Incentives are ineffective and too broad.
Florida 17[Richard Florida is a professor at the University of Toronto's School of Cities and Rotman School of Management. He is the author of “The Rise of the Creative Class” and "The New Urban Crisis."; "Handing Out Tax Breaks to Businesses Is Worse Than Useless”; March 7, 2017; https://www.bloomberg.com/news/articles/2017-03-07/business-incentives-are-ineffective-and-wasteful]//araghvn
Instead of focusing on highly innovative, high-paying industries that create a lot of jobs, most incentives, Bartik finds, are poorly targeted; there is little rhyme or reason to which firms or which industries get them. As he points out, incentives do not vary in light of the industry characteristics that would predict greater local benefits—obvious ones, like how much R&D they do, how many people they employ, or the wages they pay. So, for example, a 10 percent increase in an industry’s wages predicts just a 3 percent increase in incentives. Incentives track more with a state’s gross taxes than with unemployment rate or wage levels.
Moreover, states shell out too much money up front. They front-load incentives, instead of watching how businesses that are getting the incentives perform over time. Companies are able to take the incentives and can be slow to deliver on jobs or follow-on investments, or in some cases just pull up shop all together. Other states continue to shell out incentives, even after companies fail to meet their own projections for job creation or investment.
Basically, states hand over the money to companies and then do not even follow up to see if they are working or not. As Bartik puts it:
Incentives are still far too broadly provided to many firms that do not pay high wages, do not provide many jobs, and are unlikely to have research spinoffs. Too many incentives excessively sacrifice the long-term tax base of state and local economies. Too many incentives are refundable and without real budget limits. States devote relatively few resources to incentives that are services, such as customized job training. Based on past research, such services may be more cost-effective than cash in encouraging local job growth.
The study concludes that there is little connection between the level of incentives a state forks over to business and its economic fortunes. “Incentives do not have a large correlation with a state’s current or past unemployment or income levels or with future economic growth,” Bartik writes. He also notes, however, that these results are preliminary and might change in more full-blown models with more control variables.