Firm-Specific Tax Incentives: The Bad and the Ugly
States often compete for business by offering special tax privileges to specific firms. This practice violates every generally accepted principle of good tax policy with no measurable benefits. The costs associated with firm-specific tax incentives are seen in reduced state tax revenue, and costs are unseen in countless economic distortions. Using data from Good Jobs First, it is shown that the probability of receiving a firm-specific tax privilege over $100 million depends partially on a firm’s market value, industry classification, and number of employees. To support these results, case studies of the two largest known tax incentives are presented. Firmspecific tax incentives are bad tax policy; states should stop the practice, or at the very least report on and evaluate the programs.
To view the Graduate Policy Essays of other Meratus Fellows and alumni, check out the MGPE archive.