Tax & Budget Analysis

The People's Budget 1999-2000: A Blueprint for Equity, November 1998

Economic Development and Corporate Accountability

Throughout our nation's history, state and local governments have done much to facilitate the growth and development of the American economy. They built an impressive physical infrastructure and developed the nation's human capital, without which our private sector economy could not have prospered. In contrast, most government activities undertaken in the last 20 years in the name of "economic development" have little to do with the development of the economy or job creation. Instead, they involve the use of public resources to convince businesses to move from where they are located to someplace else -- or in response to such entreaties, to convince businesses to stay where they are. It has become a zero sum game, simply shifting jobs around rather than creating them.

The Federal Reserve Bank of Minneapolis has made clear, that firm-specific subsidies reduce the resources available for basic municipal services and infrastructure investments, limiting the ability of governments to fulfill their primary responsibility in regard to fostering private-sector economic development. Firm-specific subsidies also represent an unwarranted intervention by government into the workings of the free market: why should the government subsidize one machine tool maker's cost of doing business relative to its competitors? And, most unacceptable are economic development aid programs that subsidize "bad actor" companies which pollute the environment and/or endanger workers' health.

People's Budget Recommendations:

1. New York State should join the Minnesota Fed and others in the effort to have Congress limit or eliminate the practice of state and local governments competing against one another with tax subsidies to move jobs from one community to another.

2. Firms receiving public subsidies should be required to contractually pledge to create a certain number of new jobs. State and local governments should "recover" or "recoup" subsidies from firms that don't deliver on their job creation promises.

3. Firms applying for public subsidies should be required to meet a "code of conduct" to ensure that public funds don't go to firms with criminal convictions, violations or pending investigations regarding compliance with environmental, labor or civil rights laws. If the firm violates any such laws while receiving a subsidy, it should be required to repay the award.

4. The beneficiaries of subsidy packages should be required to file periodic reports on their progress in meeting their job creation or retention promises. These reports should be available to the public.

5. The state should require corporate tax disclosure. To analyze whether or not various corporate tax credits are accomplishing their stated purpose, we need to know how much individual corporations benefit from such tax incentives. The federal corporate tax disclosure requirements allowed President Reagan to build the case for corporate tax reform by showing that loopholes allowed many of the nations largest and most profitable businesses to pay little or nothing in taxes.

6. The state should enact the Investment Tax Credit (ITC) Accountability and Job Creation Reform Act to make a greater portion of this lucrative tax credit dependent on job creation and retention.