Tax incentives to attract businesses is a zero sum game

The Legislature is meeting in Carson City to rubber stamp a proposal by Gov. Brian Sandoval to snare a new $5 billion Tesla Motors lithium-on battery plant in Storey County by offers the company $1.3 billion in tax exemptions and credits for the next 20 years.

The governor claims the deal will bring in some $100 billion to Nevada’s economy employ 6,500 directly in the factory, and result in thousands of indirect jobs.

Is that so or has Nevada fallen for a hoax?

In a Washington Post article in July Nathan Jensen, a political science professor at George Washington University, called such bidding wars for companies: “It’s a zero-sum game.”

Tesla deal a zero-sum game?

“Simply shifting companies from one state to the next does nothing, at least not right away, to create new openings for the millions of still unemployed Americans, Jensen added while presenting some of his latest economic development research,” WaPo reports. “Nevertheless, nearly every municipality across the country offers some type of tax incentives to encourage existing companies to relocate, costing taxpayers around $70 billion annually.”

Jensen has compared job creation by companies in Kansas that were attracted to open there with huge tax incentives to similar firms that got no handouts. He found that six years after incentives were awarded, “the firms who received incentives actually generated slightly fewer jobs than those that didn’t receive incentives.”

In December 2012, The New York Times published a lengthy article about all the tax incentives given to companies and reached the same conclusion. That incentives generally amount to a zero sum game.

General Motors had gotten lucrative tax breaks from states and communities for years. But the company closed 50 facilities and walked aways, only to be bailed out by federal tax dollars.

Richard Florida, director of the Martin Prosperity Institute at the University of Toronto and Global Research Professor at NYU, recently wrote, “But no matter how you slice it, the deal makes utterly no sense. It is just one more example of a government giveaway for a factory that would have been built anyway. As I’ve argued before, there is virtually no association between economic development incentives and any measure of economic performance. And it’s not just me. I spoke with several experts in economic development incentives and advanced manufacturing and the consensus was the same: this deal was overblown and unnecessary.”

He argues that companies are just gaming government officials. He calculated that when a realistic number of actual jobs to be created is used that the tax incentives will amount to $385,000 per job.

The Nevada Constitution dictates, “The Legislature shall provide by law for a uniform and equal rate of assessment and taxation …” But then it has this loophole big enough to drive a Tesla through: “The Legislature may exempt by law property used for municipal, educational, literary, scientific or other charitable purposes, or to encourage the conservation of energy or the substitution of other sources for fossil sources of energy.” Electric car batteries might fit.

But the Constitution also says, “In enacting an exemption from any ad valorem tax on property or excise tax on the sale, storage, use or consumption of tangible personal property sold at retail, the Legislature shall: Ensure that the requirements for claiming the exemption are as similar as practicable for similar classes of taxpayers …”

A lot of companies would like a similar deal.

4 comments on “Tax incentives to attract businesses is a zero sum game

  1. iShrug says:

    Supposedly, Tesla will give UNLV $1 million for “battery research.” I’m anxiously awaiting the return of our legislators from recess. Late as usual. Way to encourage public comment! They will ram this through in a hurry, I fear. None of them are allowed to do any fundraising for 15 days following the session!

  2. Vernon Clayson says:

    And this farce is just about a battery factory, surely the world of working people will rush to buy the cars at 69 or 70 thousand a copy, that’s a bit much for most except the rich but how many of them will give up their luxury cars for a novelty. You’d have to keep it, imagine the declining value.

  3. […] is run by Elon Musk, whose Tesla Motors was given a $1.3 billion package of tax credits and abatements to build an electric car battery plant near […]

  4. […] of the vision painted in smoke back in 2014 when the Nevada governor and Legislature swooned and handed out $1.3 billion in tax breaks and credits to Tesla for locating that factory in Nevada. (As reported by the Nevada […]

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