Tax Incentives: Another Civics Lesson from Gilbert

On the heels of yesterday’s Republic article about a “public-private partnership” in the Town of Gilbert [Big League Headache] that has turned into a Titanic-sized boat anchor, this morning’s Republic has a Parker Leavitt article [Gilbert council OKs $2M deal to lure furniture chain] that captures a very closely related, and similarly-flawed concept: Economic sustainability through selective tax incentives.

Leavitt also reports,

The sales-tax reimbursement is the second approved by the Gilbert council within the last three months. In December, the town offered a $35 million incentive package for Nationwide Realty Investors, which has plans for a massive mixed-use project at Gilbert and Pecos roads.

It is widely known among economists that most businesses that take advantage of tax incentives like these would have proceeded with their plans regardless of the incentives. Most jobs promised by incentive schemes would have been created without the incentives. In many cases, the tax incentives actually lead to municipal budget shortfalls, cuts in public services, and ultimately negative economic impact. Ironically, the erosion of public infrastructure reduces the attractiveness of the community, which is the main real reason for business relocation and retention.

The Institute for Local Self Reliance and the New Rules Project have a great analysis of this paradigm in which they summarize:

Retail incentives are almost always a net revenue loser.

Scottsdale has been involved in similar shenanigans, too. See my ScottsdaleTrails article Incentive Danger from a year ago.

Kudos to Gilbert councilmen Jared Taylor and Victor Petersen for standing firm in their opposition to corporate welfare. Leavitt quotes Petersen:

“I am very concerned with the way we’re proceeding with these agreements,” Petersen said Thursday. “I very much have a problem with picking winners and losers, and I really can’t avoid that that’s what we’re doing.”

Petersen said he believes the town is creating more uncertainty in the market by approving incentive deals for some businesses and not others.

“If you are a furniture company in Gilbert located here recently, and all of a sudden here comes another furniture company with an advantage over you, that could very well be a problem,” Petersen said.

I think the same could be said for businesses of any type. How can you justify to one a subsidy to another?