Do It Right First

What is it with all these tax exemptions? Why not get the tax structure right in the first place?

Pinellas County Commissioners will now be able to give tax breaks for up to 10 years on buildings and machinery to new or expanding companies. It will be on an individual basis partly based on the number of jobs created (from 10 to 50). Voters approved the measure last week. Supposedly that puts Pinellas County on a competitive basis with other counties. All well and good, I suppose, except…

Someone else is paying the tax that newcomers or expanding companies are not. We have to presume that taxes are needed to meet government bills and how do we calculate how much tax revenue the new jobs will bring in? We don’t have a state or local income tax after all (and don’t want to start that). That’s a big incentive in the first place.

I’m not opposed to helping new or expanding business. In the 1960s and 70s, I headed a non-profit organization that did just that. We raised private money and combined that with some state low-interest loan money. We learned pretty quickly that companies wheel and deal for special deals and that money is amoral. We also learned that there are a lot of people out there with personal interests waiting to tap-in to handouts by putting political pressure on whomever to get their way. It’s not an easy nor pretty process. It’s not wrong and helping businesses is worthwhile. It’s a question of how much (if any) tax money should go into the effort and what’s the payback (other than political).

Instead of tax breaks why not just make certain the infrastructure (roads, utilities, and public services, etc.) is there and that the regulatory bureaucracy is there to help rather than to stop proper development? Those things make a whole lot of difference. However, I’m a realist. Politicians like to hand out exemptions, exceptions, exclusions, etc. That’s why we have a federal tax code of 75,000 pages (or is it only 60,000 or maybe 95,000?). Anyway, when we like the tax breaks we call them incentives; when we don’t we call them loopholes.

The reality is that there are no loopholes. There are always political or hardship reasons for the so-called “gaps.” I will only concede the loophole bit to the concept of unintended consequences as in, “Oh, we didn’t see that that would happen!”

In the meanwhile, while states and counties and even municipalities flop all over themselves competing for job growth by handing out specific, favored son, tax breaks to businesses, the feds and the locals are crying about all the loopholes in their tax code without figuring out that a big part of the problem is that the basic tax rates are the problem in the first place.

Instead of changing the tax structure, the federal government is now labeling some companies “unpatriotic” for picking up some of the marbles (like corporate headquarters) and moving them to countries with lower tax rates. It’s only a handful of companies and the reasons aren’t just the tax rates in the US known as the highest in the advanced world. It’s really nothing new trying to escape taxes, or pay as little as you have to. Everyone has the freedom to do that legally. The irony is that with all the political whining about these few companies, some politically connected companies such as GE and Google, because of the tax code structure, don’t pay much in taxes anyway. And, super-rich guys shelter taxes with complex, legal, tax-code-allowed holding companies and trusts.

The point is get the tax structure right in the first place. Instead of exemptions and exclusions and all that continually adjust the tax code to be fair, equitable, simple and understandable with the emphasis on simple and understandable. Whenever we resort to what we have now we come up with favoritism, bias, and discrimination.

 

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