Candy store of tax breaks to lure companies

-- Photo by Brian Snelson

-- Photo by Brian Snelson

Adapted from Robert Whitcomb's "Digital Diary'' column in GoLocal24.com

Economic development by deal continues apace in Rhode Island.  The latest example that we know of: State officials have been considering whether to award up to $4.1 million in state tax credits to Agoda Company, a Singapore-based online travel agency that’s part of Priceline, in return for opening an office in downtown Providence. The quid pro quo is said to be the creation of up to 200 jobs in the Ocean State.

Of course, these tax credits must be made up by businesses and individuals who are not getting such goodies. As I have often notedbefore, the argument is that the state’s promotional position gains by its bringing in high-profile companies, which will then presumably get others get excited about moving to the paradise on Earth that is Rhode Island. But measuring the economic benefits of subsidizing individual companies to move to a jurisdiction is, to say the least, an uncertain science. And corporate promises about the number of jobs to be created have the transience of snow in March in New England. That is not to say that all or most states  in varying degrees don’t do "economic development' by deal.

Perhaps this is technologically impossible, but it would be nice if some computer genius would figure out a way to compare the macro-economic benefits of only  changes that would affect most everyone in the state – such as better schools, better roads, lower or at least simpler taxes and clearer and fewer regulations -- with the effects of subsidizing individual companies to come. Implementing broad changes that gradually make a state more attractive to a wide range of businesses isn’t as sexy and doesn’t grab the headlines of snaring one company (and often for only a few years) but it would seem to make more sense.

And let’s not forget that Rhode Island  has splendid comparative advantages in location (oneof the best in the world), in such long-recognized sectors as design and boatbuilding and insome famed educational institutions. These qualities are very saleable, especially if the broad-based improvements noted above were made. Too often, it seems that paying a company to come to the state is the first approach to economic development.

Former Rhode Island Gov. and Sen. Lincoln Chafee told WPRO; “I’ve traditionally been opposed to what I call the candy store. I’d rather treat all the companies in Rhode Island equally, rather than pick favorites, and shovel the candy at them, as I call it: taxpayer dollars.”

This race to lure famous companies can also be seen as a race to to the bottom.

This may be politically impossible, but he has the right idea. (His naïve and/or  wishful-thinking remarks about how to deal with Russia deserve comment some other time.)