Tuesday, December 10, 2013

On the tax competition ideology: the evidence just keeps piling up

From David Cay Johnson in Tax Analysts - via Taxprof (hat tip: AABA)
"The fast-increasing use of tax incentives by all 50 states has failed to increase jobs or investment, two respected experts on state tax policy found after reviewing more than 50 years of giveaways."
And just who are these two biased leftists, and who asked them to study this? Actually, it's an interesting story, politically speaking:
"The 143-page study by Marilyn M. Rubin of John Jay College and Donald J. Boyd, former director of the Rockefeller Institute of Government State and Local Government Finance research group, was prepared for the New York State Tax Reform and Fairness Commission created by Gov. Andrew Cuomo (D)
. . .
Peter G. Peterson, the private equity mogul who was Treasury secretary during the Nixon administration, and the Peter J. Solomon Family Foundation paid for the report by Rubin and Boyd. Peterson funds FiscalTimes.org and promotes reductions in Medicare and Social Security benefits that people pay for with dedicated taxes. Solomon co-chaired the reform commission. Like Peterson, he is a savvy investor wise to the ways of tax avoidance."
And that's not all. Cuomo's Commission doesn't even directly reference the study, and Cuomo has named a new commission:
"the implication being that not having gotten what he wanted, Cuomo is trying again for a report made as instructed—although only time will tell."
And what does the Rubin/Boyd report actually say? Well, it's pretty clear.
"There is . . . no conclusive evidence from research studies conducted since the mid-1950s to show that business tax incentives have an impact on net economic gains to the states above and beyond the level that would have been attained in the absence of the incentives. Nor is there conclusive evidence from the research that taxes, in general, have an impact on business location and expansion decisions."
Which is just as we said, not so long ago.

And here's one particularly stunning example from last week of a pointless U.S. state tax giveaway to Boeing, via another veteran analyst of these issues, Greg LeRoy:
"On two days’ notice last month, the company prevailed upon the Washington State legislature to go into special session and offer Boeing and its suppliers a subsidy package valued at $8.7 billion—the largest “megadeal” in U.S. history.
. . .
Boeing’s tax dodging is hardly limited to Washington State. As Citizens for Tax Justice has documented, the company received net rebates of $96 million in state corporate income taxes for the decade 2003 through 2012 despite making more than $35 billion in pre-tax U.S. profits.  For the same decade, Boeing also received federal income tax rebates totaling $1.8 billion."
Tax "competition" really is a pointless game. This beggar-thy-neighbour game is generally founded not upon hard-headed decisions about what will really work, but upon a belief system: an ideology, really. And this belief system is founded upon crass economic fallacies and howlers. If you don't believe us, read this.

Reminder: if you write about tax 'competition', do put the word 'competition' in quote marks, as a marker to signal that you are aware of the economic fallacies that underpin the general political discourse on this topic.

Update 2014: for more information on tax 'competition' - or Tax Wars - see here.

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