Last week the Tax Foundation and KMPG issued a report that gives us some insight as to why this city council may feel it is necessary to award economic development incentives like the one being considered for Epic Sports today. According to the report, our tax costs on business are high — way too high.
The news for Kansas is worse than merely bad, as our state couldn’t have performed much worse: Kansas ranks 47th among the states for tax costs for mature business firms, and 48th for new firms. The report also had some separate figures for Wichita, and the results were similar.
While many of the problems with high tax costs on business are state issues, the city’s legislative agenda calls for continued authority to use existing economic development incentives. In particular, the city this year has testified for the continued use of historic preservation tax credits. Spending on these incentive programs reward the lucky few, but increases the cost of government, and therefore taxes, for everyone else.
We need to realize that the city’s “active investor” method of targeted economic development isn’t working.
As evidence, recently the Greater Wichita Economic Development Coalition issued its annual report on its economic development activities for the year. It claimed to have to have created 1,509 jobs in Sedgwick County during 2011. But that’s only 0.59 percent of the county’s labor force. This is a very small fraction, and other economic events are likely to overwhelm these efforts, which were at great cost.
There is one incentive that can be offered to all firms: Reduce tax costs for all. The Tax Foundation report should be a shrill wake up call to the city and state that we must change our ways.
But the action the council is considering today moves us in the opposite direction. These incentives have a cost. Other businesses have to pay. That motivates many to seek incentives from the city and state, which in turn raises the cost of government and taxes. It’s a spiral that leads to ever-increasing control of economic activity by city hall.
We in Wichita need to build a dynamic economy in Wichita that is based on free enterprise and entrepreneurship rather than a government handout. This is the way we can have organic and sustainable economic development. We can start on this path today by saying no to this incentive package.