States and local governments spend $45 billion annually on various economic subsidies for businesses. Concerns have mounted in recent years about the wisdom of competing for business using tax incentives. Research has shown that economic incentives make little difference in where a company ultimately chooses to locate. Despite that, localities can end up engaging in bidding wars, pushing up the cost of new jobs.
Now Kansas and Missouri are nearing a truce in an economic border war that has cost hundreds of millions of dollars and created barely any new jobs, writes The Wall Street Journal (June 26, 2019). The neighboring states would agree to cease using one of the most popular tools in the economic-development toolbox: lucrative tax breaks in exchange for a promise of investment and jobs. Politicians regularly tout the number of new jobs created under such programs.
Companies in the Kansas City region have long been able to take advantage of its unique geography, where the Kansas and Missouri border runs right through the metropolitan area. Companies could receive tax incentives for moving from one side of town to another, even if they just moved jobs from one spot to the other and didn’t create net new jobs.
Since 2011, 5,526 jobs have moved from the Kansas side to the Missouri side, with Missouri paying $151 million. In that same period, 6,729 existing jobs moved from the Missouri side to Kansas for a cost of $184 million. In total, $335 million has been spent on such company relocations. Can the Kansas City truce work elsewhere? “There are opportunities for broader regions to work together,” said one local CEO. “But at the end of the day, people want to attract companies and jobs and prosperity for the part of the country they’re responsible for.”
Classroom discussion questions:
- Suggestions for solving this thorny problem?
- Discuss some of the recent massive location incentive packages.