My column this morning cites a recent New York Times series on tax incentives and their effects on state and local government revenues. The three part NYT report is here, here, and here. Without question, there have been some major boondoggles in the subsidy game routinely played as corporations and government officials attempt to land the best deal. Particularly as jobs and investment dried up during the recession, political leaders have been hard pressed to woo businesses with tax breaks, land, and other incentives.

With our state facing the combined challenge of an operating budget shortfall and the state Supreme Court’s requirement to boost education spending, lawmakers are looking for new revenue.

With the supermajority requirement in place, the Legislature won’t be able to raise taxes without voter approval. Even if the court strikes down the supermajority, the conservative tilt in the state Senate makes major tax hikes a heavy lift.

So the search for unwarranted tax breaks will be on. The NYT continues the practice of treating lumping together sound tax practices – like providing a sales tax exemption for business purchases of intermediate goods and services that go into the final product. That’s not an incentive; it’s a way to avoid multiple taxation of the same product. For more information, read this study of Washington’s machinery and equipment sales tax exemption and this report on tax preferences.

From the column:

Much of what looks like a subsidy in our state’s tax code can be more properly understood as correctives to problems created by our tax structure, like avoiding double taxation or maintaining interstate and global competitiveness.

The column also cites economist Enrico Moretti’s thinking on the importance of tax breaks for R&D. His article in The Atlantic explains it in some detail. (We also cite Moretti in our economic impact report on the Washington tech sector.) Moretti’s conclusion:

The tax credit for corporate spending on R&D should be increased as should federal support for academic research in science and engineering. We also need to make the R&D tax credit permanent, to give innovators more certainty about the future. These are solid investments that will ultimately pay for themselves.

It is important to realize that this is not about fairness — it is purely about economic efficiency. The government should not subsidize innovators because it has a moral obligation to do so. It should subsidize innovators because it is in the interest of American workers to do so.

At the Business Climate blog, Bill McMeekin offers other thoughts on the NYT series.

Area Development has a good piece on how incentives influence location decisions.