New Florida Tax Incentive Report Reveals Inefficiencies, Ideas for Reform

 
 
January 29, 2014

Florida’s Office of Program Policy Analysis and Government Accountability (OPPAGA) has released a detailed assessment of several of Florida’s economic development programs, most notably its Innovation Incentive Program (IIP), Qualified Target Industry Tax Refund Program (QTI), Capital Investment Tax Credit Program (CITC), and Quick Action Closing Fund Program (QAC). As I’ve debated with Florida’s Secretary of Commerce on the issue of tax incentives before, this analysis of the Sunshine State’s tax incentives was of particular interest to me. Ultimately, the report reveals a set of wasteful incentives and a need for reform.

Table 1. Program Details

Number of Projects

Incentives Received

Innovation Incentive Program (IIP)

8

$368,043,853

Qualified Target Industry Tax Refund Program (QTI)

166

$54,053,350

Quick Action Closing Fund Program (QAC)

41

$72,257,596

Capital Investment Tax Credit Program (CITC)

8

$60,643,426

Enterprise Zone Program

N/A

$110,931,262

Brownfield Redevelopment Bonus Refund Program

9

$1,945,102

High Impact Performance Incentive Program

2

$1,000,000

 

Florida’s incentive programs are substantial, especially the company-specific tax incentive programs (the first four listed). These programs provide tax credits to defray various taxes for specific businesses expanding operations or relocating into the state. Their exact details and qualifications differ, and details can be found in the OPPAGA report, but they generally reward hiring and investment in special “high impact” industries, as defined by the state.

So, with the state offering hundreds of millions of dollars in incentives, we have to ask: are these incentives living up to their promises?

Table 2. Job Creation

Jobs Promised

Jobs Created

Innovation Incentive Program

                        1,771

                            857

Qualified Target Industry Tax Refund Program

                      29,265

                      37,103

Quick Action Closing Fund Program

                        9,387

                        5,829

Capital Investment Tax Credit Program

                        2,983

                        2,717

 

By and large, no, they aren’t.

The Innovation Incentive Program, Quick Action Closing Fund Program, and Capital Investment Tax Credit Program have all failed to produce the number of jobs they were supposed to: and even the numbers listed are an upper maximum, as many of those jobs may have been created even without incentives. Even with all those jobs, incentive programs can only claim to have increased employment by about 45,000 jobs in an economy with over 6.5 million workers: that’s a miniscule contribution to growth for quite a bit of money.

However, the Qualified Target Industry program surpassed its employment goals, which merits attention. Why did QTI succeed where the others failed? I would suggest it may have performed better because it allows businesses to use their tax credits to offset taxes on purchases of business equipment (which should be tax-free anyways) or the tangible personal property tax (a destructive tax the state tried to reduce in 2012). The other three incentives focus on corporate income taxes. This suggests that Florida might be better off just eliminating TPP and exempting business inputs rather than offering narrow hand-outs to select companies.

And, while we’re at it, notice that the Innovation Incentive Program provided $368 million in incentives while creating only 857 jobs. That comes out to $429,456 of tax breaks per job created. That could have been $50 lower in taxes for every Florida household, but instead subsidized 8 medical laboratories. Meanwhile, the Qualified Target Industry program, which had the broadest base and the best job creation record, had the smallest per-job payout.

Table 3. Cost Effectiveness

Dollars per Job

Innovation Incentive Program

$429,456

Qualified Target Industry Tax Refund Program

$1,457

Quick Action Closing Fund Program

$12,396

Capital Investment Tax Credit Program

$22,320

 

Tax incentives, even the broadest ones like the QTI program, are poor tax policy because they lead to distortions in the economy, and ultimately can’t create broad-based economic prosperity. However, they can serve to highlight policies in need of reform. Detailed reviews of incentives like the OPPAGA report can serve as valuable signposts for such reforms, and, indeed, this report indicates that Florida could benefit from reconsidering its narrowest, most inefficient incentive programs. Rather than throwing money at expensive projects for niche industries, the real strength of Florida’s tax code is its broad base and overall simplicity, including the lack of any personal income tax.

To apply the lessons learned from the relative performance of its incentive programs, Florida might want to take a closer look at its tangible personal property tax and its sales taxes on business inputs. Tax reform targeting those issues could help Florida build on its already sound tax policy, promoting even more economic growth.

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