Southwest Airlines Declines Public Funds in Charleston

May 12, 2010

Southwest Airlines will soon be flying through Charleston, South Carolina. That’s good news for travelers looking for cheap airfare. Even better news: Southwest has declined the incentives that were being offered by the Charleston County Council. The business incentives would have been funded by a new 5% excise tax on car rentals.

Less than two weeks ago, the Charleston County Council approved a tax increase on rental cars that paved much of the way for the deal. At that hearing, Councilman Elliott Summey said the county was in negotiations with two low-cost airlines.

Pryor said Tuesday the council would suspend readings of the rental car tax increase for an undetermined amount of time. This announcement follows the reports that Southwest informed the council they would not seek extensive funding from the region to move into the airport.

Basically the tax would have subsidized the airline industry at the expense of rental car customers. Some politicians like rental car taxes because they believe it allows them to tax out-of-towners who can’t vote them out of office (even though many cars are rented by locals), a phenomenon known as tax exporting. Tax exporting should be avoided because it disconnects voters from the cost of government and leads them to demand more government services than they are willing to pay for.

Likewise, business incentives are poor policy. Businesses should make decisions for fundamental economic reasons, and lawmakers should avoid using subsidies to lure business to a location that would otherwise be unprofitable. Southwest should be commended for declining such offers. There are reports, however, that there is another low-cost carrier being courted, and this car rental tax may resurface as a means of luring them.

This incident also serves to highlight the fact that often businesses make the decision to locate in an area, and only then do they start shopping around for incentives. Officials are usually all too eager to offer the unnecessary sweeteners that are obviously a waste of taxpayer dollars. In Charleston, the Council was ready to give away money that Southwest didn’t even want.

For more on rental car taxes see:

The Case Against Special Rental Car Excise Taxes

Rental Car Tax an Unfair Way to Fund Tri-Rail

Local Seattle Residents Hit by Rental Car Tax That Was Sold as a Tax on Non-Residents

The Politics of Rental Car Taxes

Local Governments Imposing Punitive Taxes on Car Sharing


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