No Subsidies For You: Taking Back Wasted Tax Breaks

I don't know of any retailer that doesn't offer a return policy for faulty products -- if you buy something and it doesn't work when you get home, simple fairness dictates that you should get your money back. 

But while this logic may seem obvious when talking about consumer transactions, it is apparently easily forgotten when it comes to protecting taxpayer investments. For example: Many states compete for new jobs by offering taxpayer-funded subsidies to companies to entice them to open in their state. In many ways, these states are just like consumers: those willing to pay the most (in this case, offer the most generous subsidy) ultimately get the product they demand (the jobs a company promises to provide in exchange).

So if these companies ultimately fail to produce the jobs they promised, shouldn't the taxpayers get their money back? Seems right, but according to a new report from Good Jobs First, this is hardly ever the case. Their analysis of  "clawback" efforts for 238 different state-based business subsidies reveals just how tough it is to demand fairness and accountability when it comes to public handouts to private companies. 

At first glance, many of these subsidies do appear to have return policies in place: fully 90 percent of these programs actually require companies to deliver regular reports to state agencies estimating how many jobs they have successfully created thanks to public subsidies; furthermore, 75 percent of the programs they studied contain some type of penalty measure in the event that job creation fails to meet the agreed upon standards.

But here's the bad news: 31 percent of the programs that require proof of job creation do not require any independent third-party reviewer to ensure that the data these companies submit is actually accurate. And those penalty provisions? Forty-seven percent of them are only enforced voluntarily, meaning that they are basically never enforced at all -- in fact, only 21 of the 178 programs with penalty provisions actually publish any documentation of enforcement efforts.

These findings about clawbacks are important for a couple reasons. First, while this report only concerns itself with state-level tax subsidies, its findings are relevant to the current national debate about corporate and business tax loopholes -- after all, what's the real difference between company-specific subsidies offered by a particular state and the wide range of industry-specific tax loopholes offered by the federal tax code?

Not much at all, really, which begs the next question: why are there no clawback measures in place for federal tax subsidies? Of course, the ideal scenario would be to eliminate or reduce these loopholes altogether (and we have written that many on the Left and Right do believe in eliminating these deductions), but it seems that House Republicans are planning to postpone any attempts at comprehensive reform beyond 2012 and instead offer more targeted tax exemptions for small business and other industries this year.

So if tax loopholes must remain in place for another year, progressive and conservatives alike should be able to agree that the taxpayers deserve some kind of return policy on their investment. We already have clawback measures in place for overpayment of federal benefits from Medicare, unemployment insurance, and other safety net programs-- let's make federal tax loophole beneficiaries play by the same rules.