I’m not sure this is a good idea…it’s probably a devil-in-the-details situation… but it’s certainly an interesting idea. This opinion piece from Matt Reed at Florida Today does a nice job of outlining the picking-favorites, what-about-me spiral that incentives programs fall into if they aren’t backed by a very careful, very prudent strategy for clearly targeting incentives to policy objectives… and using them fairly.
It’s important to note, though, that the across-the-board property tax cut he proposes isn’t a solution for everyone — I don’t even know if it’s a prudent solution for the communities he’s identified. Anytime someone cavalierly asserts that “that government can afford to give up half of that income stream,” you shouldn’t accept that without looking very closely at the numbers. Without analyzing the budgets of the governments he identifies, I certainly can’t judge whether those would be minor cuts or big threats to the basic services that both businesses and residents need. It could be that the state and the region can afford to offer these kinds of incentives across the board, or it could be that they’re not. I don’t know.
But here’s the point I think is most relevant here: without very clear, and very clearly communicated, targeting of incentives to businesses that fit very specific policy objectives, and give a sound foundation for saying yes to some and no to others, the solution that the author proposes may be the only defensible option. That’s a choice that communities and regions should be making consciously, and too often, they don’t
One thought on “From the Good Ideas file: Why not incentivize every business?”
Matt Reed is on the right track. Government’s don’t do well trying to pick “winners” and avoid “losers.” Also, why should some big well-connected business get a tax break when a Mom-and-Pop store cannot? And why should the taxes from my business help subsidize a potential competitor? So creating a level playing field is both fair and reasonable. Matt suggests that we cut taxes for all. But what about the lost revenues? Infrastructure and government services are important factors supporting business and residential growth.
The good news is that taxes on productive investments can be reduced without losing needed revenues. Communities have accomplished this by transforming the traditional property tax into a public services access fee. This is done by reducing the tax rate on privately-created building values and increasing the tax rate on publicly-created land values.
The lower rate on buildings makes them cheaper to construct, improve and maintain. This encourages property improvement and maintenance — which increases employment. And cheaper buildings are good for residents and businesses alike.
Surprisingly, the higher rate on land values helps keep land prices more affordable as well. The higher land tax reduces the profit from land speculation. This reduces the speculative demand for land, thereby helping to reduce its price. This system creates a development incentive where land values are high. These high-value sites tend to be infill sites near existing infrastructure amenities such as highway interchanges, downtowns, and transit. And these are the very places where development makes sense.
Although unknown to many, this approach has been used successfully in US cities and abroad. For more info, see “Using Value Capture to Finance Infrastructure and Encourage Compact Development” at https://www.mwcog.org/uploads/committee-documents/k15fVl1f20080424150651.pdf