Economists have long criticized politicians’ penchant for creating narrow legal carveouts and targeted tax exemptions to lure large corporations. Both economic theory and empirical evidence indicate that these incentives are ineffective ways of spurring economic development.
The scale of this problem at the federal level is quite alarming. In 2012, the Cato Institute calculated that the federal government spends almost $100 billion annually on corporate welfare. That’s an average of $870 for every American family.
It is confusing enough collecting data on federal agencies to come up with an aggregate figure, but, until recently, the task of doing so at lower levels of government was herculean. The web of state and local corporate welfare provisions was so tangled that quantifying their impact was nearly impossible.
However, thanks to a crucial rule change and a new database by Good Jobs First, we now have a glimpse into the financial effects of these cronyist policies.
In August 2015, the Government Accounting Standards Board (GASB) issued Statement No .77 which requires GASB-compliant state and local governments to report on revenues lost due to corporate tax breaks.
We now know that in 2017, companies in Maine received at least $42,465,028 in various state and local tax breaks and other giveaways. (The actual figure is likely higher, since this estimate is based on a limited review of state laws and only includes 24 municipalities.)
A new study from the Mercatus Center at George Mason University uses this estimate to quantify the opportunity costs of corporate welfare for every state, and the results are stunning.
The table below shows the extent to which the elimination of corporate incentives in Maine would allow policymakers to lower corporate income, personal income or sales taxes and still support general fund spending.
Possible tax reductions by cutting corporate welfare
The Opportunity Cost of Corporate Welfare, Mercatus Center 2018. Tax savings calculations are basedon the value of expenditures on incentives recorded before April 2018 in the Good Jobs First database.
| Tax | Possible reduction |
|---|---|
| Corporate income | -25.3 % |
| Personal income | -2.7 % |
| Sales | -3.0 % |
| Total tax burden | -1.3 % |
What is more likely to create jobs and promote economic growth: offering a few corporations massive taxpayer-financed incentives with little oversight or accountability, or slashing the corporate income tax by one-quarter for every business in Maine?
