Grace Ross: When Tax Breaks Hurt Job Creation

Tuesday, April 23, 2013

Grace Ross, GoLocalWorcester MINDSETTER™

On Sunday a week ago, some 25 or 30 people stood out in front of Botany Bay’s development supporting a few brave souls; these are workers who stepped out publicly about lost wages. (Councilor Rivera was there).

Lost wages is such a serious issue that the Governor set up a special commission and ongoing initiative to address the widespread incidents of people working, documenting the work they were supposed to do; yet, once they submitted their timesheet, they are not getting paid. This is actually a widespread problem is some sectors like building.

There has never been any legal excuse for folks who have done work they were hired to do not getting paid when they complete that work.

Yet rather than having all our local government leaders focused on the legal requirement of people getting paid for the work they do and people getting decent enough wages to survive, the argument of late in our city of Worcester has been about TIFS. I am not even going to bother with what those initials stand for; the gist of it is whether tax breaks should be given to a business because it has plans to expand; if they want a tax break for that expansion, then they must submit an explanation of how they will increase the tax revenue to the city and especially jobs.

I was very proud to be at the City Council and hearing questions raised by City Councilors about the wages that would be paid by the most recent hotel proposal. They questioned the quality of the jobs, whether those jobs would be local for a tax break by this hotel complex. A key reason for those questions is that in looking back to the largest tax breaks that given locally and at the state level, businesses often report that they would have located or expanded where they were going to locate or expand anyway. National studies back up that tax incentives are never essentially the determining factor for where corporations site or do their expansion.

On the other hand, if tax incentives were somehow part of a grand plan where we had research showing that they worked for creating economic benefits – especially jobs, jobs that are paid and paid well then perhaps an argument can be made for targeted tax incentives.

The problems are larger however.

The tax incentive version of economic planning is not planned. Also, in practice, TIFs are generally only accessible to those who know how to apply for those tax incentives.

The vast majority of small business, local businesses that are starting up or that are expanding that provide the most jobs combined don’t know how to apply for these TIFs. Yet they create many more new jobs than a single project is likely to do – excepting perhaps our local hospitals already so large. The businesses who apply for these tax incentives are already fairly large economic enterprises; they are more likely to have a long term economic life without the tax incentives than some of their smaller sisters and brothers businesses that are trying to also expand and grow.

So, often all tax incentives do is unbalance the economic playing field even farther. If our government tax benefits are going to the largest fish in our local economic pond instead of the smallest ones we are actually tilting things away from job creation and away from growing new businesses or expanding smaller businesses.

As I was explaining to a friend of mine, it’s like having a forest where you keep nurturing the fully grown trees through the end of their life cycle and thus shut out and end up killing off all of the saplings and the smaller trees; like such a forest, TIFS create an unhealthy economy that’s not going to continue to self-perpetuate.

Add to this that the City has given tax incentives with job creation requirements attached to them and have not always even checked that those jobs were created. In a report that I tracked and commented on a couple of years ago about tax incentives and job creation by TIF-recipient companies, there were no reports, reports lacking the required data and no consistency even among those who did complete their annual reports about how job growth was been measured.

The Worcester Council subcommittee who was given responsibility for reviewing this most recent TIF request wisely voted it down.

Please, can we decide more generally then to take actions to protect existing jobs and to promote jobs the way that we know jobs thrive best, that is by supporting all of our small businesses to grow?

Let us not fight for tax incentives like this most recent big request. In this case, the hotels we would essentially be funding to pay for expenses that it has already committed itself to pay, that is its mortgage. Second, apparently those in the hotel sector report that it’s not even clear we need these hotel rooms unless we can drive the rest of our business development in the city.

That broader development is better helped by not using tax incentives but by cleaning up our dual tax system and various other problems that hinder most of our local businesses.

Grace Ross is a former Gubernatorial candidate and author of Main St. Smarts.