[Mb-civic] Lining the pockets of big business - Peter D. Enrich - Boston Globe Op-Ed

[William Swiggard]

  Lining the pockets of big business

By Peter D. Enrich  |  February 28, 2006  |  The Boston Globe

IN RECENT YEARS, states have found themselves caught in an accelerating 
competition to offer ever-larger tax breaks to big businesses. The 
rationale, aggressively marketed by corporate lobbyists, is that 
giveaways are necessary to attract business investment and jobs to a 
state, and that the resulting expanded business activity will more than 
pay for the lost revenues from the tax cuts.

Reality, however, contradicts these claims. Several studies, including 
one by economist Robert Lynch in 2004 called ''Rethinking Growth 
Strategies: How State and Local Taxes and Service Affect Economic 
Development," establish that state tax incentives have, at best, a 
minimal impact on businesses' decisions about where to locate their 
facilities. State taxes are simply too small a fraction of business 
costs (typically 1 to 2 percent) to be a major factor in siting 
decisions. Moreover, since all states are offering competing incentives, 
the differences are usually very small.

When asked about the efficacy of business tax incentives during his 
confirmation hearings in 2001 to be US treasury secretary, Paul O'Neill, 
former chief executive officer of ALCOA, said: ''As a businessman I 
never made an investment decision based on the tax code. If you give 
money away I will take it, but good business people don't do things 
because of inducements."

The real effect of these tax breaks is a dramatic loss of state and 
local revenues. In 1997, the national cost of state and local incentives 
was estimated at $50 billion, and the numbers have grown dramatically 
since then. The result: heavier tax burdens on individual taxpayers and 
small businesses. And less money for education, infrastructure, and the 
other government services that the research shows are real factors 
affecting business decisions about where to locate.

Nonetheless, state policy makers find it hard to say no to these 
giveaways. As long as other states are offering them, no one is ready to 
unilaterally disarm. And big businesses have become adept at playing 
states against one another to extract generous tax breaks. The states 
are caught in a vicious cycle of proliferating business incentives.

The best hope for saving the states from this destructive competition 
lies in the courts. Tomorrow, the US Supreme Court will hear a case, 
DaimlerChrysler v. Cuno, in which the lower court struck down Ohio's 
investment tax credit, one of the most common incentive devices, because 
it discriminatorily favors in-state business activity.

In fact, one of the primary purposes behind the Constitution was to put 
an end to tax wars among the states that were threatening to balkanize 
the national economy. Over the years, the courts have repeatedly stepped 
in to stop the states from using their tax systems to pursue parochial 
aims in ways that ended up hurting all of them. In particular, they have 
repeatedly forbidden a wide variety of state tax measures providing 
preferential tax benefits that are restricted to in-state business 
activity. The present array of location incentives are just the latest 
examples in that long history.

Meanwhile, corporate lobbyists are already laying the groundwork for 
federal legislation to reverse the impact of a possible Supreme Court 
decision invalidating location-based tax incentives. But hopefully, once 
the court has acted, Congress will have the wisdom to save the states 
from the renewal of a rivalry that only lines corporate pockets.

Peter D. Enrich, a professor at Northeastern University School of Law, 
is representing the plaintiffs in the Cuno case.
 
http://www.boston.com/news/globe/editorial_opinion/oped/articles/2006/02/28/lining_the_pockets_of_big_business/
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