Automakers have been incorporating tax breaks into their business development programs for hybrids and other environmentally friendly options for their automobiles. Ford has been especially vocal over the past several years. In short, their message reiterates the need for the U.S. Government to step up to the plate and provide, among other things, huge tax breaks for the company’s research and development efforts. According to the higher-ups, the success of cleaner vehicles depends on it. Further, they say an investment, via tax breaks, in education and training of Ford’s employees who play a role in designing and manufacturing these cleaner vehicles is imperative too, and that it is a responsibility the government should shoulder. They say that less dependence on foreign oil will more than make up for the taxpayer monies invested in business development.
In Kentucky, tax incentives and tax breaks for the state’s business development efforts are often used for rural development and job programs. Kentucky has huge tax exemptions written into its tax code. The problem comes in when the state loses revenue to these tax breaks that affects healthcare, education, and other vital aspects. Further, there has been some debate over the past decade as to how these tax breaks factor into more jobs. It is said there is no checks-and-balance system in this state that provides nearly $450 million dollars a year in tax incentives to the state’s businesses.
Suggestions for Kentucky’s situation include accurate reporting to the state’s economic development office, building foolproof ways of ensuring the monies are not only spent appropriately but that they also provide new jobs, and prioritizing which companies receive what in terms of tax dollars.
Arizona is tackling its approach to business development in a slightly different way. Frustrated with the state government’s practice of providing millions of dollars in tax incentives for business development efforts of large chain stores and developers, while providing very few, if any, incentives for the small businesses in the state, a group of Arizona residents, Local First Arizona, banded together and managed to pass a bill that outlaws subsidies for retail projects in both Pinal and Maricopa counties. The city of Phoenix falls into this area. Should cities within this designated area choose to continue the practice of hefty tax incentives for these developers, they will then lose the same dollar amount in state revenues. In 2007, two large tax incentives were provided to two developers, CityNorth and Prasada, which totaled almost $350 million dollars in tax incentives. The small business owners of the areas come together and presented the bill which subsequently passed in both the House and Senate. With such retail giants as Wal-Mart, Nordstrom’s, and Home Depot that routinely receive large tax incentives from cities vying for their store openings, it is difficult, if not impossible, for small business owners to compete. Cities and states take the position that smaller mom-and-pop businesses cannot sustain the tax base the larger retailers offer. The problem with this reasoning, at least in Arizona, is that libraries in these two counties were forced to reduce the hours they were open because of budget cuts. This is certainly contradictory to the local governments’ insistence of better tax bases.
A solid method of ensuring these tax breaks are incorporated appropriately, the business development efforts would ideally come full circle and allow communities to thrive while allowing both larger retail stores as well as the smaller businesses to coexist and flourish. Until that happens, this vicious cycle of being too cautious and missing out on the advantages of these incentives or just as badly, handing these tax breaks out with no proper assurances that they would indeed serve their purposes, will continue to wreak havoc on already cash-strapped communities.
