Corporate welfare refers to government handouts and special protections granted to certain businesses to locate in a specific jurisdiction. Tax breaks, or as some observers call them tax incentives, have in particular become a popular device for state and local governments. new mexico politicians, whether Democrats or Republicans, have relied on tax breaks to attract new businesses.
Proponents argue that tax breaks are necessary to attract businesses and that their costs are offset by the additional tax revenue from the increased economic activity. They claim that to be competitive with other jurisdictions they need to offer tax breaks or businesses will go elsewhere.
Politicians see themselves entangled in a vicious cycle where they are competing with other jurisdictions to attract new businesses. They don’t want to appear indifferent to attracting businesses that can bring new jobs. What we have seen, with Amazon as a prime example (no pun intended), is jurisdictions driving up the tax breaks they are willing to pay to exorbitant levels. Analysts refer to this as the “race to the bottom.”
Businesses receive tax breaks on the order of $80 billion annually from state and local governments throughout the U.S. Studies have shown that these giveaways to businesses most times have little effect on their decision where to locate. Recipients who receive tax breaks often have political and economic clout that they leverage to gain favors at the expense of their competitors and taxpayers. It is a classic example of special interests benefiting at the expense of the general public.