Do Corporate Tax Incentives Work? 20 States, and Most Cities, Don't Know.

Washington state, which gave Boeing $1 billion over the past four years, has a well-established system to evaluate tax deals. Many governments don't.
by | March 20, 2019 AT 4:00 AM
Workers walk next to a Boeing 737 MAX 8 airplane parked.
After two fatal crashes involving Boeing's 737 MAX airplane model, the U.S. and dozens of other countries have grounded them. (AP/Ted S. Warren)

SPEED READ:

  • Boeing has received roughly $1 billion in tax incentives and credits from Washington state over the past four years.
  • Washington is one of 30 states that regularly evaluates corporate tax incentives.
  • Only a few cities regularly track and assess these business deals to see if the promised results were achieved.
 

The aircraft manufacturer Boeing has received roughly $1 billion in tax incentives and credits from Washington state over the past four years. That includes tens of millions of dollars for activities in 2017 related to production equipment for the 737 MAX jets, all of which have been grounded in the past week after two fatal crashes.

That information is known because Washington state has one of the more well-established tax incentive evaluation programs in the country. As corporate tax breaks -- like the ones used to lure Amazon’s HQ2 -- have come under increasing scrutiny, more states are tracking them and attempting to ensure that the businesses that receive them are holding up their end of the deals.

But, 20 states still don’t regularly assess their corporate giveaways at all, and few cities have established systems to routinely track these incentives.

Last year, Massachusetts and Michigan became the latest states -- bringing the total up to 30 -- to require regular assessment of business tax incentives.

“Seven years ago, states were evaluating their incentives inconsistently or inefficiently -- if at all,” says Josh Goodman, a senior officer for The Pew Charitable Trusts’ State Fiscal Health project (and a staff reporter for Governing from 2006 to 2010). “To see so many [places] taking an interest in reforms, that really is a sea change across the country.”

 

Closing Loopholes

Typically, there’s little transparency and accountability after a corporate tax deal is announced. Without a system for reviewing tax incentives, it’s difficult for most states to even say whether the giveaways achieved what they were supposed to. That, in some cases, has led to governments giving away money without getting the job growth that had been promised.

Evaluating incentives can prevent that from happening.

When Maine studied its marquee economic development program in 2017, analysts found a loophole that allowed businesses to receive tax incentives for up to two years merely by promising to create jobs. Even if they didn't create any jobs after that point, the companies wouldn't have to return any of the benefits they already received.

The following year, state lawmakers passed a reform that requires businesses to prove they have created at least one eligible job before they can receive benefits.

When it comes to cities, only New York, Philadelphia and Washington, D.C., have passed legislation to create independent corporate tax evaluation programs, according to Pew.

It can be more difficult for cities to set up these systems, says Goodman. For starters, the office evaluating incentives should operate with a level of independence from elected officials, which can require more legwork for cities. Philadelphia is hiring external contractors to do the job. (D.C. and New York City already had independent fiscal offices in place.) Resources are also an issue. Evaluators often face obstacles like locating and organizing the necessary data.

 

Boeing and the Economy

It’s too soon to tell whether the grounding of the 737 MAX jets will have a ripple effect on the local economy in Washington state, where Boeing is one of the largest employers. The tax incentives will continue, according to an $8.7 billion deal, through 2040. If policymakers want to reevaluate them, they have a lot of the information they would need.

But the discussion in Olympia now, says state Sen. Reuven Carlyle, is primarily about safety -- not jobs or economic concerns.

"As the main production home of Boeing, we take the long view," he says. "There’s a time for politicking and a time for serious policy work, and this is the latter."

 

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