Talking Business

Keith Chrostowski: Surefire way to end tax incentives? Ban them

Mark Funkhouser, former mayor of Kansas City.
Mark Funkhouser, former mayor of Kansas City. The Kansas City Star

The debate over giving companies tax incentives to put up a hotel, build a factory or whatever has centered on reining them in — but just a bit.

Be stingy not profligate: Use incentives as they were intended, to revive truly blighted areas.

I’ve stayed on the sidelines of this debate despite the high feelings over incentives and the development border war between Missouri and Kansas. I just don’t see that limited reform will work for long.

Companies promising development and jobs and, let’s face it, campaign contributions, would ultimately be too difficult for politicians to resist. Exceptions at first would be rare, but over time would grow.

In a recent post on The Washington Post’s Wonkblog, Emily Badger explores the problem of limiting incentives.

She first grasps the nettle: Why should private companies, often very profitable ones, even get incentives in the first place? Is that the way free-enterprise capitalism should really work?

Companies would do the great majority of development projects even without incentives. In too many cases, there’s no real net gain in jobs. We’re just shifting them around or literally stealing them from neighboring states and cities.

And why in the world divert the additional tax dollars created by development away from schools, libraries and such? Badger cites one estimate from a New York Times investigation finding that private companies reap $80 billion a year from incentives nationwide.

Badger gives a push to a big idea on how to get rid of them: “What if we simply banned states and local governments from poaching jobs from each other, or giving tax dollars to private corporations?”

She grabs onto a proposal from none other than former Kansas City Mayor Mark Funkhouser. He suggests a federal law to ban them altogether.

Funkhouser, now the publisher at the Governing Institute in Washington, first suggested this last year.

To Badger, he argues the case against incentives in terms aimed at the Missouri-Kansas border war: “Even if a jurisdiction says, ‘Well, we have to do it because the other folks are doing it,’ no, actually you don’t. Go ahead and let them take the poison. It doesn’t increase job growth.”

He points out that the U.S. economy got along fine without incentives for about 200 years: “We had a world in which this didn’t exist,” up through the 1970s. “We invested in the Interstate Highway System. We spent money on stuff that actually does create jobs: investment in infrastructure and investment in education. You need to have tools, excellent port facilities, and you need a highly skilled workforce.

“We have taken that money and shifted it away from the real generators of economic wealth, and we’ve given it to people to line their pockets.”

Funkhouser tells Badger we could enact something like the Foreign Corrupt Practices Act, which bans bribes of foreign officials to obtain business.

I gave Funkhouser a call to elaborate. In his view it’s simple bribery when companies promise to create jobs and offer support to politicians granting tax breaks.

“Companies can’t bribe foreign governments. Why should they be able to bribe our governments?”

Funkhouser gets most agitated about the same problem I have with incentives: They’re “patently and inherently unfair.”

A big company can get them, but they’re off limits to a small business owner who, for instance, wants to convert an old gas station to a shop.

Funkhouser said longtime existing businesses also get shut out. “Why are johnny-come-latelys getting a break on their taxes and a company that’s been around 100 years doesn’t?”

Another example of unfairness, Funkhouser pointed out, occurs when a city uses tax dollars to upgrade public infrastructure for a private project.

“Why should they get their street fixed” when streets, say, east of Troost in Kansas City, need repair?

Of course, the use of tax incentives is so entrenched that any kind of wide ban is impossible.

The only hope is that as governmental budgets continue to tighten, voters in the name of economic fairness step up and decide to spend money on their needs instead.

(In Badger’s article, Greg Leroy, executive director of Good Jobs First, makes a more modest proposal to stem incentives. Calling it the “small carrot model,” he suggests that the feds withhold money from states that use them just to steal jobs from each other. You could deny 10 percent of a dedicated funding stream, for instance, Community Block Grants.)

For now, Funkhouser says, his talk about a total ban at least has sparked some discussion.

He acknowledges he’s taking a contrarian position. But Kansas Citians who know him are used to that.

▪ Badger’s posts on economics on Wonkblog are worth following. Her Twitter handle is @emilymbadger.

To reach Keith Chrostowski, business editor of The Kansas City Star, call 816-234-4466 or send email to Follow him on Twitter: @keithc3.