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More Evidence That State Tax Breaks Won’t Save Jobs

Intel Corporation, the world’s largest maker of computer microprocessors, announced on Friday that it was eliminating 400 jobs at a New Mexico plant, just six months after pushing successfully for large corporate tax cuts there.  It’s just the latest example of why it’s not smart to use state tax breaks to try to influence corporate location decisions.

As this CBPP report shows, Intel has lobbied successfully for one tax break in particular, known as “single sales factor apportionment,” in every state where it has a major presence.  Single sales factor will virtually eliminate the company’s corporate income tax liability in New Mexico, as it likely has in Oregon and Arizona, its other two major U.S. production locations.

While the New Mexico plant will stay open, Intel also announced last week that it is shutting down its chip-making plant in Hudson, Massachusetts, eliminating 700 jobs.  Massachusetts also grants single sales factor apportionment to manufacturers, and, like New Mexico, gave Intel substantial property tax breaks as well to try to keep it in the state.

I’ve written

about why single sales factor is a costly and ineffective tax incentive, citing several examples of companies that pushed for it in various states and then promptly downsized or shuttered their facilities there.  But what happened last week in New Mexico and Massachusetts illustrates a much larger point.  Corporations will make their investment and location decisions on the basis of economic and strategic factors, so it’s unwise for states to forgo badly needed revenues to try to influence them.

Instead, states should focus on their fundamental responsibilities:  investing in education, health care, infrastructure, good recreational facilities, and other services that make a state a place where businesses can find well-trained and productive workers who want to raise their children there.

It was especially sad to see New Mexico take the other route earlier this year, given that it ranks near the bottom of numerous measures of student achievement.  And, as my colleagues showed just last week, it has cut K-12 education funding quite deeply over the last six years.

It’s not too late for New Mexico to reverse course and suspend or reverse its recent tax break, which it is still phasing in.  But, regardless of what happens there, other states should learn from New Mexico’s unfortunate example.