Indiana Wants Honest, Transparent Evaluation of Tax Incentives

Published March 18, 2014

Virtually every state offers tax “incentives” for economic development. Many local governments also dole out their own incentives. Independent economists who have evaluated such programs often conclude they are not worth the price. States that evaluate their programs often do a laughable job of it, churning out reports that amount to little more than cheerleading.

Now Indiana is moving toward doing an ongoing analysis of the effectiveness (or lack thereof) of its incentives. Legislators there have passed House Bill 1020, putting the state at the forefront of transparency and honesty in tax incentives evaluation, writes Michael Hicks, an economics professor at Ball State University, in the Indianapolis Star newspaper.

“With the passage of House Bill 1020, Indiana is poised to perform a comprehensive and ongoing analysis of our state tax incentives. This comes on the heels of a broad effort by the Indiana Economic Development Corporation to become transparent and open to an evaluation of tax incentives. IEDC’s recent creation of a transparency portal and its commissioning of a study by my center at Ball State to review incentives already make Indiana the most forward-thinking state on these issues,” writes Hicks.

He notes only a sliver of new jobs come from employers who receive incentives, and he adds this:

“The success and failure of our economic development efforts should be measured simply by how much better our economy (state or local) becomes. One way to do so is to measure net job growth. Indiana’s secretary of commerce focuses on this job growth number, but I know of no local government that does. Such a simple approach would force local governments to weigh their economic development efforts (including abatements) against other things that really matter to growing an economy, like school performance and the quality of local parks and streets. Today they rarely do and this hurts, rather than helps, efforts to make Indiana a better place.”

Amen to that. All across America, states and local governments are handing out narrowly targeted tax incentives that help a handful of businesses – often the largest or most politically favored – and doing little to nothing to honestly evaluate the results.

Let’s hope Indiana sets a high standard in this regard. The full Hicks article is here.