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Businesses pay property for a reason. They get fire and police protection. They get roads paved. They get streets plowed. They get to plug into infrastructure. Governments rely on businesses to get revenue. Yet property tax breaks have become ubiquitous and governments are now hurting for revenue.

It’s time to rethink property tax abatements, according to a new study. The Lincoln Institute of Land Policy found throwing property tax incentives at businesses is bad public policy:

Three major obstacles can impede the success of property tax incentives as an economic development tool. First, incentives are unlikely to have a significant impact on a firm’s profitability since property taxes are a small part of the total costs for most businesses—averaging much less than 1 percent of total costs for the U.S. manufacturing sector. Second, tax breaks are sometimes given to businesses that would have chosen the same location even without the incentives. When this happens, property tax incentives merely deplete the tax base without promoting economic development. Third, widespread use of incentives within a metropolitan area reduces their effectiveness, because when firms can obtain similar tax breaks in most jurisdictions, incentives are less likely to affect business location decisions.

The authors say states should restrict property tax breaks to distressed geographic areas and certain types of projects. They say governments should actually study if property tax breaks are effective. They also suggest other kinds of government support, such as job training and regulatory relief.

The study found tax breaks for retail and housing developments don’t increase income or employment. But we continue to subsidize projects like College Town and the Greece Ridge Mall.

Links of the Day:

– Riding along with police during the Dave Matthews concert at Darien Lake is a riot.

– Carl Paladino filed a lawsuit accusing the Buffalo school board of appointing the new superintendent in secret.

– They were the state’s original double-dippers. Slave owners who charged their slaves to buy freedom while collecting compensation from the state.

– Albany restaurants are fretting that the state may end lawmakers’ allowances for travel and food.

– The video of San Diego accidentally setting off all of its fireworks at once is insane.

13 Responses to Property Tax Breaks Don’t Work

  1. July 5, 2012 at 4:11 pm lynn e responds:

    Just another form of corporate welfare and ripping off the public. When are people important and corporations not people?

  2. I am very glad that they have done this study, but really, we have decades worth of evidence undermining the idea that property tax breaks work.
    Rachel, I believe you have mentioned before how these businesses fill a niche that would be taken over readily by another business if they left. Never mind the call for tax reform, this is proof we need campaign finance reform, so our elected officials do not feel beholden to the people donating to their campaigns.

  3. July 5, 2012 at 5:19 pm theodore kumlander responds:

    tax abatments have always been a bad idea. as soon as they end the business’s shu ttheir door and move to the next place they can get a tax abatment, Gillians by frontier field is a good example.

  4. Exactly Theodore, Jillians is a great example. My sister worked there, helped them publicize the heck out of the place and then whoosh, gone as soon as they had to pay any taxes.
    I sometimes wonder if it is out of sense of entitlement rather than the actual bottom line.

  5. July 5, 2012 at 8:25 pm Marci Wolcott responds:

    I own a small business and I don’t get any property tax break. It’s discriminatory to give that to some businesses and not others. I don’t mind paying my property tax -as you said, it pays for services that I receive just as well as anyone else in the community. It seems that these breaks tend to go to businesses that could better afford to pay the tax anyway-

  6. July 5, 2012 at 8:35 pm bman responds:

    One of the biggest abuses of tax breaks was giving Bryant and Stratton in Greece tax breaks to move to a new location. An already successful enterprise (borderline predatory) getting comida help to move a few miles down the road.

  7. July 5, 2012 at 10:55 pm Mark Coon responds:

    Signs in the National Parks say, “please don’t feed the animals.” That’s because if the animals get too comfortable with humans, then they forget how to survive on their own. Businesses are similar. The more corporate welfare they receive, the less likely they are to survive in the true free market. Of course, corporations like the handouts just as much as the wild animals do!

  8. July 6, 2012 at 11:10 am Peking Humonculous responds:

    “They say governments should actually study if property tax breaks are effective. They also suggest other kinds of government support, such as job training and regulatory relief.”

    I think they’re more concerned with helping their already-wealthy developer friends out than caring about whether tax breaks work or not. Just leave it for the next administration to deal with! They’ve got campaign donors to take care of!

  9. July 6, 2012 at 2:17 pm Eduardo Ricardo responds:

    Nothing is going to work if you dont have the support (of the people).

  10. However with all the tax breaks the Brooks administration had been able to convince the public how wondergu

  11. However with all the tax breaks the Brooks administration had been able to convince the public how wonderful she is…at sticking it to anyone that’s not part of the party.

  12. July 7, 2012 at 7:35 am bman responds:

    Edueardo, if you don’t have the support of the people, then you shouldnt have the money.

  13. There is a tax break that we should ALL be getting: a reduction — and even elimination — of the portion of the property tax that falls on buildings and other improvements to land.

    Think what would happen if we reduced or eliminated that portion of the property tax. No more annual penalties for maintaining or improving one’s home or factory or commercial property. No more subsidies for those who keep obsolete 1- and 2-story buildings in mid- and high-rise neighborhoods.

    Why do we continue to tax buildings and other evidence of productive effort? It seems backwards to those who stop to think about it.

    Valuing land well is not particularly difficult or expensive. Valuing buildings accurately requires careful inspection. We could conduct decent reassessments of land every year or two for far less than it costs to do an assessment of building values.

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