Consider the example of New York Gov. Andrew Cuomo. Promoting one of New York’s many tax incentive programs, Cuomo argued earlier this summer that “businesses do not come to New York state without government incentives. Businesses literally shop states. … It literally takes money to make money.”
Cuomo is right, to some extent. States and cities are bending backward to provide incentives for companies such as Amazon to set up shop, yet the fact that these incentive programs attract particular businesses does not mean they are conducive to economic growth in general. States are better served through broad‐based tax cuts rather than incentive programs. Just like direct subsidies, tax incentives and economic development zones, with their preferential tax and development policies, distort sound business decisions, place government in the role of picking winners and losers, and undermine the rule of law.
New York is one of the worst offenders. According to Good Jobs First, since 1980 the Empire State has offered more than $34 billion in 127,154 different subsidy programs, far more than any other state. In subsidy dollars per capita, only five states exceed New York, three of them blue (New Mexico, Oregon and Washington state) and two red (Kentucky and Louisiana). Apart from blue Hawaii, states with the lowest subsidies per person are red or purple: the Dakotas, New Hampshire and Wyoming.
New York is a typical blue state, with high taxes and regulations on business, but Albany tries to compensate for those disadvantages with targeted incentives. How well does this model work compared to the red‐state model of deregulation, right‐to‐work laws and low taxes on labor and investment? In our biennial Cato Institute study, Freedom in the 50 States, we have found year after year that states with lower tax and regulatory burdens — more economic freedom — see faster income growth.