HP incentives: another illustration of incentive problems

We at the Rio Grande Foundation have long argued for tax and economic incentives that are fair, simple, and available to all comers. As we’ve seen in recent years with the pullout of Schott Solar (incentives cost NM taxpayers $16 million) and the collapse of Eclipse Aviation which cost us $19 million, “investments” of taxpayer dollars in specific companies is a risky business (for taxpayers at least).

Now, we have Hewlett Packard which set up shop in Rio Rancho a few years ago and received $2.2 million in incentives, but is experiencing significant (albeit undisclosed) layoffs. The good news is that unlike the other deals, a majority of the incentives involved foregone government revenues that may or may not have been collected absent HP. Little of the money was in the form of outright expenditures. Of course, if you’re not HP and you’re just a regular resident or business in Rio Rancho, you are paying taxes that HP is not paying for services that benefit HP. That is certainly not fair. Worse, it is proving to be ineffective in actually developing the economy.

A better way to do economic development is to lower barriers to job creation across the board by reducing tax rates or enacting laws like “Right to Work.” Chasing the latest big-name company and offering them the sweetest incentives possible is ultimately a losing game.

Oh, and for those who opposed the Union Pacific deal, the fuel tax cut applies to any railroad.

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