Saint Paul Pioneer Press

More Express Concern over Tax Incentives

Sunday, January 12, 1997
Page: 1D

Dave Beal
Staff Columnist

Finally, momentum is gathering to help ease those unrelenting economic wars between the states.

Call it "corporate welfare'' when Alabama coughs up almost $300 million to land a Mercedes plant, or "franchise-raiding'' when Marylanders tap the federal tax till to help move the Browns from Cleveland to Baltimore. Big and small, such controversies seem unending.

Now concern about them is coming into clearer focus. That's partly because of the efforts of Art Rolnick, an economist with the Federal Reserve Bank of Minneapolis, and Melvin Burstein, an attorney with the bank. They recently proposed to curb the adverse effects of tax incentives, used to attract or keep corporations and sports franchises. They're suggesting federal taxation of the beneficiaries at a high rate, pegged to the size of their incentives.

That idea has been hitting hot buttons. Last spring, it won kudos at a string of policy sessions arranged by Minnesota Public Radio and other sponsors in Washington, D.C.

Two months later, six U.S. senators and representatives asked the General Accounting Office to study what happens when federal funds help one state to lure business activity from others. The GAO has responded, launching a study many consider to be a prerequisite to passage of any federal legislation to ease or freeze the wave of incentives.

More concern comes from Ohio. There, state senators passed a resolution urging Congress, governors and state legislatures to back any federal laws "that will begin to mitigate this economic warfare'' between states. Ohio Sen. Charles Horn is circulating the resolution to politicians across the country. Horn has also positioned his site on the World Wide Web ( as a gathering point in the battle against incentives.

A diverse coalition is growing to support such curbs. The group that turned to the GAO includes Massachusetts Democrat Sen. Edward Kennedy and New York Republican Sen. Alfonse D'Amato. The Northeast-Midwest Coalition, which represents northern states stretching from Minnesota to Maine, reprinted the Rolnick-Burstein analysis, as did the Public Employee Department of the AFL-CIO.

Also concerned is Rep. Bill Luther, a DFL congressman representing Twin Cities suburbs. Luther says he's been surprised by the lack of interest in Congress about the heavy use of tax incentives. But that's changing, he adds, as the complicated controversies raised by such incentives gain a higher profile.

States and local governments can't ``unilaterally disarm'' themselves in the incentives wars, Luther warns. The only effective way to go after the incentives is through federal action that treats state and local governments equally, by curbing the giveaways at all governmental levels.

Doing so could play quite well with voters. One study found that Alabama's taxpayers are shelling out $200,000 for every job at Mercedes' new plant near Tuscaloosa - more than seven times what Tennessee paid to win GM's Saturn plant. This excess helped Alabama Gov. Fob James Jr. oust the leader of the drive to land Mercedes, former Gov. James Folsom Jr.

The Mercedes incentives were unusually large. Yet they point up widely shared beliefs that taxes should be used for the root functions of government - education, safety, transportation, public health, social safety nets - and not for subsidizing private businesses. Those concerns also are hitting home in Minnesota, as debates continue about how far the state's taxpayers should go to keep or attract professional sports teams.

Dave Beal is senior business editor. His column appears on Sundays, Mondays and Fridays.

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Republished with permission.

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