Is This Tax Break Necessary?

February 22, 1994

Before the Carroll County commissioners agree to a tax credit for research and development equipment, they ought to consider what they would be buying for the estimated $50,000 to $70,000 in next year's tax revenue they would forgo.

While this credit is not very large, it raises questions about the effectiveness of using tax breaks to lure business. Along with the credit, the commissioners are also considering waiving building permit fees and other fees for businesses. Tax abatements have proven to be only marginally effective in attracting businesses, according to published research. If cutting taxes is the deciding factor in business location, Baltimore's Park Circle Industrial Park would be booming with new businesses, yet it still has a number of empty lots and buildings. States such as Arkansas, with low-tax rates, should be industrial meccas; they aren't.

From a public policy standpoint, a business tax break must provide widespread public benefit, but the proposed tax credit will only reward a few corporations who purchase equipment they would have bought anyway. In return for reducing their taxes, what will these corporations be giving the members of the community?

Certainly not tax revenue because this measure reduces it. Jobs? There is no requirement that in return for the tax break they hire only Carroll residents. The only benefit may be the single day of publicity surrounding the announcement that Carroll has been chosen as the site for a new business.

If the commissioners are serious about using taxpayer dollars to lure business into the community, they ought to be making investments in infrastructure and education. Building water and sewer lines for new businesses makes more sense than giving a few companies tax breaks because those utilities will be available for other companies for years to come. Providing a company with subsidized employee training not only helps the company but also assists the employees who receive that training. Long after the company leaves or closes up, these people will have skills they can offer to other local employers. At a time when the commissioners say they are worried about getting the maximum bang from the taxpayers' buck, granting business tax breaks is not wise strategy for improving the county's financial condition.

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