actually likely to spur growth. Imagine if every publicly traded company paid %2 on revenue minus payroll, employee training and healthcare, and maybe depreciation. The only way to pay less tax is to pay your workers and vendors more, but you don't need to shift things to this expense or that expense to dodge a profit tax.
enad 7y ago
You can read the full paper here: https://scholar.princeton.edu/sites/default/files/zidar/files/slattery-zidar-taxincentives-2020.pdf https://scholar.princeton.edu/sites/default/files/zidar/file... Additionally, here are the slides: https://scholar.princeton.edu/sites/default/files/zidar/files/slides_jep_20200103.pdf https://scholar.princeton.edu/sites/default/files/zidar/file... And the non-technical summary: https://scholar.princeton.edu/sites/default/files/zidar/files/bizincentivessummary_20-01-03.pdf https://scholar.princeton.edu/sites/default/files/zidar/file...
mbesto 7y ago
"There is not conclusive evidence, however, to substantiate a clear relationship between the 65-year steady reduction in the top tax rates and economic growth." However: "However, the top tax rate reductions appear to be associated with the increasing concentration of income at the top of the income distribution." https://graphics8.nytimes.com/news/business/0915taxesandeconomy.pdf https://graphics8.nytimes.com/news/business/0915taxesandecon...
freen 7y ago
Imagine you run a company that makes a million dollars a year in profit and that there is a flat 10% tax on that profit. Run the thought experiment of what you'd do if that taxes doubled or halved. I don't know about you, but in the case of taxes doubling I'd reduce my profit margin by investing in the business to increase top-line revenue and profit in the future rather than pay more taxes now. If taxes halved, well, then I just take home more money now! Simple. Granted, this is a massive over-simplification, but the basic principle holds: taxes on profit literally force businesses to decide between reinvestment and cashing out.
- scottjg 7y ago
  i think this oversimplification may obfuscate the issue in a way that's a little misleading. in reality, the two choices are not only taking a tax hit or reinvesting in the business. there are a pretty wide array of tax avoidance schemes that are utilized in the united states. if my corporate tax rate is low, but personal tax rate is high, as in your example. i may choose to invest in a SEP, or a deferred compensation plan, kicking the taxes down the road. potentially, because of the estate tax laws, my heirs may inherit these investments with no tax penalty due to step up basis rules. if you were making a million dollars a year in profit, you probably wouldn't need ordinary income anyway. there are so many different types of credit vehicles you could leverage at a lower interest rate than the tax rate. though i suppose, arguably this is a type of economic growth. it grows profit in the financial services industry.
  - freen 7y ago
    My example is intentionally simplified, and doesn't consider either a high or low personal tax rate. It also doesn't consider tax avoidance because, frankly, legislation that enables tax avoidance is equivalent to lowering effective taxes. Statutory vs Effective tax rates are what actually count in terms of the long term choices companies make and the outcomes for the rest of us. In my example, imagine that there are absolutely no tax dodges whatsoever. The statutory rate is the effective rate. If it were impossible to pay accountants to dodge taxes, i.e. the middle class income tax bracket, then my example holds. Note for the casual reader: please be aware that there is a HUGE difference between statutory and effective tax rates. Politicians and Corporations hope you don't catch on. https://www.npr.org/2017/08/07/541797699/fact-check-does-the-u-s-have-the-highest-corporate-tax-rate-in-the-world https://www.npr.org/2017/08/07/541797699/fact-check-does-the...
LatteLazy 7y ago
They don't, they give money to boomers. Billionaires and CEOs get some too. That is the only thing going on here: redistribution of wealth away from anyone under 40.
- newguy1234 7y ago
  Don't worry, once you're over 65 you'll be off to vote for social security increases in every election.
  - LatteLazy 7y ago
    It won't matter, demographics made boomers a permanent majority. They make my generation a permanent minority. I'll vote but may as well not.
acd 7y ago
The tax money given to companies through tax incentives means that there is not schools being built. There is not roads being paved since those taxes where never collected. If there was no tax incentives the same amount of people would be employees. States are competing with the best tax bids. Public hospitals and universities are not being funded. All that lost revenue may lead to worse development of society as a whole.
boyadjian 7y ago
Why wanting to increase economic growth ? Economic growth is polluting.
- mrlala 7y ago
  Because apparently trying to increase GDP from 2.5% to 2.6% is worth more to a party of people than providing health care to everyone and not putting young people into tremendous debt #justrepublicanthings
gnicholas 7y ago
Just to clarify, the scope of the article is state and local tax incentives. The federal government has many more tax incentives (basically anything that you can get a deduction or credit for), and these definitely shape behavior because the rate is so much higher than state/local taxes. Perhaps the title could be updated to say "state/local tax incentives".
- boomboomsubban 7y ago
  >these definitely shape behavior because the rate is so much higher than state/local taxes. Evidence for this claim? Although you're right that the article is about state/local taxes, it's not obvious that federal tax breaks are different.
  - gnicholas 7y ago
    Well, I worked as a corporate tax lawyer for the better part of a decade, and I could see how companies did or did not react to tax incentives. The higher the rate is, the more companies are willing to bend behavior to qualify for it. I can't cite specifics due to confidentiality, but it is universally accepted among tax practitioners and scholars that deductions are move valuable when rates are higher. Credits don't scale this way because they're a dollar-for-dollar tax reduction (although they're still limited to the total amount of tax that would be paid).
    - boomboomsubban 7y ago
      From what I've seen, federal tax is around 1/3rd of the total taxation done,, so I don't see why federal cuts would gain this importance. And it has almost universally been accepted that local and state breaks cause growth, there just isn't evidence that this happens.
- dragonwriter 7y ago
  > The federal government has many more tax incentives (basically anything that you can get a deduction or credit for), Only credits are really business tax incentives, since business expenses, as such, are generally deductible. > and these definitely shape behavior because the rate is so much higher than state/local taxes That doesn't follow. It would make sense that if state/local incentives did shape behavior, larger federal incentives would do more to shape behavior. But if state/local incentives have no evident effect, what amounts to more of the same could plausibly also have no effect.
dang 7y ago
The submitted title ('“No evidence” that tax incentives given to companies increased economic growth') broke the site guidelines, which say: "Please use the original title, unless it is misleading or linkbait; don't editorialize." Cherry-picking the detail you think is most important from an article is a form of editorializing. If you want to say what you think is important about an article, do not do so by cherry-picking a detail to put in the title. Instead, post it is a comment in the thread. Then your view will be on a level playing field with everyone else's. https://hn.algolia.com/?dateRange=all&page=0&prefix=false&query=by%3Adang%20%22level%20playing%20field%22&sort=byDate&type=comment https://hn.algolia.com/?dateRange=all&page=0&prefix=false&qu... Edit: on top of that, it looks like the article is behind a hard paywall, so no one can actually read it. That means the thread is reacting mostly to the title, and mostly to the heavily editorialized title before we changed it. That isn't nearly enough information for a substantive discussion. Please don't make submissions like that to HN. Edit 2: scratch that last point—there's a link to the paper downthread.
- Bostonian 7y ago
  The paywall is not hard, since the paper is at https://scholar.princeton.edu/sites/default/files/zidar/files/slattery-zidar-taxincentives-2020.pdf https://scholar.princeton.edu/sites/default/files/zidar/file... , found by Googling "pdf Evaluating State and Local Business Tax Incentives".
  - dang 7y ago
    Oh good. Thanks! Edit: seems reasonable to change the URL to that. Submitted URL was https://www.nber.org/papers/w26603 https://www.nber.org/papers/w26603.
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419 points by plickdixon 7y ago

> While we find some evidence of direct employment gains from attracting a firm, we do not find strong evidence that firm-specific tax incentives increase broader economic growth at the state and local level. Although these incentives are often intended to attract and retain high-spillover firms, the evidence on spillovers and productivity effects of incentives appears mixed. So, would this mean that the study is analogous to a null result being spun to mean a negative result in the title? "We do not find strong evidence" is not the same as "no evidence". I wonder if this is what would happen should more failure to reproduce papers were published to fix the reproducibility crisis- instead of encouraging more critical analysis, the abstracts will just get summed up into clickbait titles that continue to mislead.

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Retric 7y ago
Not quite, a positive result would need to be obvious to justify spending. Give away a free factory and the most useful thing to use it for does not change thus the company employees the same number of workers. It’s a function of cheap capital making infrastructure subsidies really expensive and largely worthless. There is probably some occasional benefit here and there, but that occurs with any kind of spending. But that’s offset by the usual inefficiency associated with command driven economies. PS: I was personally hopping for the opposite result as these subsides can spread out jobs across the US.
- zdragnar 7y ago
  Since the study compares subsidies by local and state governments, changing the location will benefit one community over another. The spillover effects of hiring 1500 people in a former mining town t will be very different from hiring 1500 in an outer suburb of NYC, for example, and I suspect this I where the mixed results data come from.
  - Retric 7y ago
    I think the issue is major cities like NYC also play the game, and they have far more money to spend. Amazon’s HQ2 ends up in the same place they would have without this fight, but the government hands out a huge subsidy.
    - AmericanChopper 7y ago
      But that’s just the nature of competition. Jurisdictions are in competition to attract investment as much as companies are.
    - zdragnar 7y ago
      HQ2 ended up in virginia- they added 1500 employees to an existing office in NYC but backed out of the 25,000 they had planned for a different office. They claim that the decision was logistics rather than politics, but I don't know anyone who believes that the decision had anything to do with anything other than the loss of subsidies and bad publicity drummed up by local politicians.
martincmartin 7y ago
"Absence of evidence is not evidence of absence." https://en.wikipedia.org/wiki/Evidence_of_absence https://en.wikipedia.org/wiki/Evidence_of_absence
- hexane360 7y ago
  But the headline doesn't claim "evidence of absence". It merely claims "no evidence".
- sicromoft 7y ago
  Yes, but saying "there is no evidence of X" is not claiming evidence of absence. That would be "There is evidence of not X", which the paper does not claim.
thenewnewguy 7y ago
The title seems to be intentionally misleading, the words "no evidence" are presented as if they are a quote from the paper, while in reality the phrase "no evidence" appears zero times in it. Ignore the headline, read the abstract and if you have time the paper. It's much more interesting and accurately/fairly describes the data collected.
skrebbel 7y ago
I do not understand. If you can't say "no evidence" when you can't find any strong evidence, then when can you? What should the article have concluded to make it OK for them to say "no evidence"? Is it about the word "strong"? Because the way I understand it, the definition of "strong" in statistical analyses is "couldn't reasonably be coincidental". So then "no strong evidence" means the same as "all evidence we did find was so weak that it might've as well been a coincidence". I'm not a scientist, but it seems to me that "no evidence" conveys the right message. I mean, the way I see it, let's I see two bees today and three bees tomorrow. This is weak evidence that the bee population is increasing. But "Weak evidence found that bee population is increasing" wouldn't be the more honest headline. It's no evidence at all, I saw some bees and that's it. The way I see it, it's great that scientist report null findings and failures to reproduce as "no evidence found". The general public is not going to interpret "no strong evidence" the way scientists mean it.
- zdragnar 7y ago
  From the second half of the quote: > the evidence on spillovers and productivity effects of incentives appears mixed. Without digging through their methodology, it seems that an interpretation of "no evidence" is unwarranted as there is a likelyhood of confounding factors that were not taken into account. "No evidence" is a positive assertion and a misreading of what the paper indicates. This is not a critique of reporting a null result, but what appears to be a misinterpretation to make a catchier headline which is equally as bad as what we have now- uncritical acceptance of whatever gets published.
noelsusman 7y ago
>"We do not find strong evidence" is not the same as "no evidence" Yes it is? It's not literally the same, but it conveys the same meaning.
- useragent86 7y ago
  No, it doesn't. "No strong evidence" would convey the same meaning. In the same way, "Yes it is" doesn't convey the same meaning as "Yes it is?", because just like the presence or lack of the word "strong" matters, the question mark matters. If everyone is Humpty Dumpty, useful and accurate communication is not possible.
hogFeast 7y ago
This isn't a study. The only study that the paper attempted was a narrative of Volkswagen...and, tbh, I didn't really understand that (they just looked at how many workers worked in the place that got the factory, versus second place...just no logic)...with a brief quantitative study (it is there, it isn't detailed enough). Either way, this is basically a meta-analysis. Tbh, I only skimmed the paper because it just seemed very poorly put together. I would check out the papers they reference for more detail.

minikites 7y ago

"Trickle down" economics is a scam and doesn't work: https://www.nber.org/papers/w21035 https://www.nber.org/papers/w21035 https://www.theguardian.com/business/2012/jul/21/offshore-wealth-global-economy-tax-havens https://www.theguardian.com/business/2012/jul/21/offshore-we...

themagician 7y ago
I don’t understand why people say this. Trickle down economics couldn’t be more honest All the money collects at the top and a few pennies “trickle” down to those below. It’s not called “waterfall economics” after all. Why anyone would want this I don’t know. But it’s definitely not a “scam.”
Bostonian 7y ago
Do you think companies don't consider taxes when locating new factories and offices? I don't support tax incentives for individual companies, but I do support keeping state corporate and personal income taxes low to attract businesses.
- jimbob45 7y ago
  You're not wrong but it becomes a race to the bottom.
- 0xff00ffee 7y ago
  I think you meant "companies" and not "states". Problem is it becomes a bidding war that causes states to forego tax revenue with ZERO recourse if that company decides to pack up and move somewhere else. This is especially true of companies that are not bound by development costs (e.g., Amazon warehouse vs. a semiconductor fab). Several New England state economies are fucked because they gave away tons of money in tax breaks hoping increased sales tax and income tax (on workers for those companies!!!) would offset the tax giveaway. E.g., CT is fucked for this very reason. Eventually the state has no recourse if the company changes its mind. Go look at what's happening with Foxconn's multibillion dollar scam in Wisconsin. Or Hillsboro oregon where intel gets 30 years without paying taxes. (Granted, Intel can't pack up and move easily because they invested 10's of billions in a big ugly fab that pollutes [see the "waivers" they "negotiated" to allow them to continue dumping fluorine emissions to avoid costly fab retrofits]). One solution is to allow states to sue if a company breaches contracts. But many states are just piss poor and cannot afford to take on a trillion dollar company (Amazon, Facebook), or a company from another country (Foxconn). Another solution is to actually tax corporations federally, since the government already redistributes blue-state wealth to red-state welfare. Warren has a great idea: tax companies on their SEC revenue CLAIMS rather than their IRS filings, which tend to differ by billions.

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sbhn 7y ago

Tax incentives stifle competition. Just reduce taxes across the board.

aqme28 7y ago

I highly recommend this talk on corporate tax breaks and poverty in Louisiana: https://www.youtube.com/watch?v=RWTic9btP38 https://www.youtube.com/watch?v=RWTic9btP38

Bostonian 7y ago

You are supposed to post with the actual title, "Evaluating State and Local Business Tax Incentives", unless it is too long.

andrewtbham 7y ago

This is propaganda, probably promoted by marxist paid trolls, and doesn't gratify my intellectual curiosity. Let's talk about disruptive technologices such as blockchain, the pirate party, direct democracy. not incremental adjustments to government.

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slumdev 7y ago
Is this comment performance art?
Afton 7y ago
> marxist paid trolls That phrase is the funniest I have heard in a long time.
- merpnderp 7y ago
  You laugh, but the US overthrew Iran by paying a few people to pretend to be Marxists and prematurely start their revolution.

nodesocket 7y ago

What about stock market gains for 2019? S&P was up 30% last year which was fantastic. Before y'all reply that the stock market only benefits the wealthy, that's patently false. Weather it's your parents retirement account, pensions, your company stock options, your own trading account, nearly everybody has money in the market and beneifts from gains.

TylerE 7y ago
That only works so long as it doesn't collapse like a house of cards due to being overvalued beyond all justifiable reason. Asserting that the US economy as a whole is worth 50% more than it was 3 years ago is delusional.
- merpnderp 7y ago
  Before calling millions of highly educated people who work in the stock market delusional, might it be worth considering what exactly a 50% increase in the stock market represents, which is a 50% increase in perceived future value of the market? As an example, 3 years ago Starlink was little more than an FCC filing. Now it is poised to create a brand new market conceivably worth as much as Apple.
  - mrfredward 7y ago
    A recession that costs 2% of GDP can drop the stock market 40%. That doesn't make mathematical sense, but it's been happening all through the history of equity markets because there isn't a strong mechanism to fight an irrational change in sentiment. If you think Intel is overvalued compared to AMD, you can short Intel, buy AMD, and make a bundle of money if you are right, so there is a mechanism to keep relative prices in line. If you think the 2020 market is overvalued compared to the 2012 stock market though, you can't move money back in time. Valuation doesn't tell you if/when a crash is gonna happen, it just gives a vague sense that returns will be lower over the next 10-20 years. A small positive return beats nothing, so a rational actor that knows the market is overvalued will stay invested. Hence, there isn't really any reason to believe market valuations are so rational. I tend to think the market is overvalued right now, but I'm buying stocks anyway, because I'm saving money and don't want to stuff it under my mattress.

howmayiannoyyou 7y ago

Tax incentives in the US happen (a) where an entrenched industry negotiates it using its existing jobs as leverage; and (b) where a depressed region hopes to attract new investment. In the latter case offsetting problems conspire to prevent economic growth. That tends to be labor pool mismatch, poor regulatory environment as compared to other states, and overseas competition that offers supply chain and labor advantages. In other words, tax incentives aren't enough, period.

merpnderp 7y ago
Labor advantages are the biggest deal. The US spends a mind boggling amount of money on education and still gets out-competed by struggling poor countries. My company just hired two H1B's to do Sharepoint work because there was literally no one in my part of the state qualified who didn't already have a job doing something more fun, and no one else wanted to move to the middle of nowhere. And we already pay 10% above market for the state to attract people to our little backwater locale.
- learc83 7y ago
  10% above the rest of the state to move to the middle of nowhere obviously wasn't enough. When a company says they can't find anyone to hire, what they really mean most of the time is "we can't find anyone to hire for the mostly arbitrary price we want to hire them at." My guess is the company is making far more off of those employees than the labor cost, so if you didn't have access to H-1B employees you would have kept increasing the salary 20%, 30%, 50% until you found someone.
  - hobs 7y ago
    Yeah, and sharepoint administration totally needs butts in the seats to implement.
  - xnyan 7y ago
    I can't tell you how many times I've heard an org say that did a market analysis and the offered wage is "competitive" so clearly it's a labor supply issue and not possible that they are not offering enough compensation. Competitive does not mean "we're offering a little more than the minimum salary we saw on glassdoor," but often that's exactly how they determined it.

p0nce 7y ago

So why increase spending ? Tax it.

save_ferris 7y ago

This sort of reminds me of a conversation I had with a guy with a stake in a restaurant close to a major sports arena development where I grew up. It totally changed the way I looked at economic impact reports on commercial developments, particularly sports arenas. The city put up millions in taxpayer funds to get the arena built for the local high-profile college basketball team, and numerous reports were published around the positive economic impact of the stadium, citing increased spending around downtown, etc. However, the report failed to account for "micro" details that can have a major impact on local business, like traffic congestion, entertainment capacity, etc. On game days, his restaurant is overcrowded and turning away patrons, which negatively impacts his staff and quality of experience. But there are only 15 or so games per year, and the off-season attractions are hit-or-miss in terms of attendance. And when nothing is going on, business is even more varied. It's relatively easy to calculate how many people come to town for a big event and how much they spend, extrapolating that out to some great figure, but a restaurant can't reasonably rely on ~15 big days per year. Quite often, economic impact reports are commissioned by folks who have business or political interests at stake, thereby overlooking the potential bottlenecks that such developments expose. And because most of the public doesn't understand finance or real estate, and yet they love the basketball team, a more nuanced conversation around the topic is harder to find.

ouid 7y ago
If you don't follow the sports schedule, then you will inevitably find yourself near some stadium at a time when sports are about to happen, or have just happened. This is a mistake that you will only make once. It sometimes takes upwards of 2 hours to drive 5 miles. Since I don't want to have to follow sports to know if it's safe to drive that route, I just never drive that route. There are good things near there, but I will never plan to do them because I don't want to have to check the arena activity to determine how good my experience will be.
- NikolaNovak 7y ago
  Good point, made me realize a bit of my own experience - since I moved out of downtown Toronto, the entire area has been a mental black hole to me precisely because on game nights, it can take 2-4 hours to extract yourself out of 3-4km of space, so I just don't risk it (especially since it's the kind of 2 hours that feels like 7...)

kryogen1c 7y ago

>In 2014, states spent between $5 and $216 per capita... Collectively, these incentives amounted to nearly 40% of state corporate tax revenues for the typical state, but some states' incentive spending exceeded their corporate tax revenues studies that need a painfully clear understanding of statistics that start off making muddy, unclear statements like this are really hard to take seriously. What is a typical state? are you comparing california and vermont? is typical a median or mean? the tax incentive data involving faang and walmart is going to be preposterously different than single-location small businesses. This abstract strongly incentivizes me to not read the article.

dsr_ 7y ago
The odds of a random HN reader eventually writing an economic paper are fairly low, while the odds of the original authors writing another paper are high. Perhaps you should tell them what you think.
hogFeast 7y ago
Don't bother. It is basically a meta-analysis. There was nothing interesting in it (just generally, this seems like a very hard area...econometrics does very well in these areas but I doubt it would ever make sense to conclude: no incentive can be good). Love the snarky reply you got...funny that those kind of comments are usually from people who haven't read the paper.
draw_down 7y ago
Ok, what are those incentives exactly? Just say you don’t want to read it.

0xff00ffee 7y ago

My portfolio manager told me in Dec 2018 that our 2019 strategy would depend on if companies invested their tax returns for growth or handed them out to shareholders and execs. He followed the latter path. TL;DR: My portfolio manager adjusted my strategy because tax plan was a giveaway for the rich EDIT: So many downvotes. Truth is truth, man. Truth is truth.

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andrei_says_ 7y ago

Maybe we can look for a relationship between tax incentives and campaign donations?

LaserToy 7y ago

Just finished reading Dictator Handbook. So, the catch is - it doesn’t matter for the politicians. They want to give those tax incentives to get re-elected. Whether it is proven or not is irrelevant as they will find another reason to do it.

papito 7y ago
It's almost like big money in politics is a bad thing. Citizens United will finish this country as we know it, and soon. "Money equals free speech" is just such a cynical and intellectually dishonest argument. "If you want MORE free speech, maybe you should be more rich".
- useragent86 7y ago
  It seems unfair that those who have more money may have more influence--and in a sense, it is. But as it is, you have the freedom to speak, to collaborate with others to speak, and to gather more resources to speak more effectively--and the government may not restrict you from doing so. And what is the alternative? Allow the government to decide how much speech you may have? How much speech is worth? Catalog and index everyone's speech to ensure they aren't exceeding their quota? Disallow citizens from freely collaborating and associating for the purpose of speech? That's not freedom. We know where censorship leads. One can recognize the drawbacks of big PACs and corporate political spending, while at the same time recognizing that those are natural consequences of liberty. As they say, freedom of speech is the worst--except for the alternatives.
  - papito 7y ago
    That's not what I am saying. I can walk out and shout on the street, or buy an ad during Superbowl. Which one do you think has more power? And now, it's pretty easy for a foreign power to funnel dark money too, running ads on TV, while the rest of us losers are outside, shouting.
    - useragent86 7y ago

rolltiide 7y ago

Someone actually did a report on this? Its obvious what needs to be said to gain consensus vs actual benefits. The actual benefit was reducing the tax burden on various entities, because thats what they wanted to happen. Gaining consensus on that means saying whatever is necessary. Who is this report for? The governments revenues or budget constraints aren’t really affected by anything as long as it is willing to spend it all on military and obligations. Lower taxes just for fun!

greenie_beans 7y ago

Mississippian here, where this sort of policy is just another day. Here's more evidence that supports this paper: https://mississippitoday.org/2017/05/02/how-much-have-tax-cuts-cost-mississippi-577m-since-2012/ https://mississippitoday.org/2017/05/02/how-much-have-tax-cu...

gojomo 7y ago

Current submission headline: "“no evidence” that tax incentives given to companies increased economic growth" Such incentives usually aren't directly premised on "increased growth", but rather "local jobs" – and the linked study's abstract reports "we find that average employment within the 3-digit industry of the deal increases by roughly 1,500 jobs". The abstract also reports "mixed" results "on spillovers and productivity effects of incentives", and "unclear" effects on "equity". Now, I'm not a fan of such locality-vs-locality targeted-incentive competition – which is likely zero-sum or negative-sum across all localities. And without broader growth, the costs may be too expensive for the narrow employment gains. But the current editorialized, excerpted headline makes it sound like the thrust of this study was to find no benefits at all for such deals, and that's not the mixed story it's actually reporting.

Barrin92 7y ago
>Now, I'm not a fan of such locality-vs-locality targeted-incentive competition, and without broader growth, the costs may be too expensive for the narrow employment gains. I can't even see how you can theoretically expect growth from this because by definition in a common market like the US tax incentives of localities are zero sum. It doesn't really matter if jobs or growth are created in X or Y because the US has a federal government to even out imbalances anyway. So to allow this regulatory race to the bottom within a country or a market makes no sense to me at all. Only if the firm would move abroad would there be a net loss.
- gojomo 7y ago
  Only if the firm would move abroad would there be a net loss. Indeed, and even then: there's no net-loss for the world, just the arbitrary jurisdiction-of-reference. (And if it's not-OK to play net-destructive, negative-sum games against other localities within the same country, is it OK to play negative-sum games against other friendly countries?) While I agree in the main, it's possible to contrive just-so scenarios where an incentive to shift economic to another locality might be net-beneficial. A struggling area might benefit more, from the same number of jobs or amount of economic activity, than a wealthier area. The wise creation of a synergistic cluster of related projects might create more follow-on benefits than a more dispersed set of activities. But, local authorities in a bidding-war against other localities are unlikely to identify just those scenarios, and pay the efficient amount – as opposed to just trotting out these stories as self-serving rationales for self-aggrandizing favor-trading.

billions 7y ago

Tell that to the contractors affected by AB-5

lasermike026 7y ago

When did ever use evidence to make economic, political, or social decisions?

dr-detroit 7y ago

While that may seem bad it has been proven that citizens only use tax breaks to pay down debt which is VERY VERY bad for the financial sector to keep alive so corporate welfare it is...

cs702 7y ago

The same appears to be true for individual income taxes too. I've looked at the income taxes versus growth in the US... and I've been unable to find any obvious relationship. As one of many possible examples, below is a table showing the highest marginal federal income tax rate and year-over-year real GDP growth in the US since 1950. My conclusion, so far: There's a tremendous amount of theory, and rhetoric, and posturing, and straw-man arguments... but very little or ZERO actual evidence that national economic growth is impacted one way or another. If anything, the data seems to show higher economic growth during periods of higher taxation! Highest US Real Year Tax Rate GDP Chg 1950: 84.4% 8.7% 1951: 91.0% 8.0% 1952: 92.0% 4.1% 1953: 92.0% 4.7% 1954: 91.0% -0.6% 1955: 91.0% 7.1% 1956: 91.0% 2.1% 1957: 91.0% 2.1% 1958: 91.0% -0.7% 1959: 91.0% 6.9% 1960: 91.0% 2.6% 1961: 91.0% 2.6% 1962: 91.0% 6.1% 1963: 91.0% 4.4% 1964: 77.0% 5.8% 1965: 70.0% 6.5% 1966: 70.0% 6.6% 1967: 70.0% 2.7% 1968: 75.3% 4.9% 1969: 77.0% 3.1% 1970: 71.8% 0.2% 1971: 70.0% 3.3% 1972: 70.0% 5.3% 1973: 70.0% 5.6% 1974: 70.0% -0.5% 1975: 70.0% -0.2% 1976: 70.0% 5.4% 1977: 70.0% 4.6% 1978: 70.0% 5.5% 1979: 70.0% 3.2% 1980: 70.0% -0.3% 1981: 69.1% 2.5% 1982: 50.0% -1.8% 1983: 50.0% 4.6% 1984: 50.0% 7.2% 1985: 50.0% 4.2% 1986: 50.0% 3.5% 1987: 38.5% 3.5% 1988: 28.0% 4.2% 1989: 28.0% 3.7% 1990: 28.0% 1.9% 1991: 31.0% -0.1% 1992: 31.0% 3.5% 1993: 39.6% 2.8% 1994: 39.6% 4.0% 1995: 39.6% 2.7% 1996: 39.6% 3.8% 1997: 39.6% 4.4% 1998: 39.6% 4.5% 1999: 39.6% 4.8% 2000: 39.6% 4.1% 2001: 39.1% 1.0% 2002: 38.6% 1.7% 2003: 35.0% 2.9% 2004: 35.0% 3.8% 2005: 35.0% 3.5% 2006: 35.0% 2.9% 2007: 35.0% 1.9% 2008: 35.0% -0.1% 2009: 35.0% -2.5% 2010: 35.0% 2.6% 2011: 35.0% 1.6% 2012: 35.0% 2.2% 2013: 39.6% 1.8% 2014: 39.6% 2.5% 2015: 39.6% 2.9% 2016: 39.6% 1.6% 2017: 39.6% 2.4% 2018: 37.0% 2.9% Sources: Year-over-year real GDP growth: https://fred.stlouisfed.org/graph/?g=pssP https://fred.stlouisfed.org/graph/?g=pssP Tax rates: https://www.taxpolicycenter.org/statistics/historical-highest-marginal-income-tax-rates https://www.taxpolicycenter.org/statistics/historical-highes...

beat 7y ago

Since when are political decisions evidence-based? Serious question. Tax incentives aren't there because they work, but rather because lots of people believe they work. Politics works on beliefs, not facts.

wffurr 7y ago
How can you even begin to counter a mistaken belief without evidence that the belief is indeed mistaken?
- beat 7y ago
  You substitute one belief system for another. No evidence needed. It's not hard to find people who have done just that.

naiveprogrammer 7y ago

State and local business tax incentives

mikelyons 7y ago

If I owned a business, and suddenly paid way less in tax, I would want to just pocket that money as profit and increase my personal wealth, why would any other business do anything different? We're self-biased at the end of the day, it's survival.

spectrum1234 7y ago
Because of competition. Your competitor who lowered prices by 1% would eventually drive you out of business. There is a lagging effect, but these taxes are just a reduction in cost which eventually get passed to consumers. Assuming the market is competitive of course.
- chungus_khan 7y ago
  Unless there are pressures to do otherwise, your competitor is likely to do the same as you. If customers accept the current price and there is no external pressure to lower it, lowering it is likely not a good idea, and unless the market is unusually competitive, sales are unlikely to increase without a substantial drop.
- mikelyons 7y ago
  I think that you're not acknowledging businesses that don't compete solely on price, like house-cleaning, cigarettes, alcohol, massage, SEO, etc. Many many businesses would want to keep the extra money that tax breaks afford them. I don't understand how pointing this out is not adding to the conversation.

sequoia 7y ago

TFA does not say "No evidence"

thebigshane 7y ago
I see that the abstract doesn't say "no evidence". Did anyone download the full paper to see if "no evidence" was quoted there?

bediger4000 7y ago

Interesting conclusion from the "National Bureau of Economic Research", which is not a government agency as its name suggests, but rather a private think-tank like thing. Krugman calls it "the old-boy network of economics made flesh". That is, it's conservative in the sense of favoring the status quo, it's old and stodgy, etc etc.

newguy1234 7y ago
This happens on both sides. Most of these "think tanks" just craft up bogus research to push some agenda. It happens on both sides of the debate.

throwawaysea 7y ago

This is probably highly variant depending on the jurisdiction, the company, the specific terms of a deal, and so on. The Wisconsin Foxconn deal was terribly structured, and it left taxpayers holding the bag with little protection. However, the NY Amazon deal was a good one, with the city's own projections showing a 27:1 ROI. That deal was comprised mostly of existing programs like Excelsior, ICAP, and REAP. These programs only provide a subsidy for prior results, rather than up-front lumpsums. IIRC only $500M of the total subsidy package for Amazon was in the form of a grant, and it was itself tied to investments Amazon would be obligated to make contractually. The aforementioned NY/NYC programs have been used for numerous companies, and presumably the city and state agencies operating these programs view them as successful, since they continue to offer them.

jellicle 7y ago

As a reminder: every business, everywhere, already gets a 100% tax exemption on every cent spent on hiring employees, buying new equipment, etc. ANY money invested into ANY business equipment, hiring more staff, or whatever you might do to expand the business is completely tax-free and always has been. Tax incentives or corporate tax breaks apply only to money retained by the owners as profits. Therefore, any tax incentives you give are encouraging the owners to keep more of the business's money as profits and to invest less in the growth of the business.

newguy1234 7y ago
Right but the problem with business is that it is risky. If there are no profits, why risk your capital in the first place? Might as well just buy gold bars or art.

cestith 7y ago

Profit can be gamed and there are all sorts of little write-offs here, exceptions there, and loopholes besides. What we need is a lower rate against more receipts, and incentives only on things actually likely to spur growth. Imagine if every publicly traded company paid %2 on revenue minus payroll, employee training and healthcare, and maybe depreciation. The only way to pay less tax is to pay your workers and vendors more, but you don't need to shift things to this expense or that expense to dodge a profit tax.

enad 7y ago

You can read the full paper here: https://scholar.princeton.edu/sites/default/files/zidar/files/slattery-zidar-taxincentives-2020.pdf https://scholar.princeton.edu/sites/default/files/zidar/file... Additionally, here are the slides: https://scholar.princeton.edu/sites/default/files/zidar/files/slides_jep_20200103.pdf https://scholar.princeton.edu/sites/default/files/zidar/file... And the non-technical summary: https://scholar.princeton.edu/sites/default/files/zidar/files/bizincentivessummary_20-01-03.pdf https://scholar.princeton.edu/sites/default/files/zidar/file...

mbesto 7y ago

"There is not conclusive evidence, however, to substantiate a clear relationship between the 65-year steady reduction in the top tax rates and economic growth." However: "However, the top tax rate reductions appear to be associated with the increasing concentration of income at the top of the income distribution." https://graphics8.nytimes.com/news/business/0915taxesandeconomy.pdf https://graphics8.nytimes.com/news/business/0915taxesandecon...

freen 7y ago

Imagine you run a company that makes a million dollars a year in profit and that there is a flat 10% tax on that profit. Run the thought experiment of what you'd do if that taxes doubled or halved. I don't know about you, but in the case of taxes doubling I'd reduce my profit margin by investing in the business to increase top-line revenue and profit in the future rather than pay more taxes now. If taxes halved, well, then I just take home more money now! Simple. Granted, this is a massive over-simplification, but the basic principle holds: taxes on profit literally force businesses to decide between reinvestment and cashing out.

scottjg 7y ago
i think this oversimplification may obfuscate the issue in a way that's a little misleading. in reality, the two choices are not only taking a tax hit or reinvesting in the business. there are a pretty wide array of tax avoidance schemes that are utilized in the united states. if my corporate tax rate is low, but personal tax rate is high, as in your example. i may choose to invest in a SEP, or a deferred compensation plan, kicking the taxes down the road. potentially, because of the estate tax laws, my heirs may inherit these investments with no tax penalty due to step up basis rules. if you were making a million dollars a year in profit, you probably wouldn't need ordinary income anyway. there are so many different types of credit vehicles you could leverage at a lower interest rate than the tax rate. though i suppose, arguably this is a type of economic growth. it grows profit in the financial services industry.
- freen 7y ago
  My example is intentionally simplified, and doesn't consider either a high or low personal tax rate. It also doesn't consider tax avoidance because, frankly, legislation that enables tax avoidance is equivalent to lowering effective taxes. Statutory vs Effective tax rates are what actually count in terms of the long term choices companies make and the outcomes for the rest of us. In my example, imagine that there are absolutely no tax dodges whatsoever. The statutory rate is the effective rate. If it were impossible to pay accountants to dodge taxes, i.e. the middle class income tax bracket, then my example holds. Note for the casual reader: please be aware that there is a HUGE difference between statutory and effective tax rates. Politicians and Corporations hope you don't catch on. https://www.npr.org/2017/08/07/541797699/fact-check-does-the-u-s-have-the-highest-corporate-tax-rate-in-the-world https://www.npr.org/2017/08/07/541797699/fact-check-does-the...

LatteLazy 7y ago

They don't, they give money to boomers. Billionaires and CEOs get some too. That is the only thing going on here: redistribution of wealth away from anyone under 40.

newguy1234 7y ago
Don't worry, once you're over 65 you'll be off to vote for social security increases in every election.
- LatteLazy 7y ago
  It won't matter, demographics made boomers a permanent majority. They make my generation a permanent minority. I'll vote but may as well not.

acd 7y ago

The tax money given to companies through tax incentives means that there is not schools being built. There is not roads being paved since those taxes where never collected. If there was no tax incentives the same amount of people would be employees. States are competing with the best tax bids. Public hospitals and universities are not being funded. All that lost revenue may lead to worse development of society as a whole.

boyadjian 7y ago

Why wanting to increase economic growth ? Economic growth is polluting.

mrlala 7y ago
Because apparently trying to increase GDP from 2.5% to 2.6% is worth more to a party of people than providing health care to everyone and not putting young people into tremendous debt #justrepublicanthings

gnicholas 7y ago

Just to clarify, the scope of the article is state and local tax incentives. The federal government has many more tax incentives (basically anything that you can get a deduction or credit for), and these definitely shape behavior because the rate is so much higher than state/local taxes. Perhaps the title could be updated to say "state/local tax incentives".

boomboomsubban 7y ago
>these definitely shape behavior because the rate is so much higher than state/local taxes. Evidence for this claim? Although you're right that the article is about state/local taxes, it's not obvious that federal tax breaks are different.
- gnicholas 7y ago
  Well, I worked as a corporate tax lawyer for the better part of a decade, and I could see how companies did or did not react to tax incentives. The higher the rate is, the more companies are willing to bend behavior to qualify for it. I can't cite specifics due to confidentiality, but it is universally accepted among tax practitioners and scholars that deductions are move valuable when rates are higher. Credits don't scale this way because they're a dollar-for-dollar tax reduction (although they're still limited to the total amount of tax that would be paid).
  - boomboomsubban 7y ago
    From what I've seen, federal tax is around 1/3rd of the total taxation done,, so I don't see why federal cuts would gain this importance. And it has almost universally been accepted that local and state breaks cause growth, there just isn't evidence that this happens.
dragonwriter 7y ago
> The federal government has many more tax incentives (basically anything that you can get a deduction or credit for), Only credits are really business tax incentives, since business expenses, as such, are generally deductible. > and these definitely shape behavior because the rate is so much higher than state/local taxes That doesn't follow. It would make sense that if state/local incentives did shape behavior, larger federal incentives would do more to shape behavior. But if state/local incentives have no evident effect, what amounts to more of the same could plausibly also have no effect.

dang 7y ago

The submitted title ('“No evidence” that tax incentives given to companies increased economic growth') broke the site guidelines, which say: "Please use the original title, unless it is misleading or linkbait; don't editorialize." Cherry-picking the detail you think is most important from an article is a form of editorializing. If you want to say what you think is important about an article, do not do so by cherry-picking a detail to put in the title. Instead, post it is a comment in the thread. Then your view will be on a level playing field with everyone else's. https://hn.algolia.com/?dateRange=all&page=0&prefix=false&query=by%3Adang%20%22level%20playing%20field%22&sort=byDate&type=comment https://hn.algolia.com/?dateRange=all&page=0&prefix=false&qu... Edit: on top of that, it looks like the article is behind a hard paywall, so no one can actually read it. That means the thread is reacting mostly to the title, and mostly to the heavily editorialized title before we changed it. That isn't nearly enough information for a substantive discussion. Please don't make submissions like that to HN. Edit 2: scratch that last point—there's a link to the paper downthread.

Bostonian 7y ago
The paywall is not hard, since the paper is at https://scholar.princeton.edu/sites/default/files/zidar/files/slattery-zidar-taxincentives-2020.pdf https://scholar.princeton.edu/sites/default/files/zidar/file... , found by Googling "pdf Evaluating State and Local Business Tax Incentives".
- dang 7y ago
  Oh good. Thanks! Edit: seems reasonable to change the URL to that. Submitted URL was https://www.nber.org/papers/w26603 https://www.nber.org/papers/w26603.

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