Job creation and the snake oil of tax incentives

Here’s an interesting article by Mark Funkhouser, who recently served as mayor of Kansas City, Missouri. It starts off well, but in the second paragraph derails when the author approves of government intervention to correct what he calls a market failure. But true cases of market failure are exceedingly rare. And if we can justify subsidizing a grocery store in an attempt to revitalize a neighborhood, what can’t we justify subsidizing? Still, a useful article.

Every politician wants to appear to be creating jobs. The problem is that in America today most elected officials think that the way to do this is through the use of tax incentives. Even when they sincerely want to do the right thing, the pressure to give away the public’s money is just too strong: Ribbon-cuttings celebrating business openings secured with public dollars are a staple of the political realm. If you’re not seen doing these regularly, you can be assured that you’ll be called a “jobs killer” in attacks fueled by corporate interests that see you as denying them a place at the public trough.

The truth is, when used in a narrowly focused way to achieve a specific public purpose by correcting a market failure, the use of tax incentives for economic development can be justified — for example, to bring a decent grocery store to a neighborhood where the residents do not have access to healthy food at reasonable prices. In this case, the income base in the area might initially be insufficient to support a store profitably, but once it is built higher-income residents may find the area more desirable and begin to move into the area in such numbers that after a few years the store is sustainable without a government subsidy.

Continue reading at Job Creation and the Snake Oil of Tax Incentives.