Opinion and Viewpoint

HENDERSON: Why we should halt tax abatements

April 19, 2014

HendersonIt’s time to rein in the tax abaters. If the business plan succeeds only if you can avoid or abate taxes, then it’s a bad plan.

Economic development people are desperate to add businesses to their scorecards, and can you blame them? Everyone wants a Toyota plant or sexy new business park. Look at those jobs! Construction! Ancillary business! Except this often doesn’t work.

We’ve seen the track record of tax incentives versus deep holes in the ground. My favorite is United Airlines. The service center at Indianapolis International Airport was going to be a model of how to seduce business away from major markets into the lower-cost Midwest.

Today, there’s a thriving business of monumentally smaller size in the crater left by the promises of United.

You could add 3M to the list, but it’s not fair to single out large businesses when small-business abatements and “deals” have also hit the rocks of economic realities. Indeed, few of the tax-incentivized businesses actually end up benefiting communities at all.

Instead, there’s an enormous race by development officials to put a new feather in the cap of the local mayor, governor and/or economic development authority. New business agreements are newsworthy. Vote for us! We brought new jobs in these desolate times!

Here’s what actually happened: Those that made investments, paid their taxes, and developed their communities were kicked in the slats. State and local governments are being squeezed senseless in Quixotish attempts to stanch perceived overspending. No one knows when to quit squeezing. The patient is nearly dead, the fingerprints of boors and charlatans around their necks.

Everyone else must shoulder the burden of these incentives, and that means you and me. We’re the ones investing in United Airlines, or Browning Investments’ remake of Broad Ripple’s front doors. We’re putting money in their back pockets.

Oh, wait a minute. This will bring more tax revenue from the new jobs, is the hue and cry of politicians. More often than not, it’s a subtle reward for opening your pockets to make investments. The actual economic benefit is largely the investors’, their shareholders and, not very often, the local economy.

As governments are squeezed insanely tight in revenue, we allow these governments discretion at nearly all levels to blithely offer incentive bribes to businesses. Is there a rigorous protocol and regimen applied as a rule of law to such incentives? Is there personal culpability if the incentives don’t work? Are there active monitors to ensure progress? Bonds? Rigorous credit history observations applied? The answers are, no.

We entrust elected politicians, none of whom are guaranteed to be highly trained in economic development, or even economics, to good-buddy (to coin a verb) packages together, and perhaps spend more time on the photo-op than studying the effects on the taxing unit that will be gored. And gored they are.

It’s a favorite activity of this journal and others to wave the horrid carcass of tax deals gone foul. They pit counties against counties, cities against cities and states against states. Who wins? Does anyone raise the exact dollar count of real contributions toward the economic development in terms of actual incomes, more taxes paid, asset developments, long-term stability of the communities involved? Almost never.

Sometimes incentives are bribes by another word. They demean businesses and individuals that do the job of paying taxes to support the community and its infrastructure. Complain until they stop.•

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Henderson is principal researcher of ExtremeLabs Inc., a Bloomington computer analysis firm. Send comments on this column to ibjedit@ibj.com.

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