A Texas state tax incentive program for certain large businesses, that is to expire on Dec. 31, has historically been criticized by the director of research and publications for the Texas Public Policy Foundation, with backing from research.
Carine Martinez has been vocal about not renewing the Texas Tax Code Chapter 313 (also known as the Texas Economic Development Act).
Tax Code Chapter 313 “is an agreement in which a taxpayer agrees to build or install a property” that creates jobs in exchange for a limitation lasting 10 years on the taxable property value, the Texas comptroller said. This is done for school district maintenance and operations tax purposes. The value of the minimum limitation varies by school district.
“At best, these incentives do not work; at worst, they can be harmful,” Martinez wrote on Twitter in 2021. “If the problem is that property taxes in Texas are too high, then they are too high for everyone and this is the problem we should fix.”
In an April 30, 2021 editorial on The Daily Cannon’s website, Martinez wrote that Chapter 313 tax abatement agreements don’t add up and that as the “issue has been studied extensively,” the conclusions are that the incentives don’t work.
Indeed, the research paper “The Economics of a Targeted Economic Development Subsidy” found “that subsidies have little to no effect on where companies choose to invest” and “that the expected gross benefits of such subsidies should be substantially reduced.”
A real-world example is Foxconn in Wisconsin.
“In 2017, Wisconsin struck a deal with Taiwanese company Foxconn to manufacture large LCD screens within the state,” the research paper said. “Foxconn was supposed to make a $10 billion investment and create up to 13,000 jobs.”
In return, Foxconn would receive up to $3.6 billion in tax breaks and subsidies from the state, exemption from specific environmental regulations and receive billions more in subsidies from local governments, utilities and infrastructure.
“Just two years after the deal, Foxconn is already reneging on its commitments and is building a much smaller $2 billion to $3 billion facility that will employ far fewer workers,” the 2019 research paper said. “This should be no surprise, given a recent Wisconsin state audit finding that, on average, subsidized firms create only 34% of the jobs they promise.”
An Upjohn Institute Working Paper showed that state and local tax breaks, grants and other economic initiatives sway the location decisions for between 2% and 25% of companies.
“In other words, for at least 75% of incented firms, the firm would have made a similar decision location/expansion/retention decision without the incentive,” the Upjohn Institute Working Paper said.
Brent Bennett, policy director of Life:Powered (project of the Texas Public Policy Foundation), testifying on March 25, 2021 before the Texas Senate Natural Resources & Economic Development Committee, said “that the Chapter 313 program should be sunsetted in its entirety.”
“About two-thirds of the projects currently receiving Chapter 313 incentives are renewable energy developments, and a large portion of the remainder are midstream and downstream oil and gas infrastructure,” Bennett said. “It is conceivable that these projects would be built smaller without the tax breaks, but it is not conceivable that they would be built somewhere else.”
Bennett said, “The highest and best use of Texans’ tax dollars demands eliminating all targeted subsidies in favor of broad-based tax relief.”