Cash-strapped states are attempting to draw businesses with tax incentives to revive local economies. Despite the tax increases placed on small businesses during the 2009 Legislative Session, Oregon is following the trend with its own tax break to Intel.
This year, states across the nation are offering business tax incentives from grants for relocation costs and worker training to broad-based tax cuts. New Jersey lawmakers just passed an economic recovery package with a massive $1.5 billion in corporate tax breaks and other subsidies. Louisiana spent $358 million between 2006 and 2008 on tax credits for films, including $27 million for The Curious Case of Benjamin Button.
While tax breaks are not new to states, passing out unprecedented incentives while relying on federal stimulus dollars to fund state services and business incentives is a different ballgame. The federal government passed the American Recovery and Reinvestment Act of 2009, a $787 billion stimulus package, in an attempt to revive the U.S. economy and create jobs across the nation. Using money from the stimulus package, Oregon is able to finance its business incentives. Oregon recently gave Intel $121 million to subsidize new chip plants in the state.
These tax breaks are great for attracting businesses, but are counterproductive to the goals outline in the American Recovery and Reinvestment Act because they generally transfer jobs from one state to the next rather than creating new jobs.
Some economists are suggesting the U.S. withhold federal funds until states stop using tax incentives to steal jobs from other states. Until such action occurs, Oregon may become a major player in attracting or expanding businesses and creating new jobs in the state to recover from its budget shortfall.