Billions of dollars in tax incentives to draw companies to the state of Texas may have been wasted on businesses that were going to re-locate there anyway, a new study by a University of Texas professor has found. Nathan Jensen investigated 257 projects that received assistance under the Texas Economic Development Act (also known as Chapter 313), which allows businesses moving to the state to get a tax break on their property taxes instead of funding public schools.
What he found was shocking.
“Jensen’s work attempts to quantify the amount spent by the state to lure businesses that couldn’t have gone elsewhere,” writes Naveena Sadasivam for the Texas Observer. “Using a probability model, Jensen found that 85 to 90 percent of the 257 projects that received Chapter 313 tax breaks from 2002 to 2014 were likely coming to Texas anyway. Those projects were collectively awarded $4.4 billion in tax breaks. Separately, Jensen asked five experts to review the 257 projects. There was general agreement that 82 of the projects didn’t need tax breaks to lure them to Texas.”
Instead of using good public policy to create jobs, it turns out the Texas Economic Development Act has only served to line the pockets of big businesses that were going to invest in Texas anyway. Making matters worse, these economic incentives come at the cost of lost funding for public schools, which are funded primarily through property taxes. Especially at a time when school choice opponents in the legislature argue that we need to give more money to public schools, the sheer size of these handouts is galling. How about instead of raising taxes on Texas families, we shut off the $8.5 billion in corporate welfare payments that Chapter 313 will bleed from our public schools over its lifetime?
Hispanics start businesses at a higher rate than the national average, and are significantly more likely to own one-man entrepreneurial operations rather than large businesses with legions of employees. Studies in other states have shown that the vast majority of these tax incentives don’t go to small businesses, but instead go to large companies. According to a study by Good Jobs First, which examined corporate welfare spending in Florida, for example, the bulk of incentives go to large companies, while smaller entrepreneurial companies get comparatively little. Sixty-nine percent, or $93 million, in taxpayer handouts in 2014 went to such corporations. It seems that when it comes to helping the Latino community, corporate welfare advocates come up empty handed.
It’s likely that at least some of the companies would not have moved to Texas without the tax breaks – though Jensen’s study estimates no more than 10 to 15 percent – but this misses the broader point that government shouldn’t be picking winners and losers in the marketplace to begin with. Businesses should be able to profit only by creating value for society, not by creating value for politicians. When governments are empowered to dole out special tax favors to specific companies, businesses have an incentive to invest their time and energy squabbling in a zero-sum game for a finite number of government handouts rather than investing in new capital, new infrastructure, and new employees.
The facts are clear. The Texas Economic Development Act is nothing but a tax break for large, politically-connected businesses, and it comes straight out of the pockets of Texas public schools. That’s bad for children, bad for the Latino community, and bad for the state of Texas. Lawmakers should use this session to scrap every dollar of this wasteful corporate welfare program and focus on proven policies to create opportunity for everyone and bridge the divide in the two-tiered society that is emerging in this country.