More Business Tax Subsidies in Rhode Island

July 8, 2005

We’ve often made the case against handing out state and local tax incentives to lure companies, partly because they create a non-neutral tax climate that erodes the fundamentals of economic development in the long run. Apparently Rhode Island didn’t get the memo:

NORTH KINGSTOWN — An industrial measuring-tools manufacturer will be receiving a $320,000 tax break over the next 10 years to keep its operations in town, according to town officials…

The deal “allows the town to increase its tax base at Quonset and promote responsible economic development,” Miccolis said. It is also an opportunity for the town to work collaboratively with the state and “an opportunity to keep a company in town with such a rich history,” he said.

As we’ve written before, handing out tax incentives to lure and retain companies is a recklessly short-term development strategy fraught with potential backfires.

Why? Because tax incentives send a damning message about a state’s tax climate.

To new companies, they signal that only special bonuses can make the state’s flawed tax system attractive. And to existing companies they’re an economic face-slap, treating current employers as dupes who’ll pick up the tab for newcomers.

It’s hard to see how that qualifies as “responsible economic development.”


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