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State and local tax breaks are not necessarily the best business lure

Uncle Sam is on the verge of locking most of his doors, but many states also are struggling with their budgets.

Here in Texas, where schools are about to lose $7.8 billion, the legislature is looking for additional revenue sources. That's prompted one state senator to focus on the property tax breaks given to businesses in an effort to get companies to relocate to the Lone Star State.

Advocates of such tax breaks contend that they are crucial to attracting major business relocation or encouraging expansion projects of companies always in the area.

No so, says one corporate relocation specialist.

"Recruitment and retention gets to the heart of what the company is. If you don't keep talented people, you can't make any money to pay taxes on," said Mark Sweeney, senior principal at McCallum Sweeney, a site selection consulting firm.

So maybe the a better way to get businesses to come to or expand in your location is to tax all firms, newcomers and existing offices, equitably and provide a well-educated pool of people they can hire.

Tax breaks prevail: Still, it's easier sometimes to just throw tax money at companies.

More states have become more aggressive in recent years in offering all sorts of incentives to get businesses inside their borders.

CB Richard Ellis (CBRE), a global real estate research and consulting firm, says the most aggressive states include Texas, Florida, Missouri, New Jersey and Connecticut. The main incentives offered typically include corporate income tax credits, payroll rebates, property tax abatements, upfront cash grants and deal-closing funds.


But is such fiscal corporate kowtowing worth it in the long run? Maybe not. States might win a corporate relocation battle or two by firing high-powered tax break ammunition, but they could eventually lose the war.

Some cash-strapped states and lower-level government jurisdictions are now looking for cash and lots of it. If they had been getting taxes as usual in the first place from all residents, corporate and individual alike, they might not be in such financial trouble now.

That's also the assessment of some tax policy researchers. Tax breaks targeted to specific companies are not good for the overall health of the state's economy, according to Kail Padgitt, a staff economist at the nonpartisan Tax Foundation.

And as for the companies?

"Businesses should go where they are most efficient at producing," says Padgitt, "not because they are given tax incentives."

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