Cross-posted from PolicyInsight.org
Wal-Mart, or another big box retailer, approaches a small town and says, "We’d like to build a store here, bring in a lot of jobs, and make your community a real retail center."
The Town Council says great. Wal-Mart says, "Great. We just need approval to pocket all the sales taxes we collect, so we can pay for the new store. Oh, and we don’t want to pay any property taxes either."
The Town Council says, "Well, that wouldn’t really be fair to the other local merchants who collect the taxes that pay for local government."
Wal-Mart says, "Well, we’ll have to talk to the town down the road. We would rather do business with you, but they are ready to make the deal."
Wherever Wal-Mart lands, it is very unfair to local businesses that are paying their taxes and paying their own rent.
Professional sports teams make similar demands on cities. "We have enjoyed a great 100-year relationship with your city, but if you don’t give us $200 million to help us build a new stadium, we will have to move to . . . ."
This problem was explained in detail in a recent broadcast of Terry Gross’s "Fresh Air" originated by WHYY in Philadelphia, in an interview of David Kay Johnston, based on his book, "Free Lunch." It detailed the murky world of "Incremental Tax Financing."
The solution is fairly simple. If Congress would levy a tax of 125% on these local tax rebates, then all this pressure on towns and cities to give away resources to big box stores and sports teams would stop.
If Wal-Mart knew that if it got a $20 million tax rebate from a town, it would have to pay $25 million to the IRS, it wouldn’t bother to play the towns off against each other.
If a sports team knew that if it got a $200 million stadium deal from a city, it would have to pay $250 million to the IRS, it would build its own stadium.
Of course, Wal-Mart and the sports teams would lobby heavily, saying this leveling of the playing field would be grossly unfair. But as Americans, we are supposed to trust in the invisible hand of the market to sort out what stores go where and which cities have professional sports franchises.
Maybe the New York Knicks can figure out how to sell Pampers and somewhere there is a Wal-Mart employee who knows how to dribble. Why should billions in tax rebates extorted from local governments stand in the way?