Recent research from Richard Florida, director of the Martin Prosperity Institute at the University of Toronto's Rotman School of Management, has found no connection between economic development incentives and any measure of positive economic performance, such as average wages and income and state unemployment, CNNMoney reported.
What would contribute to growth are simpler tax codes that treat all businesses equally, says Lyman Stone, an economist at the Tax Foundation.
But the tax incentives -- now worth some $80 billion each year -- have become a "prisoners' dilemma" for states, says Kenneth Thomas, a political science professor at the University of Missouri, St. Louis. They'd all be better off not paying the incentives, but to politicians brokering these agreements, a new development deal and its promised jobs equal talking points and bragging rights. And companies know that's too great a temptation.
Companies recognize the decision of where to locate a factory or headquarters as "a rent-seeking opportunity," says Thomas. "And more and more, [they] are exploiting it to the hilt."
On the same day the Illinois Legislature passed a bill to increase the state retirement age and lower cost-of-living increases for retired state workers, the Illinois Senate approved $20 million to $25 million in tax credits for Archer-Daniels-Midland Co., which threatened to move out of state unless it received economic development incentives.