When tax breaks hurt the middle class, not help

Have you ever listened to negotiations between local government (city, county or state) and businesses and been convinced, by the time an agreement was reached, the government was going to owe the business money?

This might ring a bell for some people, but we’re not going there specifically. Rather, we’re discussing research out of WVU that suggests offering tax incentives to large corporations to move into or build a new facility in a certain area may actually harm the middle class (DP-03-15-20).

Heather Stephens, assistant professor of resource economics and management in the Davis College of Agriculture, Natural Resources and Design, partnered with Carlianne Patrick, of Georgia State University, to co-author “Incentivizing the Missing Middle: The Role of Economic Development Policy.”
They found giving sizable tax breaks or incentives to companies didn’t always translate to job growth, or at least not the good kind of job growth. “Incentivizing the wrong industries can fail to lead to growth in employment locally in those industries and our research suggests this may potentially be contributing to the decline of middle-class jobs,” Stephens said.

Sometimes, the company moving in would create many low-wage jobs or only a handful of high-wage jobs. Or, as Stephens more eloquently puts it: “While incentives can lead to new jobs, those could be only low-wage jobs. Yet it still looks like you have more employment. Or you could be giving away substantial tax dollars to create a few high-wage jobs, but you might see overall employment losses.”

It’s great to have people working, but if their job doesn’t pay enough for life’s necessities (food, rent/mortgage, utilities, transportation expenses, etc.), people have to get government assistance or take on second or third jobs. Conversely, it’s wonderful for a select few to get well-paying jobs, but that doesn’t help the city/county/state at large — especially when you consider how much tax revenue the local government is losing. The income tax on a few high-wage jobs won’t offset the difference, and when a lot of people are working low-paying jobs and need assistance, any revenue coming in to the government is going right back out in the form of social services.

Stephens’ research indicated that although middle-wage jobs comprise 60% of America’s employment, high-wage industries face the lowest tax rates. Her findings, on the other hand, revealed raising taxes on high-wage industries didn’t have negative employment effects on any class of industries and doing so actually increased jobs among working- and middle-classes.

When our city/county/state officials are negotiating with companies wanting to set up shop here, they need to stop and consider if the tax breaks offered are worth it. The whole point is to bring work and wealth into West Virginia and put money in the average West Virginian’s pockets — not to hand the money right back to pad a CEO’s pocket somewhere else.