There used to be this idea out there that if states were to compete over business, we’d see a rush towards less burdensome regulation and lower tax rates. Instead, what we seem to get is an arms race of corporate welfare, targeted tax cuts, and special favors.
Biotech is a favorite industry among politicians, and companies like Boeing and Wal-Mart regularly take bids from municipalities — who’s gonna give us the most goodies. These are not broadbased policies limiting government interference with business — these are handouts to favored companies or industries.
Our own Freeman Klopott has the story on D.C., Maryland, and Virginia trying to pay Hollywood, “an incentive-driven industry” as one corporate-welfare official describes it, to film within their borders:
One reason might be Maryland’s new tax incentive package, pushed through the legislature this year by Gov. Martin O’Malley. At $7.5 million, Maryland is in position to offer more than the $5 million in tax credits Virginia will offer next year, though the commonwealth has $2 million in grant funding available for some productions. Last month, D.C. Mayor Vincent Gray traveled to Hollywood to entice projects to the city. With no cash to hand out, Gray said he hoped he could build key relationships.
Klopott cites some apparent successes of these subsidies. But economic-policy expert Josh Barro argues that these favors are not worth the costs. The money the film producting brings in — hotels, catering, etc… — crowds out other economic activity, makes taxes on other industries higher, and comes with serious infrastructure costs.
Barro concludes that film may be the worst industry for governments to court:
So, as a Marylander, I’m rooting for D.C. and Va. in these subsidy arms races.
