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 RefundA tax refund is a reimbursement to taxpayers who have overpaid their taxes, often due to having employers withhold too much from paychecks. The U.S. Treasury estimates that nearly three-fourths of taxpayers are over-withheld, resulting in a tax refund for millions. Overpaying taxes can be viewed as an interest-free loan to the government. On the other hand, approximately one-fifth of taxpayers underwithhold; this can occur if a person works multiple jobs and does not appropriately adjust their W-4 to account for additional income, or if spousal income is not appropriately accounted for on W-4s. Program (QTI), Capital Investment Tax CreditA tax credit is a provision that reduces a taxpayer’s final tax bill, dollar-for-dollar. A tax credit differs from deductions and exemptions, which reduce taxable income, rather than the taxpayer’s tax bill directly. Program (CITC), and Quick Action Closing Fund Program (QAC). As I’ve debated with Florida’s Secretary of Commerce on the issue of taxA tax is a mandatory payment or charge collected by local, state, and national governments from individuals or businesses to cover the costs of general government services, goods, and activities. 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 taxA property tax is primarily levied on immovable property like land and buildings, as well as on tangible personal property that is movable, like vehicles and equipment. Property taxes are the single largest source of state and local revenue in the U.S. and help fund schools, roads, police, and other services. (a destructive tax the state tried to reduce in 2012). The other three incentives focus on corporate income taxA corporate income tax (CIT) is levied by federal and state governments on business profits. Many companies are not subject to the CIT because they are taxed as pass-through businesses, with income reportable under the individual income tax. es. 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 taxA sales tax is levied on retail sales of goods and services and, ideally, should apply to all final consumption with few exemptions. Many governments exempt goods like groceries; base broadening, such as including groceries, could keep rates lower. A sales tax should exempt business-to-business transactions which, when taxed, cause tax pyramiding. es 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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