With Congress ready to cut business taxes, let’s end the incentives game

Amazon’s exuberant competition for its new second headquarters, with its escalating one-upmanship of state and local tax incentives, highlights everything that is wrong with our current system of “corporate welfare.”

Amazon is in fierce competition with retailers and other businesses in cities across the country. These competitors also offer great jobs, but they must continue to pay their full tax bill while Amazon will get paid millions in state and local tax subsidies just for opening new offices. Taxing virtually identical businesses differently has always been terribly unfair and it is getting much worse. This practice puts the government in the business of picking winners and losers; it creates an uneven playing field for great companies that have been paying their full state and local tax bills for decades, and it is a race to the bottom for cities and states across the country that are forced to compete with one another and give up more and more critical tax revenue to attract new jobs.

The incentives game is increasingly destructive to smaller businesses. We are hastening the day when large corporations will completely control pricing and many other aspects of our society – something we should all fear. Allowing businesses like Amazon to force communities to pay them to locate in their area – where a competing small hardware store or other retailer has been doing business for decades and supporting the community by fully paying its tax bill – is so un-American it should have been prohibited long ago.

The incentives game is also exacerbating the gap between urban and rural America. Only urban locations with growing tax revenues think they can afford the big “giveaway.” Rural areas with declining dollars usually don’t even try to compete.

In today’s corporate world, the leaders of companies feel they must ask for concessions so they can maximize profits for their shareholders. Likewise, our governors and local officials feel compelled to offer bigger and bigger tax incentive packages, lest they face criticism that the big jobs “got away.” As a former state treasurer and current CEO of a billion-dollar company, I have been on both sides of these negotiations. Only unilateral disarmament can stop this madness, and Congress now has a great opportunity to do just that.

With Congress nearing a deal that would drastically reduce taxes for American companies, it has the power to eliminate this unfair incentives game. Similar to the alternative minimum tax, Congress could mandate that any business that negotiates unique, localized abatements or other local or state tax reductions would not qualify for the full lower federal rate. The local tax break would be offset by Washington and could be sent back to the local tax authority. The incentive for big companies to hold local and state taxing authorities hostage would be forever removed.

With this policy, each tax entity could still set its own rules and rates, and continue to generate revenues however it saw fit. What no city, county or state would be forced to do going forward is to treat one taxpayer differently by granting unique tax reductions to for-profit entities. If they did so, that reduction would simply be offset by a higher tax payment to the federal government in the same dollar amount. So any business that used its muscle to reduce its non-federal taxes would simply be wasting its time. American taxpayers in different cities and states would no longer be forced to compete with each other and could refocus efforts on competing with the rest of the world.

States, cities and counties need their tax revenues like never before to invest in schools, hospitals, parks and infrastructure. With our leaders in Washington signaling their desire to send more funding responsibility back to the states, and businesses about to receive substantial tax cuts, there will never be a better time for shutting down the incentives game.

This story was originally published November 2, 2017 at 9:20 AM with the headline "With Congress ready to cut business taxes, let’s end the incentives game."