Politicians deserve much of the criticism they take on this issue, but let’s also factor in the other players who make this incentives game operate the way it does.
Let’s assume for the sake of argument that no politician enters the process with the goal of using targeted tax breaks and other giveaways to enhance his own electability. He simply wants to do what’s best to help his community and the state. (Hey, I hear you laughing over there. Knock it off.)
Let’s also assume that he enters the process without a firm grasp of free-market principles. He’s ambivalent about incentives. (It should be easier to accept this imaginary construction.)
Does the elected politician make his incentives decisions in a vacuum? No. He’s probably considering the complaints he’s heard from constituents who’ve lost their jobs. He’s probably thinking about a plant closing in his district. He’s listening to concerns from local officials who want him to “do something” about local employment. He’s hearing from lobbyists (including taxpayer-funded representatives of state, regional, and local economic development agencies) who explain all of the potential benefits from this tax break or that jobs program.
Amid all that chatter, it takes a lot of fortitude to say, “Listen, people. I hear what you’re saying, but your solution is not the right one. Government has no business picking economic winners and losers. Some companies succeed. Some fail.
“The only way we can assure maximum growth of good jobs in the state is to limit government impediments. Let’s limit regulations to the bare minimum. Let’s tighten the belt on government spending so we can lower tax rates for everybody. Let’s let entrepreneurs do what they do best ? create wealth without government interference.”
Sure, many of our politicians approach the incentives game with an eye on securing some votes in the next election. Others just don’t see beyond the short-term implications of satisfying constituents’ rent-seeking pleas. That’s politics.
