Targeted Incentives Hinder Economy

Published January 1, 2007

Despite Pennsylvania’s poor economic record, many elected officials say they support economic development by targeting select businesses for taxpayer-financed grants, loans, and tax credits.

Jake Haulk, president of the Allegheny Institute, a public policy research and education organization in Pittsburgh, questions the impact of such programs.

“Governor [Ed] Rendell claims his spending proposals have ‘created jobs’ and cites the ‘record number of jobs’ in the state,” noted Haulk. “However, the reality is that job growth has been lackluster and concentrated in sectors that are heavily dependent on government programs, namely, education and health care. Otherwise, except for eating and drinking places, private-sector job growth is virtually nonexistent [in the state].

“Had job creation in Pennsylvania matched the nation’s performance since Rendell became governor [in 2003], the state would have tens of thousands more jobs spread widely over many sectors,” Haulk pointed out.

Burden Outweighs Benefits

The benefits of targeted state and local economic development incentives are far outweighed by the detrimental effect a high tax burden has on economic growth, according to “Pennsylvania’s Unlimited Government Equals Limited Economic Growth,” a report issued in October by the Commonwealth Foundation.

“It is clear that this type of economic development spending has been ineffective,” said Matthew Brouillette, president of the Commonwealth Foundation. “A healthy business climate would not require such corporate welfare programs to ‘stimulate the economy.’ No amount of spin attracts businesses better than a welcoming tax climate.”

Nathan A. Benefield ([email protected]) is a policy analyst with the Commonwealth Foundation in Harrisburg, Pennsylvania.

For more information …

State Tax Data, from the Tax Foundation,