Thursday, December 11, 2014

Slam dunk for 76ers, but an air ball for others

A Camden parking lot that is the future site, with a tax assist, of the 76ers´ new practice facility and offices.
A Camden parking lot that is the future site, with a tax assist, of the 76ers' new practice facility and offices. STEVEN M. FALK / Staff Photographer

Well, they're at it again. Our friendly politicians are giving away our money. No, I am not talking about welfare or government worker salaries or pensions. I am referring to the insatiable desire to lavish tax breaks on businesses, whether or not the firms need the funds.

Unfortunately, too often these deals benefit the companies more than the public.

The Philadelphia 76ers are moving to Camden, with taxpayers paying for their new headquarters and practice facility. Sweet.

Now, I have absolutely nothing against the team. While the Sixers hardly need the money to build their new facility, it would be crazy if they didn't take the money and run. It is a slam dunk.

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But really, we are talking about a practice facility. In the bigger picture of regional economic growth, this does nothing more than move the chairs around.

It does not create additional economic activity, and few new jobs, if any, will be created. It may be good business practice to play one government off against another to get the greatest tax break possible, but that does not make it good public policy.

The problem with tax breaks for any special purpose is that their cost is paid for by every other business and individual. That is the dirty little secret of tax breaks. If taxes are lowered for any company or individual, everyone else must pay for that loss of revenue.

Let me explain. The tax-credit recipient benefits because its tax bill is reduced. The government's budget still has to be funded, so all other taxpayers must make up the amount the tax-credit recipient doesn't pay. This is true regardless of the size of the budget.

The result of all this: The lower-taxed firm is the winner while firms that don't get favorable tax treatment are losers. If you like the government picking winners, this is your program.

Specialized tax deals are not limited to businesses. The same problem arises when personal tax breaks are doled out. If some taxpayers pay a reduced rate, others have their tax bills increased. It doesn't matter if it is the carried interest tax break for hedge fund operators or the earned income tax credit for low-wage earners - everyone else pays higher taxes so those individuals can pay lower taxes.

In the case of the 76ers, the cost to New Jersey of the forgiven tax dollars is extremely high per job attracted. Indeed, the study released indicates the project would lose money even projecting out over 35 years. And there are some heroic assumptions in those numbers. Like so many tax deals, this one is great for the company, wonderful for the politicians who claim to have added jobs, but not so good for most of the rest of us.

Interestingly, despite the shifting of taxes from the tax-deal recipient to everyone else, the business community still supports these arrangements. Why? Because business leaders hope they, too, can some day secure a special deal that would advantage them!

That most of the benefits go to larger, well-connected companies seems to be lost on many businesspeople. As long as there is hope that they might get special dispensation from the tax gods, there will be business-sector support for these programs.

As for government officials, they have a variety of justifications. In the 76ers' case, the goal is to revitalize Camden, and the practice facility/headquarters is supposed to be a base for future growth. So-called spillover effects would generate significant economic activity. If that were to happen, the breaks might even pay for themselves.

The rationale that the tax breaks would lead to the building of "growth poles" around which other activities would thrive was given for funding the Camden Aquarium, the Susquehanna Bank Center, the Riversharks' Campbell Field, and other deals in the city.

It's no surprise that those projects did not attract significant numbers of new businesses.

All that said, our government leaders have little choice. When it comes to the game of corporate location, the next deal that is made to attract or retain a company that doesn't use a special tax break will be the first of its kind.

And that is just a crazy way to run economic development.

Joel L. Naroff is president and chief economist of Naroff Economic Advisors Inc.

Joel Naroff
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