Tax Incentives…A balancing act

Several articles this week indicate that some states and countries are still having trouble raising revenue to meet the growing expenditures.  California tax revenue was down about $16B dollars.  European countries are still having issues with more money going out then coming in.  I saw where Greece may be booted from EU due to the budget restrictions and demands placed on it by other European countries.   On Monday according to articles in the Wall Street Journal, 700 Million Euros were withdrawn from Greek banks. It’s a balancing act.  On one hand you want to offer incentives to companies and on the other you need to increase revenues. 

States and local governments do it all the time by offering incentives to companies to stay or relocate jobs to a particular location. They do this by tailoring their tax laws to individual industries and companies.  It is tax breaks in the form of property tax breaks, payroll tax breaks, or some other incentive.  States and local hope that the revenues will increase and be more than the tax incentives.  Sometimes residents have to make up the difference if the tax revenues do not increase from the tax incentives. 

In addition, companies that do not fulfill the tax incentive sometimes are hit by the states to recover the lost revenue.  However, sometimes the tax breaks from another state or municipality outweigh the tax incentives that will be lost.  Do you think that companies and  businesses should get tax incentives to relocate or stay in a particular area?  Should the free market work?

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