Columbian Look at "Costs" of Tax Exemptions

Today's Columbian offers an editorial evaluation of a tax incentive passed a few years ago (HB 3190). The editorial points out that analysts initially estimated that the state would lose $1.2 million under the deal. Further, they note, it was a very targeted proposal.

This particular bill ...offered the tax incentive to companies manufacturing 12-inch silicon wafers. In other words, the bill essentially screamed “SEH America,” a Vancouver-based manufacturer that does precisely that. But the tax breaks came with crucial requirements. To benefit, a company must first spend $350 million on construction, building improvements or equipment.

SEH America made the investment and got the break. It's paid off.

SEH employment has increased in two years by 43 percent, from 767 workers to 1,093 workers, three-fourths of whom earn more than $31,000 annually, and one-third of whom make more than $62,000 a year.

The Columbian thinks it was a good deal. And quarrels with the analysis that fails to count the economic benefits of the increased investment.

Granted, the state sacrificed, in a way, $1.2 million that would have been gathered without the tax break, if all things had stayed the same. But that’s the key; there’s no way of knowing if all things would have stayed the same. But here’s something we do know. Even with the lower tax rate, the state has collected 15 percent more from the affected businesses.

The problem with that kind of calculation is that, as they say, "there's no way of knowing" whether the incentive was necessary to secure the investment. These are not easy calls. The state does have a good system for evaluating such tax preferences, through the Citizen Commision for Performance Measurement of Tax Preferences, on which I served for a time. It's not easy stuff.

For the economy of Clark County, however, it's nice to see that this one worked out.