Are corporate mega-deals worth the price?
Day Four of The Advocate’s “Giving away Louisiana” series looks at the massive subsidies the state uses to lure large industrial projects. The big questions are whether the projects are a net gain for the state budget, and whether the incentives are really needed to attract large-scale investments.
Experts who study economic development say it’s rarely possible to know if or when incentives tilted the scales. With states across the country dangling free money, corporations would be foolish not to seek out any tax break available. But in general, most experts are skeptical about the importance of incentives. They note that companies don’t always go to the place offering the richest subsidies, reinforcing the notion that other factors carried the day. Those bigger factors often include business costs, access to transportation routes, customers and suppliers, and the quality of the local workforce and schools.
The Sasol fuel plant being built in Westlake is expected to create as many as 1,250 jobs at an average salary of $88,000. The state is putting up $257 million in direct incentives, plus property tax breaks worth up to $3 billion. Chief Legislative economist Greg Albrecht questions whether the investment of tax dollars will benefit the state’s finances in the long run, as well as whether the investment was the tipping point for Sasol’s decision since it represents only 1 percent of the project’s estimated cost.
Cyber Monday: Good for retailers; bad for state revenues
While “Cyber Monday” has come and gone, many Louisianans will still choose to buy holiday gifts online as opposed to brick-and-mortar stores. While this mode of shopping helps customers avoid busy parking lots and long lines, it can also mean shoppers avoid paying state sales tax at a detriment to the state and local coffers. Because federal law does not allow state and local governments to collect taxes on Internet subscriptions and some online purchases, Louisiana’s state and local governments had to forgo more than $500 million in 2012 — and possibly much more in the current year, as online shopping becomes more popular.
The Supreme Court established the ban on taxing some Internet purchases when itruled in 1992 that a state cannot require merchants to collect sales taxes from residents when the merchant lacks a “physical presence” in the state. While consumers are still legally required to pay due taxes directly to the state, few do. And most states, including Louisiana, are unable to force residents to pay their taxes because states don’t track residents’ online purchases. This results in millions of uncollected tax dollars annually.
Tax policy divides Democrats on Capitol Hill
As Congress grinds through its December lame-duck session, a battle has broken out within Democratic ranks that could derail an emerging compromise on tax policy, The Washington Post reports. The fissure came as Republicans, aided by some conservative Democrats, neared agreement on a budget deal that would permanently extend more than $440 billion in “temporary” tax breaks that mostly benefit corporations. The deal included no such extensions for programs that benefit the working poor, such as the Earned Income Tax Credit and the Child Tax Credit, which drew complaints from the White House and Senate liberals.
The Center on Budget and Policy Prioritieslambasted the idea, noting that its tax breaks were not paid for, making even deeper cuts to government programs in the name of deficit reduction more likely later, and claiming it would benefit high-income people while making the expiration of the EITC and CTC more likely, pushing more low income people into poverty.
New rules for child-care centers move to BESE
A state panel approved new rules governing the staffing ratios for child-care centers, despite objections from advocates that they are too lax. The new rules require at least one teacher for every 11 2-year-olds. As the Advocate’s Will Sentell reports:
Backers said the regulations strike a balance between safe practices and affordability. A higher teacher-to-toddler ratio would force huge fee hikes that have to be shouldered by parents and guardians, backers of the committee-endorsed plan said. Melanie Bronfin, executive director of the Policy Institute for Children in New Orleans, urged the panel to endorse a ratio of one teacher for every nine 2-year-olds. Bronfin said the national standard is one teacher for every five students of that age.
Opponents of the smaller ratio said it would raise costs for families by up to $2,000 per year, putting high-quality child care out of reach for more families.
Number of the Day
$500 million – Potential revenue lost to state and local government in Louisiana due to the inability to collect internet sales tax. (Source: Louisiana Budget Project)