Behold a Pale Rider

What is responsible for the controversy regarding the use of tax abatement in local economic development? Specifically, should the serial tax abater feel ashamed or proud for what he has done in his past life?

It is the recipient that is the heart of the tax abatement controversy.Our take on this question is that the tool has opened an ideological chasm within the profession and has almost divorced present day academic researchers/think tanks from many professionals in the field. Why? Because the use of tax abatement requires a recipient to get the tax abatement. It is the recipient that is the heart of the tax abatement controversy. We don’t always like tax abatement because we don’t like who is getting them and/or what they are doing with proceeds. The two principal classes of recipients are (a) profit-making corporations or (b) disadvantaged people and the community of citizens. Each side of our bi-modal political spectrum attaches a body of thought and belief to each and tends to favor one class over the other and views the other with concern (and even distrust).

We try to refrain from these overtly political discussions in the Journal. But as far as tax abatement and incentives go, it does not seem we can avoid it. Bluntly, the political left, the “progressives” if we may, cannot abide incentives and tax abatements to private enterprise generally, perceiving abatements as a wasteful distortion, resulting in inefficient and improper consequences to the community and the nation. The “conservatives”, aside from libertarians and Tea Party adherents (who probably agree with the progressives for totally different reasons), desiring limited government (and low taxes) as prerequisites for growth and prosperity, perceive tax abatement as creating a business climate supportive of growth and economic prosperity. The situation is reversed when progressives call for various “redistributive” governmental actions to eliminate individual inequities and advocate desired social/economic ends of benefit to the community as a whole.

Into this ideological chasm gallops the pale rider of tax abatement and incentives.Into this ideological chasm gallops the pale rider of tax abatement and incentives. Tax abatement is a tool, just like a hammer. One uses tax abatement because one believes it is the right tool to produce a desired end. As such, tax abatement can be used for good and evil by both sides of the political spectrum. A hammer, after all, can build a house to protect us from the elements or nail Christ to the Cross.

The Curmudgeon hopes it is fair to suggest that Progressives have been the core of the attack on tax abatements and incentives to business for the last several decades. The more “conservative” tax abatement perspective (the Tiebout model) has been out of favor for at least that long. Originally, the propelling force against tax abatement was labor funded research institutes which assessed and commented on specific deals and programs. Somewhere in the 1990’s the academic community joined in with their own analysis which typically followed along the lines we have labeled the customary approach. Professionals in the field, however, have traditionally and consistently used tax abatements and incentives and, during the halcyon days of the last decade, they really proliferated and expanded as if on steroids.

But frequently lost in the debate of recent years was the reality that both sides of the political spectrum were using tax abatements and incentives – even to private firms – as a core tool to advance their desired purposes and goals. If conservatives employed tax abatement and business climate reforms in firm location, progressives, seemingly the most vehement opponents of tax abatement to private firms have had no problem with tax abatements, or tax credits, or subsidies as a tool as they advance alternative energy (ethanol, wind, solar, electric batteries) or green and sustainable development/redevelopment. Progressives can support and advocate for their own reasons, assisting small business through tax rates, credits, exemptions, abatements (EDZ) etc. What is the earned income tax credit, if it is not a form of tax abatement? Likewise the non-profit corporation itself, which avoids most taxes because of its end purposes.

It is not the tool of tax abatement that is the issue. Rather the problem is WHO IS THE RECIPIENT OF THE TAX ABATEMENT OR INCENTIVE.

Which Pale Rider?

The Pale Rider Clint Eastwood rides is a living vehicle, a tool of transportation. So, as we have argued, is tax abatement; it is a tool, a pale tool without ideological color. The key to its existence, persistence, and its expanded use is that it is a tool which both sides of the political spectrum almost instinctively reach for to accomplish their desired ends. They reach for this tool because for some reason they believe it works, or at minimum because it is the only tool in their toolkit that offers a prayer of shifting behavior and producing results.

Why does each side grab tax abatement/incentives as a core instrument of change; they would not do so if they thought it useless or ineffective.Why does each side grab tax abatement/incentives as a core instrument of change? They would not do so if they thought it useless or ineffective. In their heart of hearts both sides of the political spectrum act as if they believe tax abatement works! Despite the plethora of studies and research from both sides which discourage the use of tax abatements to unworthy recipients because they don’t actually work or are inefficient distortions and wasteful, both sides of the political spectrum simultaneously advocate and utilize the tool to favor their more worthy recipients and accomplish their desired goals.

The real question is whether tax abatement actually does work. Does it impact corporate and individual behavior and action toward a desired end?

At present there may be no definitive answer to that question because we have not been able to adequately measure the impact of tax abatement in isolation of all the other factors which encourage and inhibit corporate and individual action.

Cost/benefit analysis simply cannot work in a partisan, ideologically charged environment. We are not philosopher kings skilled in neutral application of mathematically derived natural laws. Numbers and methodologies are mere cannon fodder in a larger battle. Anyone with actual on the job experience recognizes the fragility of this methodology and equally instinctively appreciates that the demand for cost/benefit analyses for programs and actions arises not from the program’s advocates, but from those who oppose. Conversely, those who advocate or defend a program or action will develop a cost/benefit analysis to set the debate and fire the first shot to which opponents must react, usually with their own cost/benefit analyses.

In a micro economic world of math and models, statistics and percentages, the measurement of social behavior and action is still uncertain.It appears cost/benefit analysis is also a pale rider.

In a micro economic world of math and models, statistics and percentages, the measurement of social behavior and action is still uncertain. Pushed beyond their power to predict and explain, methodologies have become tools of conflict and even partisanship. Hidden behind the mists of math are magic bullets and silver linings which often, if not always, do not really exist but imply understanding and explanation so vital to justify action and movement toward a desired end.

We can put a man on the moon but we still can’t prove whether or not tax abatement actually works or doesn’t.

So for the serial tax abater, there is no joy or pride; no need to be ashamed. Just the grim reality he used a tool he believed would best grow his community and bring prosperity to its citizens.

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