Can Equity Advocates Make Tax Incentives Work for Inclusive Growth?

30 Jan 2015 | Chris Schildt
Can Equity Advocates Make Tax Incentives Work for Inclusive Growth?
Above: Flickr/ Tracy O

A quiet yet potentially dramatic change is happening in the world of government financial statements that could help cities advance an equitable growth agenda.

The issue at stake is business tax abatements: Every year, cities and states spend billions of dollars in decreased tax revenue by allowing some companies to pay lower taxes in exchange for creating or keeping jobs in the community. These tax abatements can be powerful tools for inclusive growth, if wielded correctly. In Austin, Texas, for example, Latino construction workers with the Workers Defense Project successfully campaigned for an ordinance that ties city tax subsidies to fair wages and other worker protections. They won a minimum wage of $11 an hour, a prevailing wage standard for specialized jobs, and tough safety standards, among other important benefits.

But tax subsidies can also be abused, costing cities millions of dollars with little to show for it. The challenge is that these deals are nearly always made behind closed doors without equity advocates at the table to make sure local residents get a fair shake. Too often, low-income communities and people of color don’t see any benefit from these costly incentives, while essential city services go underfunded.

Now, some of this is about to change. The Governmental Accounting Standards Board is drafting new standards requiring local governments to disclose the amount of tax abatements given to businesses, and what promises the businesses made in exchange. If approved, it will shed some light on the effectiveness of tax abatements as a policy tool to promote inclusive growth and help advocates and policymakers ensure future tax abatements have strong equity outcomes.

PolicyLink and the Pratt Center for Community Development jointly submitted comments on the proposed new standards, with recommendations on how they could be strengthened. Read our comment letter.

Learn more about tax abatements and the proposed standards from Good Jobs First.