September 28, 2005

Supreme Court to Consider Tax Incentives

The U.S. Supreme Court yesterday announced that it would decide the constitutionality of tax breaks used by cities and states to attract large employers and manufacturers when its new term begins Monday. The Tennessean explains the case - and its potential ramifications - in its story today.

if the Supreme Court decides that tax incentives as an economic development tool violates the U.S. constitution's "Commerce Clause," it might be good thing in the long term. Currently, states use tax incentives to lure big companies' headquarters or new facilities - and high-tax states often use incentives as a way to be more competitive with lower-tax states. If no state could do offer tax breaks for individual business, more states might feel the need to lower their overall taxes. And there is no state in the nation that couldn't benefit economically by lowering taxes on its people and its businesses.

Denied the ability craft tax incentive packages for specific businesses, Tennessee's economic development officials and policy makers would have to focus much more intensively on lowering overall business taxes, reducing regulation, and keeping personal taxes low. And if other states are barred from using tax incentives to offset their business-unfriendly high corporate tax rates and higher personal income taxes, Tennessee's lack of a state income tax will become an even more powerful competitive advantage versus the 43 states that tax personal income.