The Texas state government is giving Apple $21 million in incentives to expand in Austin. The Phoenix Business Journal writes that Apple's Austin move shows that Arizona faces obstacles to luring businesses. "[T]here’s little denying that a lack of incentives has hurt Arizona over the years.”
Hurt Arizona? Quite to the contrary, Arizona taxpayers are fortunate that they aren't forced to prop up companies. Lucky them — they can spend their their tax dollars on higher uses, such teaching kids and fixing roads.
This highlights a grander problem in state policy: using lucrative incentive packages to lure businesses from one state to another. State-driven economic development is a game, and taxpayers always lose, since they're the ones who have to pay for it. This doesn't create new economic activity — it just shifts it around.
It's very likely that Apple would have expanded in Texas without the incentives. The cost of doing business in California is so high, people and businesses have been leaving for other states in droves. Texas has benefited from much of this domestic migration because it has a much better tax climate. In California, for example, the top marginal rate on personal income is 10.3%, and the corporate income tax rate is 8.84%. In stark contrast, Texas doesn't tax income at all. It also has fewer regulations and right-to-work laws.
Essentially, moving operations from California to Texas means that Apple and its workers get an automatic pay raise. Isn't this incentive enough to locate in Texas?
Supporters of tax incentives will argue that this incentive package will add will add 3,600 jobs to the economy, but this is still a bad deal. First, it's not clear if these jobs will actually be created; research consistently shows that state incentive programs fail to produce the jobs and economic activity that they promise. Second, it ignores that jobs are lost in the private sector when the government creates jobs.
A big problem with state incentives is that they allow the government to play favorites in the marketplace. This makes it harder for companies that lack political connections to compete.
States should stop giving tax credits, and start giving tax cuts. Government officials stop carving out entire sections of the tax base, and instead foster a business climate that favors no parties over others. State economies would grow faster if policymakers broadened the tax base and lowered overall tax rates and regulations.
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