ACRE Policy Analyst Jacob Bundrick discussed state government’s track record in creating jobs with cash subsidies through the Quick Action Closing Fund in an op-ed published on January 20th in the Arkansas Democrat-Gazette.

The Quick Action Closing Fund (QACF) allows the state to provide cash grants to select entities in the hopes of attracting and retaining businesses within Arkansas. The state legislature has appropriated approximately $176 million to the QACF since it was created in 2007. The Arkansas Economic Development Commission has said the program is responsible for creating or retaining nearly 20,000 jobs in Arkansas.

In his op-ed, Bundrick references a working paper he co-authored with BT����Associate Professor of Economics and ACRE Scholar Dr. Thomas Snyder entitled “” The working paper was published December 6, 2017 by the Mercatus Center at George Mason University and the academic paper this study is based on will be published in 2018 in the academic journal The Review of Regional Studies.

Bundrick and Snyder found that Quick Action Closing Fund subsidies have “no meaningful relationship” with county-level employment.

Bundrick writes in his op-ed:

“Overall, we conclude that there is reason to be skeptical of the Quick Action Closing Fund as a job creator at the county level.

Great fanfare surrounds the job announcements tied to these subsidized projects. However, focusing our attention solely on the benefits to the subsidized company ignores the costs to the local economy.

Quick Action Closing Fund subsidies are not free money. Tax dollars spent on subsidies could have been spent by taxpayers elsewhere and still have increased economic activity. Similarly, public officials could have used these tax dollars for other potentially more productive public expenditures such as highway funding.”

You can read the full op-ed.

Bundrick is also the author of the ACRE policy review, “Tax Breaks and Subsidies: Challenging the Arkansas Status Quo”and recently participated in a organized by UCA’s Center for Community and Economic Development.

Created in 2007, the QACF allows the state to provide cash grants to select entities in the hopes of attracting and retaining businesses within Arkansas. These subsidies are awarded to businesses primarily at the discretion of the governor. The $176 million QACF has been used to , including $10 million to Hewlett-Packard in Conway, nearly $7 million to LM Wind Power in Little Rock, almost $3 million to Caterpillar in North Little Rock, and more than $2 million to Neckbone Productions for the filming of the movie “Mud”.

In June of this year, the AEDC reported that the QACF is directly responsible for . Proponents of the QACF argue that there is even more job creation than that as a result of the multiplier effects the subsidized businesses and their employees send through the local economy. But does the empirical evidence agree with this take?

The short answer is “no”. Bundrick and Snyder find that QACF subsidies provided to businesses within a given county have no statistically meaningful relationship with private employment per 1,000 population and private establishments per 1,000 population over a four-year period after the subsidies are disbursed. The researchers also find no evidence to suggest that a given county experiences any meaningful employment or establishment spillover effects related to QACF subsidies awarded to businesses in neighboring counties. Bundrick and Snyder conclude that the evidence provides reason to be skeptical of the QACF as a job creator.

This work carries significant policy implications. If Arkansas’s politicians are aiming to develop policy that will positively affect job creation in Arkansas, they should look to more proven policy reforms. For instance, is a more effective strategy than trying to pick winners and losers with targeted subsidies. Moreover, the state could make significant headway by reducing the barriers to employment imposed by Arkansas’s onerous occupational licensing laws. These broad-based, comprehensive reforms are likely to lead to better economic outcomes for the state than continuing to provide select businesses with subsidies from the Quick Action Closing Fund.

For more on the pros and cons of targeted economic development incentives, be sure to check out ACRE’s Tax Breaks & Subsidies: Challenging the Arkansas Status Quo.

Earlier this month, software engineering firm Elyxor pledged to create 45 new tech jobs in North Little Rock over the next five years. Arkansas Online quoted Governor Asa Hutchinson as saying, “While we have a diversified economy in Arkansas … we will not be complete as a state and complete as an economy until we have a dynamic, sustained technology sector in this state.” As I explained in my first post in this series, Elyxor will receive an income tax credit for 1 percent of its total payroll in exchange for hiring these employees. This situation is a prime example of the government trying to steer the economy to help with economic development.

One reason why many politicians and taxpayers support such financial incentives for businesses is that they think governments can influence specific economic activities by designing and issuing incentives that address perceived needs such as job creation, project investment, or research and development. Governments are also supposedly able to influence industry composition, or the types of businesses in the state, by offering targeted business incentives.

Steering the economy doesn’t work, though, and can actually be harmful for two reasons: regional unrealism and resource allocation. Let me explain what I mean by those terms.

Specializing in Comparative Advantages Helps Regions Prosper

Regions prosper when they specialize in the industries where they have a , meaning they produce a good or service more efficiently than other regions do. For example, Arkansas has a comparative advantage in rice farming. The state’s water resources and topography allow Arkansas farmers to grow rice more efficiently than farmers in other states. This comparative advantage has led Arkansas to .

Specialization in comparative advantages often leads to industry clusters. When these clusters occur naturally, they can further boost economic productivity. The economic benefits of natural clusters, such as those for computer and software development firms in Silicon Valley, have led economic developers to attempt to create artificial clusters. Arkansas’s targeted business incentives, which are designed to attract companies that specialize in transportation logistics, information technology, life sciences, bio-based products, agriculture, and advanced materials and manufacturing systems, are one example.

Incentives, however, are not necessary to attract firms that align with a region’s natural comparative advantages. The��comparative advantage alone, whether it is the workforce, technology, or location, is reason enough for firms in��that industry to locate in the region. If Arkansas had a comparative advantage in “knowledge-based” industries, such as software development, knowledge-based firms would locate in Arkansas regardless of the incentives the state provided. We see this natural clustering without government incentives in California, where Brook Taylor, spokesman for the Governor’s Office of Business and Economic Development, said that “are being built in spite of the fact that we don’t have specific tax credits or incentives for them. Companies are just building them here because it makes sense.”

Regional Unrealism Hurts Arkansas’s Economy

Steering the Arkansas economy into industries where it does not have a comparative advantage, however, makes Arkansas worse off. points out that Arkansas would actually��“make itself poorer if it tried to specialize in ways that were inconsistent with its comparative advantage.”��Market distortions lead to regional unrealism, which is the accumulation and use of resources in areas and activities��in which they are not best used. When a state does not do what it is good at, but rather what it dreams it could��be good at, its economy does not reach its production potential and the state is poorer as a result.��To see how regional unrealism harms states, consider Arkansas’s comparative advantage in rice production. ��Imagine that Arkansas’s leaders thought that ski resorts were the key to a successful economy. By issuing enough subsidies and tax breaks, Arkansas could turn its rice fields into ski lodges. Rather than Arkansas farmers raising roughly half the nation’s rice, vacationers would be skiing down fake slopes. Would this arrangement make Arkansas wealthier?

Clearly, it would not. The state would waste massive resources and opportunities trying to support a ski industry. The land, labor, and climate of eastern Arkansas is much better suited for growing rice than it is for downhill skiing. Another region that is less efficient at producing rice might make up for the lost production in Arkansas, but since it��is less efficient, rice prices for consumers would rise. Arkansas and its residents are much better off when the state uses its resources to farm rice instead of pretending to be Colorado.

While this is a very clear example of how regional unrealism makes states worse off, it’s not always this obvious. Most times it occurs at levels that are very hard to see. Issuing tax breaks and subsidies to may not seem as absurd as trying to cultivate skiing in Arkansas, but if firms such as Nordex and Hewlett Packard Enterprises are not here because of natural economic conditions, we are making ourselves poorer.

Markets Allocate Resources Better Than Government Intervention Does

Why do people think the government should steer the economy? They may assume that the government is better than the market at allocating resources. However, Nobel Prize-winning economist pointed out that no single person or entity knows all the relevant information about the entire economy that is required to make optimal decisions. There is no omniscient wizard who knows exactly which widgets need to be made, how many need to be made, where they need to be sold, and at what price. Rather, people have specific, tacit knowledge about a business or industry, and the potential to earn a profit motivates them to react to market signals, such as prices. Governments, on the other hand, do not have the same profit incentive and are too far removed from market signals to behave in the same way. Individuals reacting to market signals lead the economy to focus on its comparative advantages better than government manipulation does.

Conclusion

The idea that governments can steer economies into sustained economic growth is a myth. History has repeatedly shown this. Government manipulation, although often well intentioned, ends up hurting more than it helps. By limiting government intervention, politicians not only allow entrepreneurs and businesses to make the best economic decisions for their firms, but they also clear the path for states to specialize in their comparative advantages. The outcome is more prosperity for individuals and states alike.

Proponents of financial incentives for business argue that tax breaks and subsidies don’t create costs to the state’s budget. Advocates reason that if Arkansas forgoes taxing a firm in some way, and that firm truly would not have located in the state without the tax break, there is no cost to the state. Arkansas does not forgo any tax revenue by issuing the tax break because taxing the firm would have led it to locate elsewhere, which means Arkansas would not receive tax revenue, anyway. If, however, the firm or its employees are not completely exempt and do pay at least some taxes, Arkansas would actually see a tax revenue increase despite the tax break—not to mention that the state would also see the other benefits associated with bringing in more business. In short, proponents say tax breaks may make the state better off.

This argument, though, hinges on the assumption that financial incentives are the deciding factor in where a firm chooses to locate. In Arkansas, officials assume that the jobs created in state-involved economic development projects would not have been created without state intervention. State leaders thus assume that these projects lead to net fiscal gains. But are these fair assumptions?

Are Tax Incentives Really the Deciding Factor in Where Firms Locate?

Anecdotal evidence suggests that incentives are frequently not the deciding factor in where firms locate. In a 2016 analysis, Brian Fanney of the revealed that some companies receiving state aid would have expanded regardless of whether they received incentives. Here are two examples:

Bad Boy Mowers of Batesville would have expanded in Arkansas even without the nearly $4 million it received from the state from 2012 through 2014, according to Scott Lancaster, general counsel for the company.

The state provided Peco Foods of Independence County with $485,000 worth of incentives, but chief operating officer Benny Bishop said, “We would have chosen Arkansas for expansion even without state incentives.”

Issuing tax breaks and subsidies to firms that are going to expand or locate in Arkansas regardless of aid means that the state forgoes tax revenue that it would have otherwise received or sacrifices other, potentially more productive uses of its tax dollars. When incentives are not the deciding factor in where a firm chooses to locate or expand, they are nothing more than a giveaway to politically favored firms—a poor use of tax dollars. What’s more, Arkansas officials take false credit for creating jobs that would have been created anyway. Peco Foods and Bad Boy Mowers are just two examples. But how many other firms have we given aid to that didn’t really need it?

Problems with Letting Businesses Buy and Sell Tax Incentives

States also create costs to their budgets when they allow firms that receive incentives to sell their incentives to other companies in the secondary market. The Arkansas Economic Development Commission allows Arkansas companies to sell certain income tax credits, such as the , the , and the . Let me explain why companies would want to sell or buy a tax incentive and how doing so costs states and taxpayers money.

Consider this hypothetical scenario:

Company A receives $100,000 from the In-House Research by Targeted Business Income Tax Credit to aid in oncology research. However, Company A fails to turn a profit because it has yet to have a breakthrough and develop a medicine to sell. Company A cannot use the $100,000 income tax credit because it does not owe any income taxes. But Company A knows it can sell the tax credit.

Company A sells the credit for $80,000 to Business B, which does owe Arkansas income taxes. When filing taxes, Business B uses the tax credit to reduce its income tax liability by $100,000. Company A is $80,000 better off because it was able to sell its useless incentive to Business B for $80,000. By buying Company A’s tax credit for $80,000, Business B lowered its tax burden by $100,000, so it is $20,000 better off.

The state of Arkansas is the big loser. By allowing Company A to sell its income tax credit to Business B, Arkansas lost $100,000 of tax revenue that it otherwise would have received. In other words, the sale of this tax credit cost the state money, making Arkansas residents worse off.

Furthermore, allowing the sale of incentives to third-party businesses means that the state is effectively subsidizing more than just the company it intended to aid. In our hypothetical scenario, Business B benefited from the state trying to aid Company A, even though the state had no intention of aiding Business B. Business B may or may not belong to the industry the incentives were designed to target. In Arkansas, the�� (AEDC) decides who can and cannot buy tax credits on the secondary market.

The best solution for Arkansas is to eliminate tax credits altogether. But if abolishing tax credits cannot be accomplished, Arkansas should, at the very least, eliminate the ability to sell tax credits. To achieve this, the state should allow these credits to expire unused if the firm remains unprofitable or, as the least desirable option, turn these transferable credits into refundable credits. Refundable credits mean that if the company cannot use the tax credits, the state will trade the credits for cash. In our hypothetical scenario, this means that Company A would still receive $100,000 even if it had no taxable profits to offset. Company B would no longer be involved in any transactions. Although it is not necessarily desirable for the state to award an unprofitable business cash, refundable credits would at least prevent the government from unintentionally subsidizing companies that it had no intention of subsidizing in the first place.

How Financial Incentives for Businesses Hurt Taxpayers

The costs of financial incentives to Arkansas’s budget also likely lead to other negative outcomes. By nature, subsidies shift public money away from public goods, which creates one of two results:

1. Without increasing tax revenue, the city, county, or state issuing the subsidy must decrease the amount of public goods in its jurisdiction. Likely outcomes include a drop in the quality or quantity of infrastructure, a less developed workforce due to reductions in education, and a decrease in the quality or quantity of public goods like roads, education, parks, and bike paths that improve quality of life.

2. The government, wishing to maintain the current level of public goods, raises taxes. Higher taxes are problematic not only for the taxpayers that must pay them but for the broader economy. shows that states with lower taxes enjoy faster economic and employment growth than high-tax states.

Targeted tax breaks have a similar effect. Tax incentives likely lead to increases in marginal tax rates for business that do not receive tax incentives. When the government provides tax incentives to certain companies, it narrows the tax base and lowers the state’s revenue. To make up for the lost revenue, all other taxpayers must pay more. Otherwise, the government must spend less on public goods.

Either scenario—reduced public goods or increased taxes—discourages firms from locating in the region. Firms become less attracted to a region as infrastructure congestion increases and the quality of both the infrastructure and the workforce diminishes. Higher taxes and costs of doing business discourage firms, too.

Conclusion

If you’ve been following this series of blog posts, you now know how tax breaks and subsidies are supposed to help local economies grow, why these financial incentives don’t help the economy like politicians say they do, and how tax breaks and subsidies for businesses affect government revenue and spending on public goods. In my next post, you’ll learn about how governments use financial incentives to try to steer the economy.

In my last post, I went over the basics of why tax incentives and subsidies are considered staples of economic development. In this post, I’ll explain why they don’t work as politicians might hope.

A common argument in favor of financial incentives is that tax breaks and subsidies motivate firms to create new jobs and invest in new projects, which sparks demand for more products and services within the local economy.

For example, if Hewlett-Packard builds a plant, then construction workers get hired, computers get bought, employees eat at local restaurants, and so on. As demand rises, more firms are attracted to the area and either establish new operations or expand existing operations, leading to further job creation, project investment, and an overall uptick in economic activity.

This uptick increases public revenue as new businesses and employees pay taxes on their earnings and purchases. With increased public revenue, governments may be able to afford to decrease marginal tax rates on businesses or individuals or increase the number or quality of public goods and services. And who doesn’t want lower taxes or better schools, roads, and parks?

While these arguments seem sound, the reality is that financial incentives often fail to spur economic activity for several reasons.

Positive and Negative Spillover Effects from Tax Breaks and Subsidies

Traditionally, incentive programs are evaluated only by the jobs, local investment, and tax revenue directly created by the firm that receives the incentive package. For example, the only reports the direct number of jobs created or retained and the direct investments made by the companies receiving subsidies.

But new and expanding firms create spillover effects that both help and hurt surrounding businesses. Some of these effects support economic growth.

-Labor pooling encourages economic growth by increasing the concentration of workers in the area with specialized skills and knowledge.

-Technology spillovers, or the exchange of technology among people and firms, increase efficiency and innovation. -Knowledge sharing, or the exchange of thoughts, concepts, and ideas among people and firms, also leads to increased innovation.

But there are also several negative spillovers. Increasing the number of firms in a location

-increases the demand for a variety of inputs, such as labor and real estate, which increases the cost of labor and rents and raises the cost of doing business.

-means that, unless infrastructure is expanded, more firms are competing to use the same level of roads, railways, utilities, and communication systems.. The resulting congestion can slow the movement of people and products, which hurts a company’s profits.

-makes tax hikes more likely. An influx of businesses and people means that demand for public goods such as roads, schools, and police will increase. Public money (taxpayer dollars) pays for these goods, which means that the government must collect more revenue. While more businesses and people mean that the tax base will expand and the government will collect more revenue even if it doesn’t raise tax rates, increasing the demand for public goods also increases the likelihood that taxes will rise to keep up with demand for public goods. (Related: Taxes Take Their Toll on Arkansas Manufacturing)

-leads to the cannibalization of existing firms. Tax breaks and subsidies provide a cost advantage to firms that receive them over firms that don’t. When a particular market is saturated (isn’t big enough for more firms), providing a cost advantage to select new firms through incentives allows them to “steal” employees and customers away from existing firms, often to the point that some existing firms must close.

Because of these spillover effects, both positive and negative, tax incentive projects should be evaluated based on their total impact on an economy—not just based on the direct effects from the incentivized firm.

When Looking at the Whole Economy, Tax Incentives for Businesses Don’t Help As Much As Politicians Think They Do

Much research on the net effects of tax incentives for businesses has found that large, new firm locations have a much smaller benefit on the local economy than advertised. In other words, the negative spillover effects outweigh the positive ones. Research by economist Kelly Edmiston examining the found that “after five years, each 100 new employees hired by a new or expanding firm results in a net gain of only 29 workers to the resident county.”

In addition, found that using tax incentives to attract large firms to an area doesn’t have any positive overall effect on the private sector, and likely doesn’t increase tax revenue, either. These findings contradict the common argument that financial incentives increase economic activity. If new firms take employees and customers from existing firms, there are no positive spillovers.

Rent-Seeking

Because incentives reduce the cost of doing business, firms that receive incentives have an artificial competitive advantage over similar firms that do not receive them. The government-granted competitive advantage gives incentivized firms a better chance of survival than those that do not receive aid. By providing advantages to select firms, the government is picking winners and losers rather than letting the market decide. Who do you think should decide whether, say, Target or Walmart is more successful in your hometown: the government or the customers who shop there?

Another problem is that when governments pick and choose who receives financial incentives, they create an environment of rent-seeking: the use of resources to gain financial advantages without creating value in the overall economy. Firms use their resources to lobby for political favors that provide competitive advantages rather than creating a better product or service. Are you, as a consumer, better off when for (that your tax dollars pay for) or spends money on better quality clothes and a more unique shopping experience? Is the economy better off when Dillard’s spends money courting governments for handouts instead of courting customers, whose purchases lead to jobs and economic growth? By issuing financial incentives, governments are encouraging firms to waste resources courting politicians instead of focusing on value-adding activities.

When politicians increase the rewards, or financial incentives, for unproductive behavior, more entrepreneurs engage in , which leads to a misallocation of talent and hurts the economy in the long run.

Seen and Unseen Effects

Policy makers need to consider both the because policies do not have a single outcome, but a series of outcomes. Only the initial outcome is immediately apparent; subsequent effects take time to develop. However, failing to consider the unanticipated outcomes of policy is dangerous. Policies that have short-run benefits often have negative long-run outcomes, and vice versa. Sound economic policy requires foresight to anticipate the future consequences of today’s decisions.

In the case of policies that provide financial incentives to select firms, the immediate, seen effect is that the firm receiving corporate welfare creates new jobs. This effect is often well documented in photo opportunities with politicians. What we don’t see are the other Arkansas jobs destroyed or the jobs that would have come to Arkansas but don’t because of the unintended consequences of financial incentives. While a handful of firms and the workers they hire may initially benefit from subsidies and tax breaks, the economy at large suffers in the long run.

If you’ve ever wondered why corporate welfare gets such a bad rap, you’ll want to read this post and the five follow-up posts I’ll be publishing over the next few weeks. My goal is to help you understand why governments give tax breaks and subsidies to local businesses and why, even with the best of intentions, these efforts tend to fail and cause new problems. These posts are based on a paper I just published, “Tax Breaks and Subsidies: Challenging the Arkansas Status Quo.”

Economic development is a constant focus of state and local governments. Government officials work to attract businesses, jobs, and investment to the area. They often do this by offering financial incentives, such as tax breaks and subsidies, to select firms. However, financial incentives used to entice businesses come at the taxpayers’ expense. Politicians may enjoy bragging about the remarkable progress they’ve made when they trade tax dollars for a handful of jobs, but they ignore the resulting economic costs. Tax incentives create market distortions that make residents worse off and leave them with less money in their pockets.

Here at ACRE, we want Arkansans to be as well off as possible. To ensure that they are, we want to help you understand the problems with financial incentives, why you should care, and what government officials should do instead to create the best outcomes for each individual Arkansan, their families, and the state as a whole.

What Are Tax Incentives and Subsidies?

When trying to improve economic development, politicians and government officials frequently use two carrots to entice firms: tax incentives and subsidies. Tax incentives aim to attract more business to the state by making it less expensive for businesses to operate in Arkansas relative to other states. Subsidies are grants, or sums of money, that governments give firms in an effort to boost business. Let’s take a look at how each one works.

Tax incentives are always designed to increase a firm’s profitability by decreasing its overall tax burden. They come in several forms:

–Tax exemptions fully excuse firms from paying certain liabilities.

–Tax reductions partially offset the amount a firm is obligated to pay in taxes.

–Tax refunds and rebates repay a portion of the taxes a firm has already paid.

–Tax credits are more flexible: they allow a firm to offset a portion of its tax obligation, and they can often be carried forward to subsequent tax years or be sold in the secondary market.

To see how tax credits can impact a company’s profitability, take a look at this sample profit and loss statement. The yellow highlights show how a business income tax credit, in this case for labor, increases a firm’s bottom line.

How Do Businesses Get Tax Incentives?

To receive tax incentives, firms must meet certain requirements from the government. These vary depending on the tax incentive, but common ones include:

-belonging to certain industries

-investing so much in a particular project

-creating a particular number of jobs

-reaching a minimum payroll threshold

The qualifications often depend on the tax incentive’s purpose, which might be creating new jobs, spurring private investment, or increasing research and development. After all, government officials use incentives to promote their particular agendas. Politicians can attempt to steer business practices with incentives because incentives encourage firms to engage in a specific activity by lowering the firm’s cost of that activity, making the return on investment more attractive.

For example, the Arkansas job creation tax incentive known as is an income tax credit given to qualifying firms based on the payroll of new, full-time, permanent employees. Because the tax credit lowers the firm’s labor costs, the return on investment of hiring a new employee is greater and thus a more attractive option relative to other investments the firm could make. Most recently, , a software engineering, development, and deployment firm, is poised to benefit from Advantage Arkansas. Elyxor will receive an income tax credit for 1 percent of its total payroll. In return, the company plans to hire 45 employees within 5 years.

Using Tax Incentives to Target Preferred Businesses and Industries

Politicians commonly use tax incentives to target certain preferred businesses or industries in which they want to encourage the creation, expansion, or relocation of firms. This targeting is an attempt to steer the economy by lowering the cost of doing business in a desired industry. For example, to six emerging technology sectors:

-advanced materials and manufacturing systems

-agriculture, food, and environmental sciences

-bio-based products (adhesives, biodiesel, ethanol, etc.)

-biotechnology, bioengineering, and life sciences (genetics, geriatrics, oncology)

-information technology

-transportation logistics

Tax incentives aren’t the only tool governments and politicians can use to attract business: they can also use subsidies.

How Governments Use Subsidies to Attract Business

Often, governments issue subsidies under the premise that firms will create jobs or increase investment in the local economy. Subsidies, much like tax incentives, lower the cost of doing business and increase returns on investment. The potential for new jobs and investments to improve economic development makes subsidies an attractive tool for politicians.

Arkansas frequently provides subsidies through the . Both the governor and the legislative council must approve the Arkansas Economic Development Commission’s use of the QACF. The QACF is funded with general revenues, which are funds that come primarily from individual income taxes and sales and use taxes. The legislature allocates these funds across the state’s agencies and programs, including to the QACF. [Related: Making Cents of $18 Million: Voters Decide Whether to Increase Sales Taxes in Pulaski County.]

From its creation in 2007 through end of fiscal year 2015, the QACF has subsidized 73 entities. Some of the largest beneficiaries include Hewlett-Packard in Conway ($10 million), LM Windpower in Little Rock ($6.8 million), and Nordex in Jonesboro ($3.8 million).

Arkansas’s government also provides subsidies through . Amendment 82 of the Arkansas Constitution allows the Arkansas General Assembly to authorize the issuance of general obligation bonds of up to 5 percent of the state’s general revenues collected during the most recent fiscal year (in Arkansas, the fiscal year runs from July 1 to June 30; fiscal year 2016 started on July 1, 2015, and ended June 30, 2016). Amendment 82 bonds are generally reserved for “major economic development projects,” such as the . For a company to receive Amendment 82 bonds, the general assembly must approve the bonds’ issuance by a vote. Because these bonds are general obligations of the state, they become a liability of the taxpayers. In other words, it’s your tax dollars that must pay off the debt the state legislature voted to place on you. Legislators have to find the money for these bonds somewhere, which means they could cut spending elsewhere or, more likely, raise taxes.

Conclusion

Rather than focusing on developing the next special tax break or subsidy, government officials should focus on creating a better business environment to attract and retain businesses. Specifically, Arkansas should implement comprehensive tax reform that not only lowers taxes for all businesses, but creates a more simple, fair, and transparent system.

Stay tuned for my next post, where I’ll discuss why financial incentives don’t have the positive effect on economic activity that their supporters think they do.