Perspective on Tax Credits and the Public Good


This part of Benjamin Riggs’s post in this space earlier this morning justifies some further thought, with an eye toward understanding how government spreads public resources to serve the public good:

Since the power to be generated would benefit everyone in New England, but the effects on quality of life, real estate values, and the rural nature of the area would be imposed mainly on the residents of Burrillville, clearly they are entitled to full compensation for the contribution they would be facilitating for the general good.

Put this idea of compensation in context of controversial legislation to give Burrillville residents a say on any tax deals that the government might enter with the energy plant.  When one hears about tax deals between government and businesses, we typically think of special abatements that spread the business’s tax burden to other taxpayers, at least for an introductory period.

Even where the tax deal is a positive amount for taxpayers, one still must ask whether it’s positive enough, and other taxpayers should arguably have a say. That is, if the theoretical cost to the locals is higher than the negotiated tax windfall (or if that windfall is somehow redirected to government, not the people), then it’s still not a good deal.

Personally, I’m a big believer that government is not appropriately our mechanism for telling our neighbors what to do with their property, which is why some local conservatives see the aforementioned legislation as a naked attempt to kill the power plant.  Presumably, though, there’s some point at which a majority of voters in Burrillville will assess any harm from the plant to be less than the benefit of accepting it.

Those of us who ponder policy for a living should come up with an innovative solution, here.  Rhode Islanders, especially, have good reason to doubt the intentions of state and local politicians when they negotiate special deals with deep-pocketed corporations, so the power to negotiate such deals should be restrained.  Perhaps the answer is to revisit the way in which we assess the value of property for tax purposes so as to incorporate the value of the plant to the entire region into its taxable property.

To be extreme for the purposes of illustration, imagine if the regional good of the energy that it could provide made the power plant worth 80% of the full value of the town’s total property.  That would mean that other taxpayers’ property would only have to generate 20% of the tax revenue the town requires, which would theoretically drop its tax rate to about one-fifth of its current level.  And if the assessment isn’t negotiated, but rather a formula founded on some underlying principle of value, the opportunity for corruption and abuse would be minimized.