tag:theconversation.com,2011:/ca/topics/tax-breaks-40232/articlesTax breaks – The Conversation2024-02-23T13:49:52Ztag:theconversation.com,2011:article/2242322024-02-23T13:49:52Z2024-02-23T13:49:52ZLouisiana governor makes it easier for companies to receive lucrative tax breaks that take money away from cash-strapped schools<figure><img src="https://images.theconversation.com/files/577468/original/file-20240222-20-bvvxzi.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">ExxonMobil has been granted nearly $580 million in tax abatements in Louisiana since 2000.</span> <span class="attribution"><a class="source" href="https://www.gettyimages.com/detail/news-photo/oil-refinery-owned-by-exxon-mobil-is-the-second-largest-in-news-photo/1225711980">Barry Lewis/Getty Images</a></span></figcaption></figure><p>Louisiana Gov. Jeff Landry <a href="https://gov.louisiana.gov/assets/ExecutiveOrders/2024/JML-Executive-Order-23.pdf">signed an executive order</a> on Feb. 21, 2024, removing school boards’ veto power over corporate property tax breaks that take money away from schools. It also did away with a requirement that projects granted the tax breaks create jobs and retain jobs. </p>
<p>Now, companies that apply for Louisiana’s Industrial Tax Exemption Program, which can grant property tax breaks of 80% over 10 years, will go to a local industrial board, then a state industrial board, for approval. If the local and state boards disagree on whether to grant a tax break, the governor will be the tiebreaker.</p>
<p>The order nullified a previous governor’s 2016 order allowing schools to have more of a say in approving tax breaks that could harm their students.</p>
<p>We are a group of researchers who <a href="https://theconversation.com/students-lose-out-as-cities-and-states-give-billions-in-property-tax-breaks-to-businesses-draining-school-budgets-and-especially-hurting-the-poorest-students-222940">wrote for The Conversation</a> about the <a href="https://www.doi.org/10.1080/15575330.2022.2148171">billions of dollars</a> students and schools lose out on yearly when cities and states grant corporate property tax abatements.</p>
<p>Tax abatement programs have long been controversial, and their economic value is at best unclear: Studies show most companies <a href="https://research.upjohn.org/up_workingpapers/289/">would have made the same location decisions</a> without these taxpayer subsidies. Meanwhile, schools make up the largest cost item in these communities, meaning they suffer most when companies are granted breaks in property taxes.</p>
<p>One of the areas we focused on was East Baton Rouge Parish, Louisiana, which is facing budgetary woes including shortages of <a href="https://www.theadvocate.com/baton_rouge/news/education/baton-rouge-school-bus-crisis-could-lead-to-budget-crisis/article_a24d6502-5fdb-11ee-ad9c-c378e2276bbf.html">bus drivers</a> and <a href="https://www.wafb.com/2023/06/20/program-aimed-help-teacher-shortage/">teachers</a>.</p>
<p>Since 2000, Louisiana has granted a total of <a href="https://fastlaneng.louisianaeconomicdevelopment.com/public/reports">US$35 billion in corporate property tax breaks</a> for 12,590 projects.</p>
<p>Former Louisiana Gov. John Bel Edwards <a href="https://gov.louisiana.gov/assets/ExecutiveOrders/JBE16-26.pdf">signed the 2016 executive order</a> that gave local taxing bodies – such as school boards, sheriffs and parish or city councils – the ability to vote on their own individual portions of the tax exemptions.</p>
<p>In 2019, the East Baton Rouge Parish School Board <a href="https://www.theadvocate.com/baton_rouge/news/education/itep-critics-defeat-exxonmobil-tax-break-requests-at-school-board-here-are-next-steps/article_09cb2d54-1a68-11e9-a672-7f6ee09f1f74.html">exercised its power</a> to vote down an abatement. In 2022, a year where ExxonMobil made a record $55.7 billion in profit, the company asked for a tax break from the cash-starved East Baton Rouge school district. After a <a href="https://www.youtube.com/watch?v=E-9hbVfhZRQ">lively debate</a>, including comments from 49 citizens, the board voted to grant the tax rate.</p>
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<p>Throughout the U.S., <a href="https://doi.org/10.1080/15575330.2022.2148171">school boards’ power over the tax abatements</a> that affect their budgets vary, and in some states, including Georgia, Kansas, Nevada, New Jersey and South Carolina, school boards lack any formal ability to vote or comment on tax abatement deals that affect them.</p>
<p>Landry’s recent order added Louisiana to the list.</p>
<p><em>Read the full investigation here: <a href="https://theconversation.com/students-lose-out-as-cities-and-states-give-billions-in-property-tax-breaks-to-businesses-draining-school-budgets-and-especially-hurting-the-poorest-students-222940">Students lose out as cities and states give billions in property tax breaks to businesses − draining school budgets and especially hurting the poorest students</a></em></p><img src="https://counter.theconversation.com/content/224232/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Christine Wen worked for the nonprofit organization Good Jobs First from June 2019 to May 2022 where she helped collect tax abatement data.</span></em></p><p class="fine-print"><em><span>Nathan Jensen has received funding from the John and Laura Arnold Foundation, the Smith Richardson Foundation, the Ewing Marion Kauffman Foundation and the Washington Center for Equitable Growth. He is a Senior Fellow at the Niskanen Center.</span></em></p><p class="fine-print"><em><span>Danielle McLean and Kevin Welner do not work for, consult, own shares in or receive funding from any company or organization that would benefit from this article, and have disclosed no relevant affiliations beyond their academic appointment.</span></em></p>Louisiana’s governor made it easier for companies to receive property tax breaks – and schools will likely pay the price.Christine Wen, Assistant Professor of Landscape Architecture & Urban Planning, Texas A&M UniversityDanielle McLean, Freelance Reporter and Editor, The ConversationKevin Welner, Professor of Education Policy & Law; Director of the National Education Policy Center, University of Colorado BoulderNathan Jensen, Professor of Government, The University of Texas at AustinLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/2229402024-02-15T13:35:30Z2024-02-15T13:35:30ZStudents lose out as cities and states give billions in property tax breaks to businesses − draining school budgets and especially hurting the poorest students<figure><img src="https://images.theconversation.com/files/575520/original/file-20240214-20-j3e0d8.jpg?ixlib=rb-1.1.0&rect=0%2C0%2C1684%2C678&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">Exxon Mobil Corp.'s campus in East Baton Rouge Parish, left, received millions in tax abatements to the detriment of local schools, right.</span> <span class="attribution"><a class="source" href="https://www.gettyimages.com/detail/news-photo/oil-refinery-owned-by-exxon-mobil-is-the-second-largest-in-news-photo/1225711980">Barry Lewis/Getty Images, Tjean314/Wikimedia</a></span></figcaption></figure><p>Built in 1910, James Elementary is a three-story brick school in Kansas City, Missouri’s historic Northeast neighborhood, with a bright blue front door framed by a sand-colored stone arch adorned with a gargoyle. As bustling students and teachers negotiate a maze of gray stairs with worn wooden handrails, Marjorie Mayes, the school’s principal, escorts a visitor across uneven blue tile floors on the ground floor to a classroom with exposed brick walls and pipes. Bubbling paint mars some walls, evidence of the water leaks spreading inside the aging building.</p>
<p>“It’s living history,” said Mayes during a mid-September tour of the building. “Not the kind of living history we want.”</p>
<p>The district would like to tackle the US$400 million in deferred maintenance needed to create a 21st century learning environment at its 35 schools – including James Elementary – but it can’t. It doesn’t have the money.</p>
<h2>Property tax redirect</h2>
<p>The lack of funds is a direct result of the property tax breaks that Kansas City lavishes on companies and developers that do business there. The program is supposed to bring in new jobs and business but instead has ended up draining civic coffers and starving schools. Between 2017 and 2023, the Kansas City school district lost $237.3 million through tax abatements.</p>
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<p>Kansas City is hardly an anomaly. An <a href="https://www.cambridge.org/core/books/incentives-to-pander/E0003C20215EDA5047EA0831FEEB6D92">estimated 95%</a> of U.S. cities provide economic development tax incentives to woo corporate investors. The upshot is that billions have been diverted from large urban school districts and from a growing number of small suburban and rural districts. The impact is seen in districts as diverse as Chicago and Cleveland, Hillsboro, Oregon, and Storey County, Nevada.</p>
<p>The result? A 2021 <a href="https://doi.org/10.1080/15575330.2022.2148171">review of 2,498 financial statements</a> from school districts across 27 states revealed that, in 2019 alone, at least $2.4 billion was diverted to fund tax incentives. Yet that substantial figure still downplays the magnitude of the problem, because three-quarters of the 10,370 districts analyzed did not provide any information on tax abatement agreements.</p>
<p>Tax abatement programs have long been controversial, pitting states and communities against one another in beggar-thy-neighbor contests. Their economic value is also, at best, unclear: Studies show most companies <a href="https://research.upjohn.org/up_workingpapers/289/">would have made the same location decision</a> without taxpayer subsidies. Meanwhile, schools make up the largest cost item in these communities, meaning they suffer most when companies are granted breaks in property taxes.</p>
<p>A three-month investigation by The Conversation and three scholars with expertise in <a href="https://scholar.google.com/citations?user=RO4oI-8AAAAJ&hl=en">economic development</a>, <a href="https://www.colorado.edu/education/kevin-welner">tax laws</a> and <a href="https://liberalarts.utexas.edu/government/faculty/nj4353">education policy</a> shows that the cash drain from these programs is not equally shared by schools in the same communities. At the local level, tax abatements and exemptions often come at the cost of <a href="https://www.schoolfinancedata.org/the-adequacy-and-fairness-of-state-school-finance-systems-2024/.">critical funding</a> for school districts that <a href="https://cdn.theconversation.com/static_files/files/3062/2024-01-31_Good_Jobs_First_Abating_Our_Future.pdf?1707953373">disproportionately serve</a>
students from low-income households and who are racial minorities.</p>
<p>In Missouri, for example, in 2022 <a href="https://www.kcpublicschools.org/about/tax-incentives-kcps#:%7E:text=As%20of%202022%2C%20nearly%20%241%2C700,%24500-%24900%20per%20pupil">nearly $1,700 per student was redirected</a> from Kansas City public and charter schools, while between $500 and $900 was redirected from wealthier, whiter Northland schools on the north side of the river in Kansas City and in the suburbs beyond. Other studies have found <a href="https://journals.sagepub.com/doi/abs/10.1177/08912424231174836">similar demographic trends elsewhere</a>, including <a href="https://goodjobsfirst.org/wp-content/uploads/2023/02/How-Tax-Abatements-Cost-New-York-Public-Schools.pdf">New York state</a>, <a href="https://goodjobsfirst.org/wp-content/uploads/2022/07/South-Carolinas-Corporate-Tax-Breaks-2022.pdf">South Carolina</a> and <a href="https://doi.org/10.1080/15575330.2023.2217899">Columbus, Ohio</a>.</p>
<p>The funding gaps produced by abated money often force schools to <a href="https://doi.org/10.2307/3325345">delay needed maintenance</a>, <a href="https://doi.org/10.1002/ets2.12098">increase class sizes</a>, <a href="https://districtadministration.com/teacher-layoffs-enter-k12-outlook-school-districts-budget-deficits/">lay off teachers</a> and support staff and even close outright. Schools also <a href="https://www.nytimes.com/2018/04/16/reader-center/us-public-schools-conditions.html">struggle to update or replace</a> outdated technology, books and other educational resources. And, amid a nationwide teacher shortage, schools under financial pressures sometimes turn to inexperienced teachers who are <a href="https://learningpolicyinstitute.org/product/state-teacher-shortages-vacancy-resource-tool">not fully certified</a> or <a href="https://www.dallasnews.com/news/education/2023/10/16/dallas-relies-on-international-teachers-more-than-any-other-school-district-in-the-us/">rely too heavily</a> on recruits from overseas who have been given special visa status.</p>
<p>Lost funding also prevents teachers and staff, who often feed, clothe and otherwise go above and beyond to help students in need, from <a href="https://worldpopulationreview.com/state-rankings/teacher-pay-by-state">earning a living wage</a>. All told, tax abatements can end up harming a community’s value, with constant funding shortfalls creating <a href="https://www.cbpp.org/research/a-punishing-decade-for-school-funding">a cycle of decline</a>.</p>
<h2>Incentives, payoffs and guarantees</h2>
<p>Perversely, some of the largest beneficiaries of tax abatements are the politicians who publicly boast of handing out the breaks despite the harm to poorer communities. Incumbent governors have used the incentives as a means of <a href="https://www.cambridge.org/core/books/incentives-to-pander/E0003C20215EDA5047EA0831FEEB6D92">taking credit for job creation</a>, even when the jobs were coming anyway.</p>
<p>“We know that subsidies don’t work,” said <a href="https://www.elizabethmarcello.com/">Elizabeth Marcello</a>, a doctoral lecturer at Hunter College who studies governmental planning and policy and the interactions between state and local governments. “But they are good political stories, and I think that’s why politicians love them so much.”</p>
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<figcaption><span class="caption">Academic research shows that economic development incentives are ineffective most of the time – and harm school systems.</span></figcaption>
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<p>While some voters may celebrate abatements, parents can recognize the disparities between school districts that are created by the tax breaks. Fairleigh Jackson pointed out that her daughter’s East Baton Rouge third grade class lacks access to playground equipment.</p>
<p>The class is attending school in a temporary building while their elementary school undergoes a two-year renovation.</p>
<p>The temporary site has some grass and a cement slab where kids can play, but no playground equipment, Jackson said. And parents needed to set up an Amazon wish list to purchase basic equipment such as balls, jump ropes and chalk for students to use. The district told parents there would be no playground equipment due to a lack of funds, then promised to install equipment, Jackson said, but months later, there is none.</p>
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<a href="https://images.theconversation.com/files/575426/original/file-20240213-28-rkjkme.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=1000&fit=clip"><img alt="Cement surface surrounded by a fence with grass beyond. There's no playground equipment.." src="https://images.theconversation.com/files/575426/original/file-20240213-28-rkjkme.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/575426/original/file-20240213-28-rkjkme.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=450&fit=crop&dpr=1 600w, https://images.theconversation.com/files/575426/original/file-20240213-28-rkjkme.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=450&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/575426/original/file-20240213-28-rkjkme.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=450&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/575426/original/file-20240213-28-rkjkme.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=566&fit=crop&dpr=1 754w, https://images.theconversation.com/files/575426/original/file-20240213-28-rkjkme.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=566&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/575426/original/file-20240213-28-rkjkme.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=566&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px"></a>
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<span class="caption">The temporary site where Fairleigh Jackson’s daughter goes to school in East Baton Rouge Parish lacks playground equipment.</span>
<span class="attribution"><span class="source">Fairleigh Jackson</span>, <a class="license" href="http://creativecommons.org/licenses/by-nd/4.0/">CC BY-ND</a></span>
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</figure>
<p>Jackson said it’s hard to complain when other schools in the district don’t even have needed security measures in place. “When I think about playground equipment, I think that’s a necessary piece of child development,” Jackson said. “Do we even advocate for something that should be a daily part of our kids’ experience when kids’ safety isn’t being funded?”</p>
<p>Meanwhile, the challenges facing administrators 500-odd miles away at Atlanta Public Schools are nothing if not formidable: The district is dealing with <a href="https://atlanta.capitalbnews.org/chronic-absenteeism-aps/">chronic absenteeism</a> among half of its Black students, many students <a href="https://atlantaciviccircle.org/2023/08/28/more-atlanta-students-homeless-this-school-year/">are experiencing homelessness</a>, and it’s facing a <a href="https://www.fox5atlanta.com/news/teacher-retention-an-issue-in-georgia-situation-could-get-worse">teacher shortage</a>.</p>
<p>At the same time, Atlanta is showering corporations with tax breaks. The city has two bodies that dole them out: the Development Authority of Fulton County, or DAFC, and Invest Atlanta, the city’s economic development agency. The deals handed out by the two agencies have drained $103.8 million from schools from fiscal 2017 to 2022, according to Atlanta school system financial statements.</p>
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<p>What exactly Atlanta and other cities and states are accomplishing with tax abatement programs is hard to discern. <a href="https://research.upjohn.org/up_workingpapers/289/">Fewer than a quarter</a> of companies that receive breaks in the U.S. needed an incentive to invest, according to a 2018 study by the Upjohn Institute for Employment Research, a nonprofit research organization. </p>
<p>This means that at least 75% of companies received tax abatements when they’re not needed – with communities paying a heavy price for economic development that sometimes provides little benefit.</p>
<p>In Kansas City, for example, there’s no guarantee that the businesses that do set up shop after receiving a tax abatement will remain there long term. That’s significant considering the historic border war between the Missouri and Kansas sides of Kansas City – a competition to be the most generous to the businesses, said Jason Roberts, president of the Kansas City Federation of Teachers and School-Related Personnel. Kansas City, Missouri, has a <a href="https://www.kcmo.gov/city-hall/departments/finance/earnings-tax">1% income tax</a> on people who work in the city, so it competes for as many workers as possible to secure that earnings tax, Roberts said.</p>
<p>Under city and state tax abatement programs, companies that used to be in Kansas City have since relocated. The AMC Theaters headquarters, for example, <a href="https://www.bizjournals.com/kansascity/news/2011/09/14/amc-entertainment-will-move-hq-to-ks.html">moved from the city’s downtown</a> to Leawood, Kansas, about a decade ago, garnering some $40 million in <a href="https://www.kansascommerce.gov/program/business-incentives-and-services/peak/">Promoting Employment Across Kansas</a> tax incentives.</p>
<p>Roberts said that when one side’s financial largesse runs out, companies often move across the state line – until both states decided in 2019 that <a href="https://www.kansascity.com/news/business/article233725152.html">enough was enough</a> and <a href="https://www.brookings.edu/articles/the-end-of-kansas-missouris-border-war-should-mark-a-new-chapter-for-both-states-economies/">declared a cease-fire</a>.</p>
<p>But tax breaks for other businesses continue. “Our mission is to grow the economy of Kansas City, and application of tools such as tax exemptions are vital to achieving that mission, said Jon Stephens, president and CEO of Port KC, the Kansas City Port Authority. The incentives speed development, and providing them "has resulted in growth choosing KC versus other markets,” he added.</p>
<p>In Atlanta, those tax breaks <a href="https://www.ajc.com/news/fulton-authority-gives-tax-breaks-to-projects-in-hot-markets-ajc-finds/PHR5H4SXNRAGRNWHBUUCIPHFQM/">are not going</a> to projects in neighborhoods that need help attracting development. They have largely been handed out to projects that are in high demand areas of the city, said Julian Bene, who served on Invest Atlanta’s board from 2010 to 2018. In 2019, for instance, the Fulton County development authority <a href="https://saportareport.com/fulton-agency-approves-nearly-100-million-in-property-tax-abatements/sections/reports/maggie/">approved a 10-year, $16 million tax abatement</a> for a 410-foot-tall, 27,000-square-foot tower in Atlanta’s vibrant Midtown business district. <a href="https://1105westpeachtree.com/">The project</a> included hotel space, retail space and office space that is now occupied by <a href="https://blog.google/inside-google/company-announcements/atlanta-office/">Google</a> and <a href="https://www.ajc.com/business/economy/invesco-plans-add-500-jobs-new-midtown/CX8ubABcCfK2IuqrJu5nMJ/">Invesco</a>.</p>
<p>In 2021, a developer in Atlanta <a href="https://www.wsbtv.com/news/local/ponce-city-market-developer-pulls-request-8-million-tax-break-its-expansion/DYWYAKHVTNH5PPVHFBD5QCZDXY/">pulled its request</a> for an $8 million tax break to expand its new massive, mixed-use Ponce City Market development in the trendy Beltline neighborhood with an office tower and apartment building. Because of community pushback, the developer knew it likely did not have enough votes from the commission for approval, Bene said. After a second try for $5 million in lower taxes was also rejected, the developer went ahead and <a href="https://poncecitymarket.com/directory-view-all">built the project</a> anyway.</p>
<p>Invest Atlanta has also turned down projects in the past, Bene said. Oftentimes, after getting rejected, the developer goes back to the landowner and asks for a better price to buy the property to make their numbers work, because it was overvalued at the start.</p>
<h2>Trouble in Philadelphia</h2>
<p>On Thursday, Oct. 26, 2023, an environmental team was preparing Southwark School in Philadelphia for the winter cold. While checking an attic fan, members of the team saw loose dust on top of flooring that contained asbestos. The dust that certainly was blowing into the floors below could contain the cancer-causing agent. Within a day, <a href="https://www.inquirer.com/education/philadelphia-school-asbestos-closed-southwark-20231027.html">Southwark was closed</a> – the seventh Philadelphia school temporarily shuttered since the previous academic year because of possible asbestos contamination.</p>
<p>A 2019 inspection of the John L Kinsey school in Philadelphia found <a href="https://www.philasd.org/capitalprograms/wp-content/uploads/sites/18/2019/11/6280_Building_21_@_John_L_Kinsey_School_2018_2019_3_Year_AHERA_Report.pdf">asbestos in plaster walls, floor tiles, radiator insulation and electrical panels</a>. Asbestos is <a href="https://www.inquirer.com/education/asbestos-closure-philadelphia-school-district-20231027.html">a major problem</a> for Philadelphia’s public schools. The district needs <a href="https://www.philasd.org/capitalprograms/wp-content/uploads/sites/18/2017/06/2015-FCA-Final-Report-1.pdf">$430 million</a> to clean up the asbestos, lead, and other environmental hazards that place the health of students, teachers and staff at risk. And that is on top of an additional <a href="https://www.philasd.org/capitalprograms/wp-content/uploads/sites/18/2017/06/2015-FCA-Final-Report-1.pdf">$2.4 billion</a> to fix failing and damaged buildings.</p>
<p>Yet the money is not available. Matthew Stem, a former district official, <a href="https://pubintlaw.org/wp-content/uploads/2023/02/02.07.23-Memorandum-Opinion-Filed-pubintlaw.pdf">testified in a 2023 lawsuit</a> about financing of Pennsylvania schools that the environmental health risks cannot be addressed until an emergency like at Southwark because “existing funding sources are not sufficient to remediate those types of issues.”</p>
<p>Meanwhile, the city keeps doling out abatements, draining money that could have gone toward making Philadelphia schools safer. In the <a href="https://www.documentcloud.org/documents/24362508-final-acfr-2022-with-artwork-as-of-022423">fiscal year ending June 2022</a>, such tax breaks cost the school district $118 million – more than 25% of the total amount needed to remove the asbestos and other health dangers. These abatements <a href="https://www.phila.gov/media/20180524153805/City-of-Philadelphia-2018-Abatement.pdf">take 31 years to break even</a>, according to the city’s own <a href="https://www.phila.gov/documents/property-tax-abatement-studies/">scenario impact analyses</a>.</p>
<p>Huge subsets of the community – primarily Black, Brown, poor or a combination – are being “drastically impacted” by the exemptions and funding shortfalls for the school district, said Kendra Brooks, a Philadelphia City Council member. Schools and students are affected by mold, asbestos and lead, and crumbling infrastructure, as well as teacher and staffing shortages – including support staff, social workers and psychologists.</p>
<p>More than half the district’s schools that lacked adequate air conditioning – 87 schools – had to <a href="https://whyy.org/articles/philadelphia-schools-early-dismissals-lack-air-conditioning-extreme-heat/">go to half days</a> during the first week of the 2023 school year because of extreme heat. Poor heating systems also leave the schools cold in the winter. And some schools are overcrowded, resulting in large class sizes, she said.</p>
<figure class="align-center zoomable">
<a href="https://images.theconversation.com/files/575461/original/file-20240213-28-1b0wxq.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=1000&fit=clip"><img alt="Front of a four-story brick school building with tall windows, some with air-conditioners" src="https://images.theconversation.com/files/575461/original/file-20240213-28-1b0wxq.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/575461/original/file-20240213-28-1b0wxq.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=400&fit=crop&dpr=1 600w, https://images.theconversation.com/files/575461/original/file-20240213-28-1b0wxq.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=400&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/575461/original/file-20240213-28-1b0wxq.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=400&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/575461/original/file-20240213-28-1b0wxq.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=503&fit=crop&dpr=1 754w, https://images.theconversation.com/files/575461/original/file-20240213-28-1b0wxq.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=503&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/575461/original/file-20240213-28-1b0wxq.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=503&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px"></a>
<figcaption>
<span class="caption">Horace Furness High School in Philadelphia, where hot summers have temporarily closed schools that lack air conditioning.</span>
<span class="attribution"><a class="source" href="https://commons.wikimedia.org/wiki/File:Horace_Furness_High_School_1900_S_3rd_St_Philadelphia_PA_%28DSC_3038%29.jpg">Nick-philly/Wikimedia</a>, <a class="license" href="http://creativecommons.org/licenses/by-sa/4.0/">CC BY-SA</a></span>
</figcaption>
</figure>
<p>Teachers and researchers agree that a lack of adequate funding undermines educational opportunities and outcomes. That’s especially true for children living in poverty. <a href="https://www.jstor.org/stable/26495136">A 2016 study</a> found that a 10% increase in per-pupil spending each year for all 12 years of public schooling results in nearly one-third of a year of more education, 7.7% higher wages and a 3.2% reduction in annual incidence of adult poverty. The study estimated that a 21.7% increase could eliminate the high school graduation gap faced by children from low-income families.</p>
<p>More money for schools leads to more education resources for students and their teachers. The same researchers found that spending increases were associated with reductions in student-to-teacher ratios, increases in teacher salaries and longer school years. Other studies <a href="https://hep.gse.harvard.edu/9781682532447/educational-inequality-and-school-finance/">yielded similar results</a>: <a href="https://www.nber.org/system/files/working_papers/w25368/w25368.pdf">School funding matters</a>, especially for children already suffering the harms of poverty.</p>
<p>While tax abatements themselves are generally linked to rising property values, the <a href="https://doi.org/10.1002/pam.21862">benefits are not evenly distributed</a>. In fact, any expansion of the tax base due to new property construction tends to be <a href="https://doi.org/10.1080/15575339809489773">outside of the county granting the tax abatement</a>. For families in school districts with the lost tax revenues, their neighbors’ good fortune likely comes as little solace. Meanwhile, a poorly funded education system is less likely to yield a <a href="https://nap.nationalacademies.org/catalog/13398/education-for-life-and-work-developing-transferable-knowledge-and-skills">skilled and competitive workforce</a>, creating <a href="https://doi.org/10.1093/acprof:oso/9780199982981.003.0014">longer-term economic costs</a> that make the region less attractive for businesses and residents.</p>
<p>“There’s a head-on collision here between private gain and the future quality of America’s workforce,” said Greg LeRoy, executive director at Good Jobs First, a Washington, D.C., advocacy group that’s critical of tax abatement and tracks the use of economic development subsidies.</p>
<figure class="align-center zoomable">
<a href="https://images.theconversation.com/files/575449/original/file-20240213-26-7jhmm1.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=1000&fit=clip"><img alt="Three-story school building with police officers out front and traffic lights in the foreground" src="https://images.theconversation.com/files/575449/original/file-20240213-26-7jhmm1.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/575449/original/file-20240213-26-7jhmm1.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=400&fit=crop&dpr=1 600w, https://images.theconversation.com/files/575449/original/file-20240213-26-7jhmm1.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=400&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/575449/original/file-20240213-26-7jhmm1.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=400&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/575449/original/file-20240213-26-7jhmm1.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=503&fit=crop&dpr=1 754w, https://images.theconversation.com/files/575449/original/file-20240213-26-7jhmm1.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=503&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/575449/original/file-20240213-26-7jhmm1.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=503&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px"></a>
<figcaption>
<span class="caption">Roxborough High School in Philadelphia.</span>
<span class="attribution"><a class="source" href="https://drive.google.com/file/d/1X4dQQT50psqFFY1sPKeUz_wAk8eOtZ44/view?usp=sharing">AP Photo/Matt Rourke</a></span>
</figcaption>
</figure>
<p>As funding dwindles and educational quality declines, additional <a href="https://papers.ssrn.com/sol3/papers.cfm?abstract_id=3739064">families with means often opt for</a> alternative educational avenues such as private schooling, home-schooling or moving to a different school district, further weakening the public school system.</p>
<p>Throughout the U.S., parents with the power to do so <a href="https://www.tandfonline.com/doi/full/10.1080/0161956X.2015.988536">demand special arrangements</a>, such as selective schools or high-track enclaves that <a href="https://www.nyulawreview.org/wp-content/uploads/2018/10/NYULawReview-93-4-Miller.pdf">hire experienced, fully prepared</a> teachers. If demands aren’t met, <a href="https://doi.org/10.1177/0895904818802106">they leave</a> the district’s public schools for private schools or for the suburbs. Some parents even <a href="https://doi.org/10.1111/j.1747-4469.2009.01166.x">organize to splinter</a> their more advantaged, and generally whiter, neighborhoods away from the larger urban school districts.</p>
<p>Those parental demands – known among scholars as “<a href="http://dx.doi.org/10.1596/978-0-8213-6991-3">opportunity hoarding</a>” – may seem unreasonable from the outside, but scarcity breeds very real fears about educational harms inflicted on one’s own children. Regardless of who’s to blame, the children who bear the heaviest burden of the nation’s concentrated poverty and racialized poverty again lose out.</p>
<h2>Rethinking in Philadelphia and Riverhead</h2>
<p>Americans also ask public schools to accomplish Herculean tasks that go <a href="https://www.tandfonline.com/doi/full/10.1080/15575330.2023.2217881">far beyond the education basics</a>, as many parents discovered at the onset of the pandemic when schools closed and their support for families largely disappeared.</p>
<p>A school serving students who endure housing and food insecurity must dedicate resources toward children’s basic needs and trauma. But districts serving more low-income students <a href="https://edtrust.org/resource/equal-is-not-good-enough/">spend less per student</a> on average, and almost half the states <a href="https://files.eric.ed.gov/fulltext/ED596199.pdf">have regressive funding structures</a>.</p>
<p>Facing dwindling resources for schools, several cities have begun to rethink their tax exemption programs.</p>
<p>The Philadelphia City Council recently passed a scale-back on a <a href="https://www.phila.gov/2018-05-24-city-releases-study-of-10-year-property-tax-abatement/">10-year property tax abatement</a> by decreasing the percentage of the subsidy over that time. But even with that change, millions will be lost to tax exemptions that could instead be invested in cash-depleted schools. “We could make major changes in our schools’ infrastructure, curriculum, staffing, staffing ratios, support staff, social workers, school psychologists – take your pick,” Brooks said.</p>
<p>Other cities looking to reform tax abatement programs are taking a different approach. In Riverhead, New York, on Long Island, developers or project owners can be granted exemptions on their property tax and allowed instead to shell out a far smaller “payment in lieu of taxes,” or PILOT. When the abatement ends, most commonly after 10 years, the businesses then will pay full property taxes.</p>
<p>At least, that’s the idea, but the system is <a href="https://nysfocus.com/2023/10/11/riverhead-ida-tax-breaks-aquarium-school">far from perfect</a>. Beneficiaries of the PILOT program have failed to pay on time, leaving the school board struggling to fill a budget hole. Also, the payments <a href="https://nysfocus.com/2023/10/11/riverhead-ida-tax-breaks-aquarium-school">are not equal</a> to the amount they would receive for property taxes, with millions of dollars in potential revenue over a decade being cut to as little as a few hundred thousand. On the back end, if a business that’s subsidized with tax breaks fails after 10 years, the projected benefits never emerge.</p>
<p>And when the time came to start paying taxes, developers have returned to the city’s Industrial Development Agency with hat in hand, asking for more tax breaks. A <a href="https://www.newsday.com/business/ida-tax-breaks-nestle-aquarium-steel-i30377">local for-profit aquarium</a>, for example, was granted a 10-year PILOT program break by Riverhead in 1999; it has received so many extensions that it is not scheduled to start paying full taxes until 2031 – 22 years after originally planned.</p>
<h2>Kansas City border politics</h2>
<p>Like many cities, Kansas City has a long history of segregation, white flight and racial redlining, said Kathleen Pointer, senior policy strategist for Kansas City Public Schools.</p>
<figure class="align-center zoomable">
<a href="https://images.theconversation.com/files/575513/original/file-20240214-16-znl7f.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=1000&fit=clip"><img alt="" src="https://images.theconversation.com/files/575513/original/file-20240214-16-znl7f.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/575513/original/file-20240214-16-znl7f.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=450&fit=crop&dpr=1 600w, https://images.theconversation.com/files/575513/original/file-20240214-16-znl7f.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=450&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/575513/original/file-20240214-16-znl7f.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=450&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/575513/original/file-20240214-16-znl7f.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=566&fit=crop&dpr=1 754w, https://images.theconversation.com/files/575513/original/file-20240214-16-znl7f.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=566&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/575513/original/file-20240214-16-znl7f.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=566&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px"></a>
<figcaption>
<span class="caption">James Elementary in Kansas City, Mo.</span>
<span class="attribution"><span class="source">Danielle McLean</span>, <a class="license" href="http://creativecommons.org/licenses/by-nd/4.0/">CC BY-ND</a></span>
</figcaption>
</figure>
<p>Troost Avenue, where the Kansas City Public Schools administrative office is located, serves as the city’s <a href="https://www.nbcnews.com/news/us-news/decades-dividing-line-troost-avenue-kansas-city-mo-sees-new-n918851">historic racial dividing line</a>, with wealthier white families living in the west and more economically disadvantaged people of color in the east. Most of the district’s schools are located east of Troost, not west.</p>
<p>Students on the west side “pretty much automatically funnel into the college preparatory middle school and high schools,” said The Federation of Teachers’ Roberts. Those schools are considered signature schools that are selective and are better taken care of than the typical neighborhood schools, he added.</p>
<p>The school district’s tax levy was set by voters in 1969 at 3.75%. But successive attempts over the next few decades to increase the levy at the ballot box failed. During a decadeslong desegregation lawsuit that was eventually resolved through a settlement agreement in the 1990s, a court raised the district’s levy rate to 4.96% without voter approval. The levy has remained at the same 4.96% rate since.</p>
<p>Meanwhile, Kansas City is still distributing 20-year tax abatements to companies and developers for projects. The district calculated that about 92% of the money that was abated within the school district’s boundaries was for projects within the whiter west side of the city, Pointer said.</p>
<p>“Unfortunately, we can’t pick or choose where developers build,” said Meredith Hoenes, director of communications for Port KC. “We aren’t planning and zoning. Developers typically have plans in place when they knock on our door.”</p>
<p>In Kansas City, <a href="https://kcbeacon.org/stories/2021/11/29/kansas-city-tax-incentives/">several agencies administer tax incentives</a>, allowing developers to shop around to different bodies to receive one. Pointer said he believes the Port Authority is popular because they don’t do a third-party financial analysis to prove that the developers need the amount that they say they do.</p>
<p>With 20-year abatements, a child will start pre-K and graduate high school before seeing the benefits of a property being fully on the tax rolls, Pointer said. Developers, meanwhile, routinely threaten to build somewhere else if they don’t get the incentive, she said.</p>
<p>In 2020, BlueScope Construction, a company that had received tax incentives for nearly 20 years and was about to roll off its abatement, asked for another 13 years and <a href="https://www.kcur.org/news/2020-06-25/kansas-city-council-rejects-incentives-for-a-company-that-threatened-to-move-across-state-line">threatened to move</a> to another state if it didn’t get it. At the time, the U.S. was grappling with a racial reckoning following the murder of George Floyd, who was killed by a Minneapolis police officer.</p>
<p>“That was a moment for Kansas City Public Schools where we really drew a line in the sand and talked about incentives as an equity issue,” Pointer said.</p>
<p>After the district raised the issue – <a href="https://www.kansascity.com/news/business/development/article243798657.html">tying the incentives to systemic racism</a> – the City Council rejected BlueScope’s bid and, three years later, it’s still in Kansas City, fully on the tax rolls, she said. BlueScope did not return multiple requests for comment.</p>
<p>Recently, a <a href="https://kcbeacon.org/stories/2023/07/18/port-kc-waldo-plaza-tax-breaks/">multifamily housing project</a> was approved for a <a href="https://www.kcur.org/news/2023-08-30/port-kc-approves-20-year-tax-incentive-deal-for-plaza-apartments">20-year tax abatement</a> by the Port Authority of Kansas City at Country Club Plaza, an outdoor shopping center in an affluent part of the city. The housing project included no affordable units. “This project was approved without any independent financial analysis proving that it needed that subsidy,” Pointer said.</p>
<p>All told, the Kansas City Public Schools district faces several shortfalls beyond the $400 million in deferred maintenance, Superintendent Jennifer Collier said. There are staffing shortages at all positions: teachers, paraprofessionals and support staff. As in much of the U.S., the cost of housing is surging. New developments that are being built do not include affordable housing, or when they do, the units are still out of reach for teachers.</p>
<p>That’s making it harder for a district that already loses about 1 in 5 of its teachers each year to keep or recruit new ones, who earn an average of only $46,150 their first year on the job, Collier said.</p>
<h2>East Baton Rouge and the industrial corridor</h2>
<p>It’s impossible to miss the tanks, towers, pipes and industrial structures that incongruously line Baton Rouge’s Scenic Highway landscape. They’re part of Exxon Mobil Corp.’s campus, home of the oil giant’s refinery in addition to chemical and plastics plants.</p>
<figure class="align-center zoomable">
<a href="https://images.theconversation.com/files/575171/original/file-20240213-20-ey3jk.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=1000&fit=clip"><img alt="Aerial view of industrial buildings along a river" src="https://images.theconversation.com/files/575171/original/file-20240213-20-ey3jk.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/575171/original/file-20240213-20-ey3jk.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=400&fit=crop&dpr=1 600w, https://images.theconversation.com/files/575171/original/file-20240213-20-ey3jk.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=400&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/575171/original/file-20240213-20-ey3jk.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=400&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/575171/original/file-20240213-20-ey3jk.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=503&fit=crop&dpr=1 754w, https://images.theconversation.com/files/575171/original/file-20240213-20-ey3jk.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=503&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/575171/original/file-20240213-20-ey3jk.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=503&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px"></a>
<figcaption>
<span class="caption">Exxon Mobil Corp.’s Baton Rouge campus occupies 3.28 square miles.</span>
<span class="attribution"><a class="source" href="https://newsroom.ap.org/detail/3c6e5c10434a44c48929197377f7a717?ext=true">AP Photo/Gerald Herbert</a></span>
</figcaption>
</figure>
<p>Sitting along the Mississippi River, <a href="https://corporate.exxonmobil.com/locations/united-states/baton-rouge-area-operations-overview#Safetyhealthandenvironment">the campus</a> has been a staple of Louisiana’s capital for over 100 years. It’s where 6,000 employees and contractors who collectively earn over $400 million annually produce <a href="https://corporate.exxonmobil.com/-/media/global/files/locations/united-states-operations/baton-rouge/2022-brrf-fact-sheet.pdf">522,000 barrels</a> of crude oil per day when at full capacity, as well as the annual production and manufacture of <a href="https://corporate.exxonmobil.com/-/media/global/files/locations/united-states-operations/baton-rouge/2022-brpo-fact-sheet.pdf">3 billion pounds</a> of high-density polyethylene and polypropylene and <a href="https://corporate.exxonmobil.com/-/media/global/files/locations/united-states-operations/baton-rouge/2022-brcp-fact-sheet.pdf">6.6 billion pounds</a> of petrochemical products. The company posted a <a href="https://www.reuters.com/business/energy/exxon-smashes-western-oil-majors-earnings-record-with-59-billion-profit-2023-01-31/">record-breaking</a> <a href="https://corporate.exxonmobil.com/news/news-releases/2023/0131_exxonmobil-announces-full-year-2022-results">$55.7 billion</a> in profits in 2022 and <a href="https://corporate.exxonmobil.com/news/news-releases/2024/0202_exxonmobil-announces-2023-results">$36 billion</a> in 2023.</p>
<p>Across the street are empty fields and roads leading into neighborhoods that have been designated by the U.S. Department of Agriculture as a low-income <a href="https://www.ers.usda.gov/data-products/food-access-research-atlas/go-to-the-atlas/">food desert</a>. A mile drive down the street to Route 67 is a Dollar General, fast-food restaurants, and tiny, rundown food stores. A Hi Nabor Supermarket is 4 miles away.</p>
<p>East Baton Rouge Parish’s McKinley High School, a 12-minute drive from the refinery, serves a student body that is about 80% Black and 85% poor. The school, which boasts famous alums such as rapper Kevin Gates, former NBA player Tyrus Thomas and Presidential Medal of Freedom recipient Gardner C. Taylor, holds a special place in the community, but it has been beset by violence and tragedy lately. Its football team quarterback, <a href="https://bleacherreport.com/articles/2709703-mckinley-high-school-qb-bryant-lee-fatally-shot-days-before-graduation">who was killed</a> days before graduation in 2017, was among at least four of McKinley’s students who <a href="https://www.theadvocate.com/baton_rouge/news/crime_police/mckinley-high-student-shot-and-injured-near-baton-rouge-campus-school-placed-on-lockdown/article_f1025d24-2f07-11e9-9d4e-2789b90eae2f.html">have been shot</a> <a href="https://www.nola.com/archive/suspects-in-up-and-coming-baton-rouge-rappers-november-slaying-not-indicted-or-cleared/article_c18af908-164c-5c16-b871-55e7fbe3dbf8.html">or murdered</a> <a href="https://www.theadvocate.com/baton_rouge/news/crime_police/he-played-tuba-baseball-at-mckinley-and-dreamed-of-college-a-shooting-cut-it-all/article_0f5fa014-9e73-11ec-941e-0f819ca7bca1.html">over the past six years</a>.</p>
<p>The experience is starkly different at some of the district’s more advantaged schools, including its magnet programs open to high-performing students.</p>
<figure class="align-right zoomable">
<a href="https://images.theconversation.com/files/575533/original/file-20240214-26-gvctzn.JPG?ixlib=rb-1.1.0&q=45&auto=format&w=1000&fit=clip"><img alt="Black-and-white outline of Louisiana showing the parishes, with one, near the bottom right, filled in red" src="https://images.theconversation.com/files/575533/original/file-20240214-26-gvctzn.JPG?ixlib=rb-1.1.0&q=45&auto=format&w=237&fit=clip" srcset="https://images.theconversation.com/files/575533/original/file-20240214-26-gvctzn.JPG?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=543&fit=crop&dpr=1 600w, https://images.theconversation.com/files/575533/original/file-20240214-26-gvctzn.JPG?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=543&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/575533/original/file-20240214-26-gvctzn.JPG?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=543&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/575533/original/file-20240214-26-gvctzn.JPG?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=683&fit=crop&dpr=1 754w, https://images.theconversation.com/files/575533/original/file-20240214-26-gvctzn.JPG?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=683&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/575533/original/file-20240214-26-gvctzn.JPG?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=683&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px"></a>
<figcaption>
<span class="caption">East Baton Rouge Parish, marked in red, includes an Exxon Mobil Corp. campus and the city of Baton Rouge.</span>
<span class="attribution"><a class="source" href="https://commons.wikimedia.org/wiki/File:Map_of_Louisiana_highlighting_East_Baton_Rouge_Parish.svg">David Benbennick/Wikimedia</a></span>
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<p>Baton Rouge is a tale of two cities, with some of the worst outcomes in the state for education, income and mortality, and some of the best outcomes. “It was only separated by sometimes a few blocks,” said Edgar Cage, the lead organizer for the advocacy group Together Baton Rouge. Cage, who grew up in the city when it was segregated by Jim Crow laws, said the root cause of that disparity was racism.</p>
<p>“Underserved kids don’t have a path forward” in East Baton Rouge public schools, Cage said.</p>
<p>A <a href="https://urbanleaguela.org/wp-content/uploads/2019/10/BR-Equity-Report-Online.pdf">2019 report</a> from the Urban League of Louisiana found that economically disadvantaged African American and Hispanic students are not provided equitable access to high-quality education opportunities. That has contributed to those students underperforming on standardized state assessments, such as the LEAP exam, being unprepared to advance to higher grades and being excluded from high-quality curricula and instruction, as well as the highest-performing schools and magnet schools.</p>
<p>“Baton Rouge is home to some of the highest performing schools in the state,” according to the report. “Yet the highest performing schools and schools that have selective admissions policies often exclude disadvantaged students and African American and Hispanic students.”</p>
<p>Dawn Collins, who served on the district’s school board from 2016 to 2022, said that with more funding, the district could provide more targeted interventions for students who were struggling academically or additional support to staff so they can better assist students with greater needs.</p>
<p>But for decades, Louisiana’s <a href="https://www.opportunitylouisiana.gov/business-incentives/industrial-tax-exemption">Industrial Ad Valorem Tax Exemption</a> <a href="https://www.opportunitylouisiana.gov/business-incentives/industrial-tax-exemption">Program</a>, or ITEP, allowed for 100% property tax exemptions for industrial manufacturing facilities, said Erin Hansen, the statewide policy analyst at Together Louisiana, a network of 250 religious and civic organizations across the state that advocates for grassroots issues, including tax fairness.</p>
<p>The ITEP program was created in the 1930s through a state constitutional amendment, allowing companies to bypass a public vote and get approval for the exemption through the governor-appointed <a href="https://www.opportunitylouisiana.gov/boards-reports-and-rules/louisiana-board-of-commerce-and-industry">Board of Commerce and Industry</a>, Hansen said. For over 80 years, that board approved nearly all applications that it received, she said.</p>
<p>Since 2000, Louisiana has granted a total of <a href="https://fastlaneng.louisianaeconomicdevelopment.com/public/reports">$35 billion in corporate property tax breaks</a> for 12,590 projects. </p>
<h2>Louisiana’s executive order</h2>
<p>A few efforts to reform the program over the years have largely failed. But in 2016, Gov. John Bel Edwards <a href="https://gov.louisiana.gov/assets/ExecutiveOrders/JBE16-26.pdf">signed an executive order</a> that slightly but importantly tweaked the system. On top of the state board vote, the order gave local taxing bodies – such as school boards, sheriffs and parish or city councils – the ability to vote on their own individual portions of the tax exemptions. And in 2019 the East Baton Rouge Parish School Board <a href="https://www.theadvocate.com/baton_rouge/news/education/itep-critics-defeat-exxonmobil-tax-break-requests-at-school-board-here-are-next-steps/article_09cb2d54-1a68-11e9-a672-7f6ee09f1f74.html">exercised its power</a> to vote down an abatement.</p>
<p>Throughout the U.S., <a href="https://doi.org/10.1080/15575330.2022.2148171">school boards’ power over the tax abatements</a> that affect their budgets vary, and in some states, including Georgia, Kansas, Nevada, New Jersey and South Carolina, school boards lack any formal ability to vote or comment on tax abatement deals that affect them.</p>
<p>Edwards’ executive order also capped the maximum exemption at 80% and tightened the rules so routine capital investments and maintenance were no longer eligible, Hansen said. A requirement concerning job creation was also put in place.</p>
<p>Concerned residents and activists, led by Together Louisiana and sister group Together Baton Rouge, rallied around the new rules and <a href="https://www.nytimes.com/2019/02/05/us/louisiana-itep-exxon-mobil.html">pushed back</a> against the billion-dollar corporation taking more tax money from the schools. In 2019, the campaign worked: the school board rejected a $2.9 million property tax break bid by Exxon Mobil.</p>
<p>After the decision, Exxon Mobil reportedly described the city as “<a href="https://www.businessreport.com/business/exxonmobil-calls-baton-rouge-unpredictable-for-investment-after-itep-requests-rejected">unpredictable</a>.”</p>
<p>However, members of the business community have continued to lobby for the tax breaks, and they have pushed back against further rejections. In fact, according to Hansen, loopholes were created during the rulemaking process around the governor’s executive order that allowed companies to weaken its effectiveness.</p>
<p>In total, <a href="https://fastlaneng.louisianaeconomicdevelopment.com/public/reports">223 Exxon Mobil projects</a> worth nearly $580 million in tax abatements have been granted in the state of Louisiana under the ITEP program since 2000.</p>
<p>“ITEP is needed to compete with other states – and, in ExxonMobil’s case, other countries,” according to Exxon Mobil spokesperson Lauren Kight.</p>
<p>She pointed out that Exxon Mobil is the largest property taxpayer for the EBR school system, paying more than $46 million in property taxes in EBR parish in 2022 and another $34 million in sales taxes.</p>
<p>A new ITEP contract won’t decrease this existing tax revenue, Kight added. “Losing out on future projects absolutely will.”</p>
<p>The East Baton Rouge Parish School Board has continued to approve Exxon Mobil abatements, passing $46.9 million between 2020 and 2022. Between 2017 and 2023, the school district has lost $96.3 million.</p>
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<p>Taxes are highest when industrial buildings are first built. Industrial property comes onto the tax rolls at <a href="https://ascensionedc.com/local-incentives/#">40% to 50% of its original value</a> in Louisiana after the initial 10-year exemption, according to the Ascension Economic Development Corp.</p>
<p>Exxon Mobil received its latest tax exemption, $8.6 million over 10 years – an 80% break – in October 2023 for $250 million to install facilities at the Baton Rouge complex that purify isopropyl alcohol for microchip production and that create a new advanced recycling facility, allowing the company to address plastic waste. The project <a href="https://go.boarddocs.com/la/ebrp/Board.nsf/files/CV7LXR562D7C/$file/ITEP-Exxon%20Mobil%20Corporation%2020230071-ITE%20Application.pdf">created zero new jobs</a>.</p>
<p>The school board <a href="https://www.youtube.com/watch?v=k-Ry-veRlM4">approved it by a 7-2 vote</a> after a long and occasionally contentious board meeting.</p>
<p>“Does it make sense for Louisiana and other economically disadvantaged states to kind of compete with each other by providing tax incentives to mega corporations like Exxon Mobil?” said EBR School Board Vice President Patrick Martin, who voted for the abatement. “Probably, in a macro sense, it does not make a lot of sense. But it is the program that we have.”</p>
<p>Obviously, Exxon Mobil benefits, he said. “The company gets a benefit in reducing the property taxes that they would otherwise pay on their industrial activity that adds value to that property.” But the community benefits from the 20% of the property taxes that are not exempted, he said.</p>
<p>“I believe if we don’t pass it, over time the investments will not come and our district as a whole will have less money,” he added.</p>
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<figcaption><span class="caption">In 2022, a year when Exxon Mobil made a record $55.7 billion, the company asked for a 10-year, 80% property tax break from the cash-starved East Baton Rouge Parish school district. A lively debate ensued.</span></figcaption>
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<p>Meanwhile, the district’s budgetary woes are coming to a head. Bus drivers staged a sickout at the start of the school year, refusing to pick up students – in protest of low pay and not having buses equipped with air conditioning amid a heat wave. The district was forced to release students early, leaving kids stranded without a ride to school, before it acquiesced and provided the drivers and other staff <a href="https://www.theadvocate.com/baton_rouge/news/education/lost-class-time-due-to-baton-rouge-bus-crisis-to-be-made-up/article_f5666e24-4694-11ee-8f5d-87183159ce0e.html">one-time stipends</a> and purchased new buses with air conditioning.</p>
<p>The district also agreed to reestablish transfer points as a temporary response to the shortages. But that transfer-point plan has historically resulted in students riding on the bus for hours and occasionally missing breakfast when the bus arrives late, according to Angela Reams-Brown, president of the East Baton Rouge Federation of Teachers. The district plans to purchase or lease over 160 buses and solve its bus driver shortage next year, but the plan could lead to <a href="https://www.theadvocate.com/baton_rouge/news/education/baton-rouge-school-bus-crisis-could-lead-to-budget-crisis/article_a24d6502-5fdb-11ee-ad9c-c378e2276bbf.html">a budget crisis</a>.</p>
<p>A <a href="https://www.wafb.com/2023/06/20/program-aimed-help-teacher-shortage/">teacher shortage looms</a> as well, because the district is paying teachers below the regional average. At the school board meeting, <a href="https://www.youtube.com/watch?v=k-Ry-veRlM4">Laverne Simoneaux</a>, an ELL specialist at East Baton Rouge’s Woodlawn Elementary, said she was informed that her job was not guaranteed next year since she’s being paid through federal COVID-19 relief funds. By receiving tax exemptions, Exxon Mobil was taking money from her salary to deepen their pockets, she said.</p>
<p>A young student in the district told the school board that the money could provide better internet access or be used to hire someone to pick up the glass and barbed wire in the playground. But at least they have a playground – Hayden Crockett, a seventh grader at Sherwood Middle Academic Magnet School, noted that his sister’s elementary school lacked one.</p>
<p>“If it wasn’t in the budget to fund playground equipment, how can it also be in the budget to give one of the most powerful corporations in the world a tax break?” Crockett said. “The math just ain’t mathing.”</p><img src="https://counter.theconversation.com/content/222940/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Christine Wen worked for the nonprofit organization Good Jobs First from June 2019 to May 2022 where she helped collect tax abatement data. </span></em></p><p class="fine-print"><em><span>Nathan Jensen has received funding from the John and Laura Arnold Foundation, the Smith Richardson Foundation, the Ewing Marion Kauffman Foundation and the Washington Center for Equitable Growth. He is a Senior Fellow at the Niskanen Center.
</span></em></p><p class="fine-print"><em><span>Danielle McLean and Kevin Welner do not work for, consult, own shares in or receive funding from any company or organization that would benefit from this article, and have disclosed no relevant affiliations beyond their academic appointment.</span></em></p>An estimated 95% of US cities provide economic development tax incentives to woo corporate investors, taking billions away from schools.Christine Wen, Assistant Professor of Landscape Architecture & Urban Planning, Texas A&M UniversityDanielle McLean, Freelance Reporter and Editor, The ConversationKevin Welner, Professor of Education Policy & Law; Director of the National Education Policy Center, University of Colorado BoulderNathan Jensen, Professor of Government, The University of Texas at AustinLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/2026302023-03-28T23:13:31Z2023-03-28T23:13:31ZInheritance taxes, resource taxes and an attack on negative gearing: how top economists would raise $20 billion per year<figure><img src="https://images.theconversation.com/files/517641/original/file-20230327-485-73myrj.png?ixlib=rb-1.1.0&rect=143%2C395%2C3808%2C1814&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">
</span> <span class="attribution"><span class="source">Shutterstock</span></span></figcaption></figure><p>Asked to find an extra A$20 billion per year to fund government priorities like building nuclear submarines and responding to climate change, Australia’s top economists overwhelmingly back land tax, increased resource taxes, an attack on negative gearing and extending the scope of the goods and services tax.</p>
<p>The 59 leading economists surveyed by The Conversation and the Economic Society of Australia were asked to pick from a list of 13 options (many of them identified in the government’s 2022-23 <a href="https://theconversation.com/tax-breaks-cost-a-reported-250-billion-but-handle-these-new-figures-with-care-200819">Tax Expenditures and Insights Statement</a>) and reply as if political constraints were not a problem.</p>
<p>The economists chosen are recognised as leaders in their fields, including economic modelling and public policy. Among them are former International Monetary Fund, Treasury and <a href="https://www.oecd.org/">OECD</a> officials, and a former member of the Reserve Bank board.</p>
<p>Asked to choose tax measures on the basis of <a href="https://www.investopedia.com/terms/e/economic_efficiency.asp">efficiency</a> – minimising the economic damage the extra taxes or tightening of tax concessions would do – 40% chose increased or new taxes on land, while 39% choose increased resource taxes.</p>
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<p>International consultant Rana Roy said every major economist in every strand of modern economics had found taxes on the use of land and natural resources to be the least damaging way of raising money.</p>
<p>This was confirmed in Hong Kong, which charged for the use of crown land; in Norway, which heavily taxed oil and gas resources; and in countries such as Australia, which charge for the use of broadcast spectrum.</p>
<p>Former OECD official Adrian Blundell-Wignall said Australia’s natural resources were the birthright of every Australian. It was time for a resource rent tax along the lines of the one introduced by the Rudd and Gillard governments and abolished by the Abbott government in 2014. </p>
<p>Blundell-Wignall said politicians should ignore the usual hysteria that arose whenever the idea was discussed.</p>
<p>Centre for Independent Studies economist Peter Tulip said he would lump income from inheritances in with income from changes in land value. In both cases the income was unexpected, undeserved, and not compensation for sacrifice. And it disproportionately went to the already fortunate.</p>
<h2>Negative gearing an ‘easy win’</h2>
<p>A quarter of those surveyed backed winding back the ability to negatively gear (write off against tax) expenses incurred in owning investment properties, a concession costed by Tax Expenditures Statement at <a href="https://treasury.gov.au/publication/p2023-370286">$24.4 billion per year</a>.</p>
<p>Blundell-Wignall said negative gearing should have been wound back years ago. Few other countries allowed it, and it contributed to the build up of exposure to property in Australia’s banking system and financial risk as interest rates climbed.</p>
<p>University of Sydney economist James Morley described getting rid of negative gearing as an “easy win”. There were better ways to support home building.</p>
<p>Independent economist Saul Eslake said while he was inclined to extend capital gains tax to the sale of high-end family homes, the problem with the idea was that it might allow owners to write off against tax their mortgage payments (as is the case for investors who negatively gear), encouraging even larger mortgages.</p>
<p>One quarter of those surveyed wanted to broaden the scope of the goods and services tax (at present it excludes spending on education, health, childcare and fresh food) and one fifth wanted to increase the rate, pointing out that a 10%, it was low by international standards.</p>
<h2>‘Unfair’ super concessions and tax-free inheritances</h2>
<p>Asked to choose measures on the basis of equity – not treating similar people differently – 52% backed inheritance taxes, 37% backed winding back superannuation tax concessions and 32% backed increased resource taxes.</p>
<p>None would broaden the GST on equity grounds, and only 3.4% would increase its rate on equity grounds.</p>
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<p>Grattan Institute chief executive Danielle Wood said two-thirds of the value of super tax breaks went to the top fifth of income earners, who are already saving enough for their retirement and would do so without tax concessions. </p>
<p>Wood said the government should go further than the measures taken against super accounts worth more than $3 million announced in February. </p>
<p>The University of Adelaide’s Sue Richardson said super concessions had a negative impact on budget revenue, amounting to tens of billions per year. They were used for tax minimisation by high earners who obtained expensive advice. </p>
<h2>Missing fixes: Stage 3 and a carbon tax</h2>
<p>Guyonne Kalb of the University of Melbourne said the most important tax measure for fairness was one not listed as an option: scrapping the legislated “<a href="https://theconversation.com/stand-by-for-the-oddly-designed-stage-3-tax-cut-that-will-send-middle-earners-backwards-and-give-high-earners-thousands-182751">Stage 3</a>” tax cuts for high earners, due to take effect in 2024.</p>
<p>The tax cuts scheduled for people earning between $120,000 and $200,000 would not have much or any positive impact on Australia’s labour supply and would cost the budget more than $100 billion in their first seven years. </p>
<p>Three panellists, Frank Jotzo, Michael Keating and Stefanie Schurer, said they would have selected “carbon pricing to raise revenue” had it been an option.</p>
<p>Jotzo said if Australia fully taxed emissions at $100 per tonne, the revenue would be around $15 billion per year from electricity, $18 billion from industry, and $9 billion from transport – very large sums in relation to other options.</p>
<p>Schurer would also take away all subsidies to fossil fuel industries. In 2021-22 measures that wholly, primarily or partly assisted fossil fuel industries cost federal, state and territory governments $11.6 billion. </p>
<p>If the government needed $20 billion per year, it could raise around half from fossil fuel subsidies alone.</p>
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<p><em>Individual responses:</em></p>
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Read more:
<a href="https://theconversation.com/how-can-australia-pay-368-billion-for-new-submarines-some-of-the-money-will-be-created-from-thin-air-202150">How can Australia pay $368 billion for new submarines? Some of the money will be created from thin air</a>
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<img src="https://counter.theconversation.com/content/202630/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Peter Martin does not work for, consult, own shares in or receive funding from any company or organisation that would benefit from this article, and has disclosed no relevant affiliations beyond their academic appointment.</span></em></p>Asked to choose the fairest ways to raise billions, half of the economists backed introducing inheritance taxes. Around a third chose winding back super tax concessions and increased resource taxes.Peter Martin, Visiting Fellow, Crawford School of Public Policy, Australian National UniversityLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/1650342021-08-12T15:52:33Z2021-08-12T15:52:33ZU.S. ‘opportunity zones’ use tax breaks for developers to help poor neighbourhoods — but are they really helping?<figure><img src="https://images.theconversation.com/files/415450/original/file-20210810-13-75k9tu.jpg?ixlib=rb-1.1.0&rect=0%2C0%2C3000%2C1998&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">The banks of the Hackensack River near an opportunity zone in Jersey City, N.J.
</span> <span class="attribution"><span class="source">(AP Photo/Julio Cortez) </span></span></figcaption></figure><p>By most accounts, <a href="https://www.beavertonoregon.gov/">Beaverton</a>, part of <a href="https://www.bizjournals.com/portland/blog/real-estate-daily/2015/03/sunset-corridor-proving-to-be-a-powerhouse-in-the.html">Oregon’s Sunset Corridor</a>, is a desirable American suburb. It’s 15 minutes from downtown Portland, home to Nike headquarters and has a median household income of around US$50,000 range. </p>
<p>Why, then, are American taxpayers subsidizing developers to build in Beaverton, along with dozens of other economically robust communities just like it? </p>
<figure class="align-right ">
<img alt="Beaverton is the home to Nike headquarters." src="https://images.theconversation.com/files/415444/original/file-20210810-17-133o1v5.jpg?ixlib=rb-1.1.0&rect=552%2C0%2C7937%2C3567&q=45&auto=format&w=237&fit=clip" srcset="https://images.theconversation.com/files/415444/original/file-20210810-17-133o1v5.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=272&fit=crop&dpr=1 600w, https://images.theconversation.com/files/415444/original/file-20210810-17-133o1v5.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=272&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/415444/original/file-20210810-17-133o1v5.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=272&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/415444/original/file-20210810-17-133o1v5.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=341&fit=crop&dpr=1 754w, https://images.theconversation.com/files/415444/original/file-20210810-17-133o1v5.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=341&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/415444/original/file-20210810-17-133o1v5.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=341&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px">
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<span class="caption">Nike headquarters is seen in Beaverton, Ore.</span>
<span class="attribution"><span class="source">(Shutterstock)</span></span>
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<p>The answer lies in an ambitious public-private partnership initiative known as <a href="https://www.forbes.com/sites/morgansimon/2019/03/30/what-you-need-to-know-about-opportunity-zones/?sh=588e56ed6ae2">opportunity zones</a>. Embedded in the <a href="https://www.congress.gov/bill/115th-congress/house-bill/1/text">U.S. Tax Cuts and Jobs Act of 2017</a>, aimed at incentivizing private investors to develop real estate in low-income communities and spur local business growth, the program has attracted billions of dollars in projects from Beaverton to Boston.</p>
<p>It enjoyed bipartisan support in the United States in the past and deserves broad attention now in the form of greater oversight and increased transparency. For Canadian businesses, opportunity zones would present both an <a href="https://rsmcanada.com/our-insights/real-estate/do-opportunity-zones-mean-opportunity-for-canadian-companies.html">investment opportunity</a> and a <a href="https://www.theglobeandmail.com/opinion/article-to-fight-regional-economic-disparity-ontario-needs-opportunity-zones/">model for economic development</a> and are therefore worth watching. </p>
<p>But are opportunity zones accomplishing their economic goals in the U.S.? Can they do better three years into the program?</p>
<h2>Campaign issue</h2>
<p>In the 2020 U.S. presidential election, opportunity zones <a href="https://www.nytimes.com/2021/04/21/business/biden-trump-opportunity-zones.html">became a divisive campaign issue</a> because of concerns they weren’t helping low-income communities but instead neighbourhoods that were already rapidly gentrifying. Many on the left suggested they be eliminated while the right trumpeted their success. Joe Biden promised to reform the program if elected president.</p>
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<img alt="Trump at a podium pointing with an Opportunity Now banner behind him" src="https://images.theconversation.com/files/415446/original/file-20210810-19-1a6wpxe.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/415446/original/file-20210810-19-1a6wpxe.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=400&fit=crop&dpr=1 600w, https://images.theconversation.com/files/415446/original/file-20210810-19-1a6wpxe.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=400&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/415446/original/file-20210810-19-1a6wpxe.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=400&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/415446/original/file-20210810-19-1a6wpxe.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=503&fit=crop&dpr=1 754w, https://images.theconversation.com/files/415446/original/file-20210810-19-1a6wpxe.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=503&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/415446/original/file-20210810-19-1a6wpxe.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=503&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px">
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<span class="caption">Former U.S. president Donald Trump speaks at a conference on opportunity zones with state, local, tribal and community leaders in Washington, D.C. in 2019.</span>
<span class="attribution"><span class="source">(AP Photo/Andrew Harnik)</span></span>
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<p>Data from <a href="https://dx.doi.org/10.2139/ssrn.3780241">a new comprehensive study we conducted</a> underscores that even though the program has needlessly enriched developers, it’s worth saving. In short, we see the potential for opportunity zones to fuel real growth due to their economic impact on local communities. </p>
<p>The opportunity zone program is well-intentioned — investors earn benefits by reducing capital gains taxes via buying and improving commercial real estate developments that support local businesses. The longer they stay invested, the more benefit they earn until the program ends in 2026.</p>
<p>So where did things go awry? </p>
<p>Let’s go back to Beaverton. <a href="https://www.census.gov/quickfacts/fact/table/beavertoncityoregon,vancouvercitywashington,portlandcityoregon/PST045219">While the 2010 U.S. census</a> technically characterized the community as struggling economically, it’s seen an impressive turnaround since 2012. There have been significant year-over-year improvements in the unemployment rate and median household income. Yet, because of the low-income community designation, it qualified for a program that was designed to help communities in much worse shape.</p>
<p>Most opportunity zone projects have been clustered in communities like Beaverton – neighbourhoods that might not be affluent, but are far from low-income. In fact, many opportunity zone developments are luxury apartments that would have been built with or without tax incentives. </p>
<p>A search through our data turned up new luxury apartment buildings built in opportunity zones — a US$186 million development in Oregon, a US$254 million development in Virginia and a US$68 million development in Brooklyn, N.Y. We note that under current reporting guidelines, we are unable to determine which of these properties is taking advantage of the opportunity zone program. </p>
<h2>Low-income areas left out in the cold</h2>
<p><a href="https://dx.doi.org/10.2139/ssrn.3780241">Our study</a> analyzed a massive dataset of 36 million residential transactions. We found that the low-income areas identified by the census that were selected for the program tended to be more economically stable compared to tracts that weren’t selected, effectively snubbing the low-income communities that need government help the most. </p>
<p>We also found that while the residential price per square foot in opportunity zones increased by four to six per cent due to the program, the overall investment in these areas has not changed pre- versus post-designation. Our research reveals that much of the local price increases are not due to actual business growth, but are instead driven by high-end speculation. </p>
<p>The takeaway? Opportunity zones can positively impact real estate development and can help local communities. But to fully realize the program’s potential, we recommend U.S. policy-makers implement structural changes that are consistent with the original program’s intent. </p>
<figure class="align-center ">
<img alt="A man receives a standing ovation." src="https://images.theconversation.com/files/415458/original/file-20210810-23-zew2wv.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/415458/original/file-20210810-23-zew2wv.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=400&fit=crop&dpr=1 600w, https://images.theconversation.com/files/415458/original/file-20210810-23-zew2wv.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=400&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/415458/original/file-20210810-23-zew2wv.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=400&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/415458/original/file-20210810-23-zew2wv.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=503&fit=crop&dpr=1 754w, https://images.theconversation.com/files/415458/original/file-20210810-23-zew2wv.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=503&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/415458/original/file-20210810-23-zew2wv.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=503&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px">
<figcaption>
<span class="caption">Tony Rankins receives a standing ovation during the 2020 State of the Union address in 2020 for turning his life around thanks to a construction job at a company using opportunity zone tax breaks.</span>
<span class="attribution"><span class="source">(AP Photo/Susan Walsh)</span></span>
</figcaption>
</figure>
<p>First, there should be a greater level of transparency. A critical way to strengthen the program would be to provide visibility into investment activity, including public reporting of all properties purchased by opportunity zone funds. </p>
<p>Given the projected US$1.6 billion cost of the program, it’s in the American public’s best interest to measure the program’s impact on local communities. It would be particularly useful to have real estate transactions from areas of the country participating in the program — but are in <a href="https://www.geodataplus.com/non-disclosure-states-defined">“non-disclosure” states</a> that restrict releasing real estate sales price data to the public — so that there’s a full accounting.</p>
<p>Second, since many of the selected tracts were already economically stronger than qualified non-selected tracts, we suggest evaluating existing zones using updated demographics data to focus on current low-income communities and potentially considering economic factors related to the real estate market. </p>
<p>Designating new zones and undesignating others would better target the communities that need the support of the program the most. In short, the designation can be dynamic.</p>
<p>Finally, we suggest additional conditions on the type of commercial development that qualifies for the program. Developers shouldn’t receive tax benefits to invest in luxury properties located in supposedly low-income neighborhoods. Instead, incentives should be targeted directly to local community needs. </p>
<h2>Tightening requirements</h2>
<p><a href="https://www.congress.gov/bill/116th-congress/senate-bill/2787">The Opportunity Zone Reporting and Reform Act</a> introduced in 2019 already incorporates some of these recommendations. It requires the government to collect and report on the program’s effectiveness annually, tightens the requirements to qualify as an opportunity zone and restricts high-end developments that don’t help local communities. </p>
<p>It’s a good start. We recommend pairing it with more transparency and publicly available data, and re-evaluating the current zones using additional criteria.</p>
<p>Finding neighbourhoods that can benefit from the program isn’t difficult. There’s a qualified but not selected area that’s only a 10-minute drive from Beaverton, for example. It’s home to 5,000 residents with a median income of around US$35,000 and a third of the residents are living below the poverty line. All they’re looking for is an opportunity.</p>
<p><em>John Maiden, former Head of Machine Learning at Cherre, a real estate data firm, and Ron Bekkerman, CTO at Cherre, co-authored this piece.</em></p><img src="https://counter.theconversation.com/content/165034/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>The authors do not work for, consult, own shares in or receive funding from any company or organisation that would benefit from this article, and have disclosed no relevant affiliations beyond their academic appointment.</span></em></p>U.S. opportunity zones can positively impact real estate development and help local communities. But to fully realize the program’s potential, it needs reform.Maxime Cohen, Professor, Retail and Operations Management, McGill UniversityDmitry Mitrofanov, Assistant Professor of Business Analytics, Boston CollegeLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/1626472021-06-17T12:27:43Z2021-06-17T12:27:43ZWhat’s the charitable deduction? An economist explains<figure><img src="https://images.theconversation.com/files/406837/original/file-20210616-3808-7y7pxc.jpg?ixlib=rb-1.1.0&rect=247%2C321%2C4738%2C2619&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">Donors who itemize their tax returns can get a discount.</span> <span class="attribution"><a class="source" href="https://www.gettyimages.com/detail/photo/illustration-of-a-stack-of-100-bills-broken-in-royalty-free-image/114329820">porcorex/ E+ via Getty Images</a></span></figcaption></figure><p>The <a href="https://www.investopedia.com/articles/personal-finance/041315/tips-charitable-contributions-limits-and-taxes.asp">charitable deduction</a> is a dollar-for-dollar reduction in taxable income that lowers what someone owes the <a href="https://www.irs.gov/charities-non-profits/charitable-organizations/charitable-contribution-deductions">Internal Revenue Service</a>. Only donations to <a href="https://www.irs.gov/charities-non-profits/charitable-organizations/exemption-requirements-501c3-organizations">tax-exempt charities</a> count.</p>
<p>This giving incentive is available only for the <a href="https://par.nsf.gov/biblio/10167500">10% of American taxpayers who itemize their tax returns</a>. Taxpayers who itemize can sum up certain expenses, such as the interest they pay to for a home mortgage, and then subtract that money from their taxable income.</p>
<p>Here’s a hypothetical example: Clara Doe, a veterinarian, pays a 32% <a href="https://www.investopedia.com/terms/m/marginaltaxrate.asp">marginal tax rate</a> on her US$200,000 income as a single filer. Because she itemizes, her $100 annual donation to a local food pantry costs her $68 after taxes. Uncle Sam essentially pays the rest by giving her a tax break.</p>
<p>Most Americans instead use the <a href="https://www.investopedia.com/terms/s/standarddeduction.asp">standard deduction</a>, a set amount of money based on how you file your taxes. As as of 2021, the standard deduction was $12,550 for single taxpayers. People claiming it subtract that amount from their income to see how much of it is subject to the income tax. The standard deduction usually saves more money than itemizing.</p>
<p>With the standard deduction, giving $100 costs, well, $100.</p>
<figure class="align-center zoomable">
<a href="https://images.theconversation.com/files/406227/original/file-20210614-73420-1ei65p7.jpg?ixlib=rb-1.1.0&rect=130%2C101%2C4533%2C2766&q=45&auto=format&w=1000&fit=clip"><img alt="Netflix founder Reed Hastings applauds" src="https://images.theconversation.com/files/406227/original/file-20210614-73420-1ei65p7.jpg?ixlib=rb-1.1.0&rect=130%2C101%2C4533%2C2766&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/406227/original/file-20210614-73420-1ei65p7.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=400&fit=crop&dpr=1 600w, https://images.theconversation.com/files/406227/original/file-20210614-73420-1ei65p7.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=400&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/406227/original/file-20210614-73420-1ei65p7.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=400&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/406227/original/file-20210614-73420-1ei65p7.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=503&fit=crop&dpr=1 754w, https://images.theconversation.com/files/406227/original/file-20210614-73420-1ei65p7.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=503&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/406227/original/file-20210614-73420-1ei65p7.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=503&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px"></a>
<figcaption>
<span class="caption">Most people who donate extensively to charity, such as Netflix founder Reed Hastings, use this tax break.</span>
<span class="attribution"><a class="source" href="https://www.gettyimages.com/detail/news-photo/reed-hastings-attends-the-netflix-mediaset-partnership-news-photo/1179797768">Ernesto S. Ruscio/Getty Images via Netflix</a></span>
</figcaption>
</figure>
<h2>Why the charitable deduction matters</h2>
<p>People <a href="https://theconversation.com/5-reasons-why-people-give-their-money-away-plus-1-why-they-dont-87801">give to charities for many reasons</a>. Tax breaks cannot be the main one because giving money away doesn’t make you better off financially.</p>
<p><a href="https://doi.org/10.1016/j.jpubeco.2019.104114">As is true elsewhere</a>, Americans tend to donate more with government incentives. Similarly, donors usually give away smaller shares of their income when Uncle Sam scales back those advantages. </p>
<p>Consider what happened once the <a href="https://www.investopedia.com/taxes/trumps-tax-reform-plan-explained/">2017 tax reform package</a> took effect. Many <a href="https://www.aei.org/society-and-culture/2018-charitable-giving-dips-as-predicted">economists predicted beforehand</a> that its reduction in giving incentives would prompt American taxpayers to give less to charity. And that <a href="https://theconversation.com/american-giving-lost-some-ground-in-2018-amid-tax-changes-and-stock-market-losses-118892">did happen in 2018</a>.</p>
<p>Although charitable giving has since <a href="https://theconversation.com/americans-gave-a-record-471-billion-to-charity-in-2020-amid-concerns-about-the-coronavirus-pandemic-job-losses-and-racial-justice-161489">rebounded, reaching new records</a>, I believe the <a href="https://doi.org/10.1515/npf-2020-0040">total could have been higher</a> if more Americans could deduct charitable contributions from their taxable income.</p>
<h2>How many Americans claim the charitable deduction?</h2>
<p>In 2019, only an <a href="https://par.nsf.gov/biblio/10167500">estimated 8.5% of taxpayers</a> took advantage of this <a href="https://www.everycrsreport.com/reports/R46178.html">century-old tax break</a>. Nearly <a href="https://www.taxpolicycenter.org/briefing-book/what-are-itemized-deductions-and-who-claims-them">three times as many Americans</a> were claiming this deduction before the 2017 tax reforms. </p>
<p>There’s a simple explanation for this decline: The tax package nearly doubled the standard deduction. Most people who were itemizing until 2018 are now better off if they take the standard deduction instead.</p>
<p>That <a href="https://www.mlrpc.com/articles/tax-cuts-jobs-act-overview-provisions-sunset-expire/">could change after 2025</a>, when many of the 2017 tax reforms will expire.</p>
<p><em>The Conversation U.S. publishes short, accessible explanations of newsworthy subjects by academics in their areas of expertise.</em></p><img src="https://counter.theconversation.com/content/162647/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Patrick Rooney receives funding from several different foundations and charitable organizations and serves or has served on several charitable boards or advisory committees. None of them stand to gain from this essay and none have directly fundeed this effort.</span></em></p>Giving $100 to a favorite charity costs less than that for the roughly 8.5% of Americans who use this tax break.Patrick Rooney, Executive Associate Dean for Academic Programs, Glenn Family Chair, and Professor of Economics and Philanthropic Studies, IUPUILicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/1605142021-06-15T12:23:36Z2021-06-15T12:23:36ZFriends are saying ‘I do’ – but might not understand the legal risks of their platonic marriages<figure><img src="https://images.theconversation.com/files/406152/original/file-20210614-77865-zda7im.jpg?ixlib=rb-1.1.0&rect=263%2C6%2C3914%2C2661&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">Since there’s no romantic relationship, judges are likely to default to ruling that platonic marriages are an attempt to game the system.</span> <span class="attribution"><a class="source" href="https://www.gettyimages.com/detail/news-photo/wedding-cake-with-statuettes-of-two-women-is-seen-during-news-photo/81102220?adppopup=true">Gabriel Bouys/AFP via Getty Images</a></span></figcaption></figure><p>When a couple decides to tie the knot, they’ll often say they’re marrying their best friend. </p>
<p>But what if two actual best friends – no sex or even romantic feelings involved – just decided to get married? </p>
<p>Friends, <a href="https://www.nytimes.com/2021/05/01/fashion/weddings/from-best-friends-to-platonic-spouses.html">The New York Times reported</a> in 2021, are starting to “marry in a platonic fashion, swearing never to leave each other for better or for worse.” </p>
<p>These “nonconjugal couples” – mutually supportive relationships of friends or relatives that lack a sexual component – are powerfully challenging dominant social and legal norms around what constitutes family.</p>
<p>I’ve recently written about how these <a href="https://www.bloomsburyprofessional.com/uk/legal-recognition-of-non-conjugal-families-9781509939954/">nontraditional couples could one day gain legal recognition</a> – and thus tax breaks and couple benefits – in the courtrooms of the U.S., Canada and Europe. </p>
<p>But legal recognition, as of today, doesn’t exist. So there are risks in saying “I do” to a friend. </p>
<h2>The legal pitfalls of platonic marriages</h2>
<p>Two friends can get married for a host of reasons. </p>
<p>They might not believe in the traditional heterosexual family and wish to challenge it. They might simply think that their best friend is the person they want to share chores, meals and finances with. Or they might also believe that, as law-abiding taxpayers, they should also be able to receive the <a href="https://www.nolo.com/legal-encyclopedia/marriage-rights-benefits-30190.html">family benefits</a> that other married couples receive, like filing their tax returns jointly.</p>
<p>At the moment, though, friendship is not recognized by law. And only a handful of states allow friends to gain legal recognition through registration as domestic partners. These include <a href="https://repository.law.umich.edu/cgi/viewcontent.cgi?article=1216&context=mjgl">Maine, Maryland</a> and <a href="https://www.denvergov.org/content/dam/denvergov/Portals/777/documents/MarriageCivilUnions/Designated%20Beneficiary%20Agreement.pdf">Colorado</a>.</p>
<figure class="align-right zoomable">
<a href="https://images.theconversation.com/files/406153/original/file-20210614-66119-1qt2q47.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=1000&fit=clip"><img alt="Statuettes of two men in tuxedos adorn the top of a wedding cake." src="https://images.theconversation.com/files/406153/original/file-20210614-66119-1qt2q47.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=237&fit=clip" srcset="https://images.theconversation.com/files/406153/original/file-20210614-66119-1qt2q47.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=902&fit=crop&dpr=1 600w, https://images.theconversation.com/files/406153/original/file-20210614-66119-1qt2q47.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=902&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/406153/original/file-20210614-66119-1qt2q47.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=902&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/406153/original/file-20210614-66119-1qt2q47.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=1134&fit=crop&dpr=1 754w, https://images.theconversation.com/files/406153/original/file-20210614-66119-1qt2q47.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=1134&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/406153/original/file-20210614-66119-1qt2q47.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=1134&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px"></a>
<figcaption>
<span class="caption">It’s pretty easy for two friends to get married – they just can’t admit that they’re only friends.</span>
<span class="attribution"><a class="source" href="https://www.gettyimages.com/detail/news-photo/in-this-photo-illustration-same-sex-statues-adorn-the-top-news-photo/56334631?adppopup=true">Christopher Furlong/Getty Images</a></span>
</figcaption>
</figure>
<p>However, <a href="https://www.supremecourt.gov/opinions/14pdf/14-556_3204.pdf">any two consenting adults</a> – regardless of their genders – can get married in the U.S. Two friends, therefore, can pretty easily pull it off. But they can’t admit that they’re only friends. </p>
<p>Legally speaking, it could be seen as a sham marriage.</p>
<p>For this reason, two friends who tie the knot and receive a marriage certificate can still face considerable risks. They expose themselves to criminal sanctions and civil penalties on grounds of “marriage fraud” if a federal or state agency becomes suspicious of the union. And they may also be denied benefits usually granted to married couples. </p>
<p>Kerry Abrams, the current dean of Duke University School of Law, <a href="https://scholarship.law.duke.edu/faculty_scholarship/3818/">has outlined different doctrines</a> developed in welfare law, social security law and immigration law over the course of the 20th century to specifically detect fake or sham marriages. Whether it’s two people tying the knot so one can gain citizenship, seeking to obtain <a href="https://cite.case.law/mj/74/525/">a housing allowance</a> or getting married ahead of a trial <a href="https://www.law.cornell.edu/supremecourt/text/344/604">so they can’t be forced to testify against one another</a>, the conclusions of the courts are the same: Their marriage is a sham, and the individuals expose themselves to criminal or civil liability and a termination of benefits.</p>
<p>Detecting a sham marriage isn’t easy. And courts acknowledge that there are many reasons that may motivate a person’s decision to marry that aren’t “romantic,” such as a desire to file income jointly to gain tax exemptions.</p>
<p>Therefore, courts look at whether there is what they call a “specific illicit purpose.” As <a href="https://cite.case.law/mj/74/525/">a judge wrote in his ruling</a> in a case about a couple that fraudulently got married to gain a housing allowance: </p>
<blockquote>
<p>“It is not the absence of a perfect or ideal ‘love, honor, and cherish’ motivation of the parties that renders the consequences flowing from the appellant’s actions in the case before us criminal; rather, it is the affirmative presence of a singularly focused illicit one – an intent to fraudulently acquire a government payment stream – that does so.”</p>
</blockquote>
<p>Two married friends will need to demonstrate before courts that they did not have a “singularly focused illicit” purpose of acquiring some sort of government benefit. But they’ll have a hard time doing so. That’s because when courts seek to understand whether the couple intended to live together as husband and wife, they’ll be assuming the family norm in which the couple has a sexual relationship. </p>
<p>Since there is no romantic relationship, judges will likely default to arguing that the friends got married only to game the system.</p>
<h2>Can the Constitution help?</h2>
<p>At the constitutional level, there is this one decision that might lend some hope to nonconjugal couples: <a href="https://supreme.justia.com/cases/federal/us/413/528/">Department of Agriculture v. Moreno</a>, also known as “the hippies case.”</p>
<p>The Moreno case concerned a group of impoverished, unrelated people living under the same roof who, at some point, were denied food stamps by the government. The government argued that its goal was fraud prevention: In its view, households with unrelated people – such as friends – are more likely to commit fraud to illegally obtain government benefits.</p>
<p>The Supreme Court, however, <a href="https://www.oyez.org/cases/1972/72-534">ruled in favor of the household</a> in 1972. It concluded that minimizing fraud is a valid interest, but that the government could do so through other, more specific measures, instead of just denying benefits to a whole group of people. </p>
<p>However there are two problems with using this decision as a precedent for opening the door to allow two friends to marry. First, the outcome was largely driven by what the Supreme Court deemed the “cynical” motives of the legislature, which, in amending the law, had singled out “hippies” as undeserving of food stamps. Second, it isn’t about marriage, per se; it’s about who can gain access to one specific legal benefit: food stamps.</p>
<p>So I would argue that the constitutional decision that says something about the fate of platonic marriages is not Moreno, but <a href="https://guides.ll.georgetown.edu/c.php?g=592919&p=4182205">Obergefell v. Hodges</a>, the Supreme Court judgment on same-sex marriage.</p>
<p>The idea of marriage Obergefell puts forth is one founded on rather traditional family norms. The plaintiffs in the Obergefell case – a gay couple – were, in every way aside from their same gender, congruent with what most Americans understand a married couple to be. Their relationship was sexual, exclusive, romantic, nuclear and involved two people. They were also committed to each other for life. </p>
<p>To show that same-sex marriage is a subset of the broader fundamental right to marry, <a href="https://www.oyez.org/cases/2014/14-556">LGBTQ litigators chose to reinforce preexisting norms</a> of marriage and family. They marshaled evidence showing that a gay or lesbian couple had the same ability to love, be intimate and raise children. Friends do not necessarily adhere to these norms: They are not intimate, and they are not necessarily interested in raising children, though <a href="https://www.cbc.ca/news/canada/ottawa/multimedia/raising-elaan-profoundly-disabled-boy-s-co-mommas-make-legal-history-1.3988464">some of them are</a>. </p>
<p>Ironically, it seems that LGBTQ activism has made it much harder for other nontraditional families to gain access to marriage. <a href="https://theconversation.com/polyamorous-relationships-under-severe-strain-during-the-pandemic-154335">Polyamorous and polygamous relationships</a> are among them. </p>
<p>And, yes, friends, too.</p>
<p>[<em>You’re smart and curious about the world. So are The Conversation’s authors and editors.</em> <a href="https://theconversation.com/us/newsletters/the-daily-3?utm_source=TCUS&utm_medium=inline-link&utm_campaign=newsletter-text&utm_content=youresmart">You can read us daily by subscribing to our newsletter</a>.]</p><img src="https://counter.theconversation.com/content/160514/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Nausica Palazzo does not work for, consult, own shares in or receive funding from any company or organization that would benefit from this article, and has disclosed no relevant affiliations beyond their academic appointment.</span></em></p>Because any two consenting adults can get married in the US, a platonic marriage could pretty easily be pulled off. Legally speaking, though, it’s a sham.Nausica Palazzo, Postdoctoral Fellow in Comparative Law, Hebrew University of JerusalemLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/1197992019-09-17T12:49:50Z2019-09-17T12:49:50ZExpanding direct democracy won’t make Americans feel better about politics<figure><img src="https://images.theconversation.com/files/291863/original/file-20190910-190007-1bovpnz.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">Nurses in November 2016 expressed support for a ballot proposition to limit what California state agencies pay for prescription drugs.</span> <span class="attribution"><a class="source" href="http://www.apimages.com/metadata/Index/Drug-Prices-Ballot-Initiative/f5a1f66a30c04a908e8f814542b85cc1/247/0">AP/Nick Ut, file</a></span></figcaption></figure><p>As Americans watch the Brexit-related <a href="https://uk.reuters.com/article/uk-britain-eu-backstop-nireland-explaine/explainer-focus-back-on-northern-ireland-only-backstop-as-johnsons-options-narrow-idUKKCN1VV17C">political turmoil in the United Kingdom</a>, it is important to remember that the chaos there began in a form of direct democracy. When U.K. voters set in motion their exit from the European Union, <a href="https://www.bbc.com/news/uk-politics-32810887">they did so by voting directly on the so-called “Brexit” initiative</a>.</p>
<p>Normally, such major policy would have been initiated, deliberated and voted on by their elected officials in Parliament.</p>
<p>The Brexit mess is an example of the disruptive potential of direct democracy, a practice that Americans <a href="https://news.gallup.com/poll/163433/americans-favor-national-referenda-key-issues.aspx">have long believed</a> leads to a healthier democratic society. </p>
<p>Recent polls show Americans are increasingly dissatisfied with their system of representative democracy. <a href="https://www.vox.com/mischiefs-of-faction/2018/10/31/18042060/poll-dissatisfaction-american-democracy-young">Many</a> see sharp and unhealthy partisan divisions and lack confidence that the system will produce the results they desire. </p>
<p>Against this backdrop, some advocate for greater use of direct democracy. This includes <a href="https://ballotpedia.org/States_with_initiative_or_referendum">ballot initiatives, such as those practiced in 24 states</a>, including California, Massachusetts and Michigan. </p>
<p><a href="https://ballotpedia.org/Ballot_initiative">Ballot initiatives</a> bypass the normal legislative process. They can be written by anyone and receive a public vote without input from lawmakers, provided enough petition signatures are obtained to get the initiative on the ballot. </p>
<p>Well-known initiatives have dealt with issues like <a href="https://ballotpedia.org/Maine_Same-Sex_Marriage_Question,_Question_1_(2012)">same-sex marriage</a>, <a href="https://ballotpedia.org/California_Proposition_24,_Repeal_of_Corporate_Tax_Breaks_(2010)">tax reform</a> and <a href="https://ballotpedia.org/Alaska_Marijuana_Legalization,_Ballot_Measure_2_(2014)">marijuana legalization</a>. Advocates say <a href="https://www.youtube.com/watch?v=qwRHJn3rQP0">greater use of such measures</a> could help address citizen disengagement from – and cynicism about – politics.
Based on 15 years of <a href="https://link.springer.com/article/10.1007/s11109-014-9273-5">our</a> <a href="https://journals.sagepub.com/doi/10.1177/1532673X08330635">own</a> <a href="https://link.springer.com/article/10.1007/s11109-008-9081-x">research</a>, <a href="https://doi.org/10.3998/mpub.9993024">we believe that the commonly held view of the initiative process – that it’s good for democracy – is wrong</a>. </p>
<figure class="align-center ">
<img alt="" src="https://images.theconversation.com/files/291864/original/file-20190910-190050-1a7qakx.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/291864/original/file-20190910-190050-1a7qakx.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=387&fit=crop&dpr=1 600w, https://images.theconversation.com/files/291864/original/file-20190910-190050-1a7qakx.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=387&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/291864/original/file-20190910-190050-1a7qakx.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=387&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/291864/original/file-20190910-190050-1a7qakx.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=487&fit=crop&dpr=1 754w, https://images.theconversation.com/files/291864/original/file-20190910-190050-1a7qakx.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=487&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/291864/original/file-20190910-190050-1a7qakx.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=487&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px">
<figcaption>
<span class="caption">Direct democracy, say the authors, produces greater political conflict and polarization, such as this demonstration in London on Sept. 4 of Brexit supporters and detractors.</span>
<span class="attribution"><a class="source" href="http://www.apimages.com/metadata/Index/Britain-Brexit/f65578fc29c840b880b629c1eee245cc/11/0">AP/Alastair Grant</a></span>
</figcaption>
</figure>
<h2>Progressives’ unfulfilled hope</h2>
<p>Claims promoting the positive benefits of direct democracy on voter turnout and engagement have appeared periodically since the wave of <a href="http://www.loc.gov/teachers/classroommaterials/presentationsandactivities/presentations/timeline/progress/">Progressive Era reforms during the early 20th century</a>. Those reforms led to the establishment of the <a href="https://ballotpedia.org/History_of_initiative_and_referendum_in_the_U.S.">state ballot initiative process</a>.</p>
<p>Americans practice a form of <a href="https://www.historyonthenet.com/what-is-a-representative-democracy">representative democracy</a> by choosing among candidates for office. <a href="https://journals.openedition.org/siecles/1109?lang=en">Advocates for direct democracy</a> maintain that by voting directly on policy proposals, people become more knowledgeable about government, confident of their own abilities and positive about the capabilities of others. </p>
<p>As political theorist <a href="https://www.ucpress.edu/book/9780520242333/strong-democracy">Ben Barber asserted</a>, the “initiative and referendum can increase popular participation in and responsibility for government, provide a permanent instrument of civic education, and give popular talk the reality and discipline that it needs to be effective.” </p>
<p>Beginning about two decades ago, some <a href="https://www.cambridge.org/core/journals/british-journal-of-political-science/article/democracy-institutions-and-attitudes-about-citizen-influence-on-government/F6DFDF0A30CE0D9E7A38EA0465D31FBB">political scientists</a> <a href="https://www.press.umich.edu/11463/educated_by_initiative">claimed to find support</a> for the idea that greater use of direct democracy tools, especially the state ballot initiative, helps people get more interested in and engaged with politics and spurs more trust in government. </p>
<p>Direct democracy has been popular with both political parties, and liberals as well as conservatives. </p>
<p>Modern-day progressives often claim the ballot initiative can fix problems like gerrymandering, campaign finance abuses or growing income inequality. The Ballot Initiative Strategy Center <a href="https://ballot.org/why-were-here/">states that</a> “[W]e envision a future in which progressives have harnessed the power of ballot measures as proactive tools for success – to increase civic engagement, enact forward-looking policies, and strengthen progressive infrastructure in key states.”</p>
<p>Yet not so long ago, <a href="https://ballot.org/why-were-here/">conventional wisdom held</a> that ballot initiatives and referendums were the <a href="https://www.press.uchicago.edu/ucp/books/book/chicago/F/bo3615566.html">tools of conservatives</a>, at least in the last 40 years. </p>
<p><a href="https://ballotpedia.org/California_Proposition_13,_Tax_Limitations_Initiative_(1978)">In 1978, California passed Proposition 13</a>, sparking tax-cutting measures across the country. <a href="https://guides.ll.georgetown.edu/c.php?g=592919&p=4182201">Before the Supreme Court ruled that same-sex marriage was legal</a>, states with ballot initiatives and voter-approved constitutional amendments passed laws defining marriage as between a man in a woman in more than 30 statewide votes between 1998 and 2011. </p>
<h2>Conflict and polarization</h2>
<p>Drawing on a wide variety of data, we conclude in our book <a href="https://www.press.umich.edu/9993024/initiatives_without_engagement">“Initiatives without Engagement”</a> that the initiative process mainly encourages greater conflict rather than produces political and social benefits. </p>
<p>Ballot initiatives can increase voter turnout, which seems like positive news. But they do so through <a href="https://onlinelibrary.wiley.com/doi/abs/10.1111/j.1540-6237.2010.00688.x">mobilization of occasional voters</a> and encourage voting commonly based on fear <a href="https://doi.org/10.3998/mpub.9993024">without making people more generally knowledgeable or engaged</a>. </p>
<p>Initiatives can also be a tool for ideological extremists and opportunists. They use the process to circumvent the American legislative process, long noted for its incrementalism and premium on compromise. </p>
<p><a href="https://doi.org/10.3998/mpub.9993024">Our research</a> finds that the relationship between party identification and polarized issue attitudes – where Democrats increasingly take the more liberal position and Republicans take the more conservative position – is about 25%-45% bigger in states that frequently use the initiative than in noninitiative states. </p>
<h2>Tyranny of the majority</h2>
<p>Our research also confirms that initiatives often inflame occasional majority group voters. They do this with measures targeting the rights of minority group members. </p>
<p>This has been the case with attempts to <a href="https://onlinelibrary.wiley.com/doi/abs/10.1111/j.1540-5907.2006.00175.x">limit the rights of immigrants, curb affirmative action</a> and <a href="https://academic.oup.com/poq/article-abstract/72/3/399/1836972">define marriage as between a man and a woman</a>.</p>
<p>Examining all post-World War II ballot measures in California, we found numerous examples of votes that sought to curtail the rights of minority groups, including the LGBT community, racial/ethnic minorities and immigrants. Only <a href="https://ballotpedia.org/California_Proposition_11,_Fair_Employment_Practices_Act_(1946)">one initiative was aimed at expanding them</a>. </p>
<p>The 1946 ballot initiative, Proposition 11, was called the “Fair Employment Practices Act” and <a href="https://ballotpedia.org/California_1946_ballot_propositions">would have barred employers from discriminating</a> on the basis of race, religion, color, national origin or ancestry. It received only 28% yes votes to 72% no. </p>
<p>This is exactly the “majority tyranny” that worried the American founders. <a href="https://avalon.law.yale.edu/18th_century/fed10.asp">James Madison famously argued</a> that pure democracies were incompatible with “personal security” and “property rights.” Given the opportunity, he believed, the masses might vote away the rights and wealth of the elite. His ultimate point, that majorities can be myopic, has proven prescient. </p>
<h2>Distrust in government</h2>
<p>In the wake of all this conflict <a href="https://doi.org/10.3998/mpub.9993024">our research</a> shows that frequent use of ballot initiatives makes citizens trust government less, not more. This is because initiative campaigns often stress that government is broken. Voters then conclude that we would have fewer direct democracy campaigns if government was more competent. </p>
<p>Many people have a visceral attachment to the idea that “the cure for the ills of democracy is more democracy.” Presidential candidate and Democratic donor Tom Steyer and others <a href="https://calmatters.org/blogs/california-election-2020/2019/07/tom-steyer-presidential-bid-california-ideas-for-country-politics-direct-democracy/">advocate for expansion of direct democracy to the national level</a>. </p>
<p>By contrast, some scholars express concern that extending direct democracy to the national level would result in a lack of effective deliberation <a href="https://heinonline.org/HOL/Page?handle=hein.journals/vanlr56&div=17&g_sent=1&casa_token=sTW3qRG9S4cAAAAA:5guUerCiGxZQGghrOoJj4LXD7rBcAgqqC6hhojjZYxZMp1r9mNaev43qUj-URtiTSfQRNW309Q&collection=journals">if critical policy issues were decided by popular vote</a>. And because direct democracy addresses issues one at a time rather than in relation to one another, it can <a href="https://heinonline.org/HOL/Page?handle=hein.journals/hlr112&div=20&g_sent=1&casa_token=70_gQ1kcthIAAAAA:D0vBOia73vGdM5RKTkAYbi29IWa5234af2b7m9a6l8wYqZhrMIg4X2Sq95fALikT9rx9N4CoYw&collection=journals">hamper the ability to set priorities</a>. This is especially true of measures that affect state budgets. </p>
<p>Our research goes further, raising concerns about the consequences of extending direct democracy for citizens’ engagement with their government. We think the likely effects of taking something like the state initiative process to the national level would be to deepen distrust between citizens and government as it has in the states. That in turn would give parties and presidents another tool to strengthen polarization. </p>
<p>The consequences of a national referendum process in the U.S. could resemble what has transpired in the U.K. more than the anodyne promises of would-be reformers. </p>
<p>[ <em>Like what you’ve read? Want more?</em> <a href="https://theconversation.com/us/newsletters?utm_source=TCUS&utm_medium=inline-link&utm_campaign=newsletter-text&utm_content=likethis">Sign up for The Conversation’s daily newsletter</a>. ]</p><img src="https://counter.theconversation.com/content/119799/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>The authors do not work for, consult, own shares in or receive funding from any company or organization that would benefit from this article, and have disclosed no relevant affiliations beyond their academic appointment.</span></em></p>Citizens voting directly on policy seems like a good idea. But that led to the Brexit mess in the UK. In the US, two scholars say direct democracy deepens distrust of politics and government.Joshua J. Dyck, Associate Professor of Political Science; Director of the Center for Public Opinion, UMass LowellEdward L. Lascher Jr., Professor and Chair, Department of Public Policy and Administration, California State University, SacramentoLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/1193712019-07-11T11:07:18Z2019-07-11T11:07:18ZWhy states and cities should stop handing out billions in economic incentives to companies<figure><img src="https://images.theconversation.com/files/283613/original/file-20190711-44432-6x56ea.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">Some states and cities are getting very little for the taxpayer dollars they hand out to companies. </span> <span class="attribution"><span class="source">Atstock Productions/Shutterstock.com</span></span></figcaption></figure><p>U.S. states and cities <a href="https://research.upjohn.org/cgi/viewcontent.cgi?referer=&httpsredir=1&article=1228&context=reports">hand out tens of billions</a> in taxpayer dollars every year to companies as economic incentives. </p>
<p>These businesses are <a href="https://cdn.shopify.com/s/files/1/0209/7122/files/Bauerle_Danzman_et_al_2016_White_Paper_Incentives.pdf?9785265759434988670">supposed to use the money</a>, typically distributed through economic development programs, to open new facilities, create jobs and generate tax revenue.</p>
<p>But all too often that’s not what happens, as <a href="https://scholar.google.com/citations?user=TunpR_MAAAAJ&hl=en&oi=ao">I’ve learned</a> after doing research on the use of tax incentives to spur economic development in cities and states across the country, particularly in Texas. </p>
<p>Recent scandals involving economic development programs in <a href="https://www.state.nj.us/comptroller/news/docs/eda_final_report.pdf">New Jersey</a>, <a href="https://www.propublica.org/article/trump-inc-podcast-one-trump-tax-cut-meant-to-help-the-poor-a-billionaire-ended-up-winning-big">Baltimore</a> and elsewhere illustrate just what’s wrong with these programs – and why I believe it’s time to end this waste of taxpayer dollars once and for all. </p>
<h2>Economic development 101</h2>
<p>Many states, counties and cities have economic development agencies <a href="https://icma.org/sites/default/files/306723_Economic%20Development%202014%20Survey%20Results%20for%20website.pdf">tasked</a> with facilitating investment in their communities. </p>
<p>These agencies undertake a variety of valuable <a href="https://www.urban.org/sites/default/files/publication/83141/2000880-What-Do-State-Economic-Development-Agencies-Do.pdf">activities</a>, from gathering data to training small businesses owners. Yet one of their most high-profile activities is the use of tax and other incentives to entice companies to invest in their communities, <a href="https://cdn.shopify.com/s/files/1/0209/7122/files/Bauerle_Danzman_et_al_2016_White_Paper_Incentives.pdf?9785265759434988670">generating local jobs and expanding the tax base</a>.</p>
<p>Estimates of how much is spent on such incentives range from <a href="https://research.upjohn.org/cgi/viewcontent.cgi?referer=&httpsredir=1&article=1228&context=reports">US$45 billion</a> to <a href="http://archive.nytimes.com/www.nytimes.com/interactive/2012/12/01/us/government-incentives.html">$80 billion</a> a year. </p>
<p>But what do taxpayers get for all this money? As it turns out, not much. </p>
<h2>1. A waste of money</h2>
<p>First off, in most cases, investments that result from these incentives would have happened anyway. </p>
<p>That was the case in Baltimore involving a federal program meant to spur development in distressed communities it dubbed “<a href="https://eig.org/opportunityzones">opportunity zones</a>.” <a href="https://www.propublica.org/article/trump-inc-podcast-one-trump-tax-cut-meant-to-help-the-poor-a-billionaire-ended-up-winning-big">ProPublica reported in June</a> that Maryland accidentally designated an area of Baltimore that wasn’t poor and was already under redevelopment an opportunity zone. Despite catching the error, the state kept the designation, allowing real estate investors to potentially claim millions of dollars in tax breaks. Those investors include <a href="https://www.bloomberg.com/profile/person/7406856">Kevin Plank</a>, the billionaire CEO of Under Armour, who owns about 40% of the zone, according to ProPublica.</p>
<p>This example isn’t unique. Last year, Tim Bartik, an economist at the Upjohn Institute for Employment Research, <a href="https://www.doi.org/10.17848/wp18-289">reviewed 30 studies</a> on the use of economic development incentives. He found that 75% to 98% of companies were planning to make the desired investment anyway. </p>
<p>In my own work in Texas, <a href="https://rdcu.be/bJE6i">I found</a> that more than 85% of the companies offered tax breaks had already planned to open the promised new facilities. A few even broke ground before applying for the incentives. </p>
<p>And in New Jersey, <a href="https://www.documentcloud.org/documents/6157686-New-Jersey-Task-Force-on-EDA-s-Tax-Incentives.html">investigators</a> who uncovered abuse in the state’s economic development program found that a lawyer representing a powerful Democratic official <a href="https://www.nytimes.com/2019/05/01/nyregion/nj-tax-break-kevin-sheehan.html">drafted legislation</a> to benefit companies tied to him and his associates, to the tune of hundreds of millions of dollars. Their <a href="https://www.state.nj.us/comptroller/news/docs/eda_final_report.pdf">June report</a> described how the New Jersey Economic Development Agency didn’t perform the basic due diligence of a single Google search, which would have shown that some of the companies had already announced a move to New Jersey before being offered incentives.</p>
<h2>2. Investments rarely pay off</h2>
<p>Even when an incentive does draw new investments, they <a href="https://research.upjohn.org/up_technicalreports/34/">rarely pay off</a>. And they can even <a href="http://dx.doi.org/10.2139/ssrn.3376991">harm the fiscal health</a> of cities and states by pulling resources away from other more productive activities.</p>
<p>In “<a href="https://www.cambridge.org/core/books/incentives-to-pander/E0003C20215EDA5047EA0831FEEB6D92">Incentives to Pander</a>,” a book I co-authored with Duke political scientist Edmund Malesky, we reviewed the academic literature in the U.S. and elsewhere on the use of incentives and found that they are expensive and ineffective in generating employment and economic growth.</p>
<p>Wisconsin residents may be learning this the hard way after their government offered electronics manufacturer Foxconn over $4 billion in incentives in exchange for a <a href="https://www.theverge.com/2019/4/10/18296793/foxconn-wisconsin-location-factory-innovation-centers-technology-hub-no-news">promise to build</a> a high-tech facility that is supposed to create 13,000 jobs. But since the <a href="https://www.jsonline.com/story/news/2017/07/26/scott-walker-heads-d-c-trump-prepares-wisconsin-foxconn-announcement/512077001/">2017 announcement</a>, the company <a href="https://www.cnbc.com/2019/07/08/wisconsin-governor-says-foxconn-is-again-likely-to-miss-job-targets.html">has failed to meet job targets</a> and even <a href="https://www.theverge.com/2019/6/5/18652710/foxconns-wisconsin-delays-factory-jobs-revise-contract-tony-evers-scott-walker-trump">downgraded the type of facility</a> it plans to build. </p>
<h2>3. A failure of oversight</h2>
<p>A third problem is that government agencies fail to provide effective oversight to ensure that company promises on investment and employment like Foxconn’s are upheld. </p>
<p>A <a href="http://legis.wisconsin.gov/lab/media/2861/19-6full.pdf?mod=article_inline">legislative audit found</a> that the Wisconsin agency responsible <a href="https://www.wsj.com/articles/wisconsin-economic-development-group-paid-for-jobs-added-in-other-states-11560250801">follows problematic oversight practices</a> and failed to verify that companies created the number of jobs or other goals they claimed. </p>
<p>Wisconsin isn’t alone. Many states and municipalities provide limited oversight of the economic incentives they offer and often rely on companies’ <a href="https://www.pewtrusts.org/%7E/media/assets/2016/04/betterincentiveinformation.pdf">self-reported data</a> to determine whether they’ve met targets. In Texas, doctoral candidate Calvin Thrall and I <a href="https://theconversation.com/amazon-hq2-texas-experience-shows-why-new-yorkers-were-right-to-be-skeptical-111137">found</a> that the state even allowed companies to renegotiate their job creation targets, sometimes the day before they were required to report compliance with an incentive agreement. </p>
<p>And even though these deals are often accompanied by splashy PR campaigns that highlight how many jobs will be created, the incentive contracts often don’t even include actual <a href="https://www.sao.texas.gov/reports/main/15-003.pdf">job creation requirements</a>. And <a href="https://icma.org/sites/default/files/306723_Economic%20Development%202014%20Survey%20Results%20for%20website.pdf">only 56% of cities surveyed</a> indicated that they required a performance agreement before offering incentives.</p>
<p>New Jersey investigators found similar <a href="https://www.documentcloud.org/documents/6157686-New-Jersey-Task-Force-on-EDA-s-Tax-Incentives.html">oversight problems</a> and other shortcomings in its economic development program.</p>
<p>Finally, a <a href="https://www.goodjobsfirst.org/examining-local-subsidy-transparency">lack of transparency surrounding these programs makes</a> it hard for others to determine whether taxpayers got what they were promised. </p>
<h2>Ending incentives</h2>
<p>So you’re probably wondering, if these incentives don’t work, why do government officials continue to use and promote them? </p>
<p>The <a href="https://www.cambridge.org/core/books/incentives-to-pander/E0003C20215EDA5047EA0831FEEB6D92%20Eddy%20Malesky">book I wrote</a> with Malesky and a <a href="https://doi.org/10.1111/isqu.12106">related paper</a> showed how these incentives provide a way for politicians to take credit for business investment – in the hopes that it will give them a lift in their next election. All they have to do is convince voters that <a href="http://dx.doi.org/10.2139/ssrn.1669748">these programs work</a> and that the grand promises being made when officials cut ribbons in well-publicized ceremonies will eventually pan out. </p>
<p>Powerful special interest groups are also to blame, as they play a big role in <a href="https://www.pewtrusts.org/en/research-and-analysis/blogs/stateline/2017/04/03/how-savvy-financiers-pitch-complex-investment-programs">shaping incentive programs</a> and <a href="https://www.reuters.com/article/us-boeing-incentives/boeing-lobby-group-team-up-to-defend-8-7-billion-in-state-tax-breaks-idUSKBN14U23V">lobby</a> vigorously for lawmakers to create them and keep them alive. </p>
<p>Rather than reform or rebrand these programs, I believe states should take the advice of some of <a href="https://lao.ca.gov/Publications/Report/3759">their own evaluations</a> of these programs and eliminate them. Taxpayers would be better off without them.</p>
<p>[ <em>Deep knowledge, daily.</em> <a href="https://theconversation.com/us/newsletters?utm_source=TCUS&utm_medium=inline-link&utm_campaign=newsletter-text&utm_content=deepknowledge">Sign up for The Conversation’s newsletter</a>. ]</p><img src="https://counter.theconversation.com/content/119371/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Nathan Jensen has received funding from the Ewing Marion Kauffman Foundation and the Laura and John Arnold Foundation to study economic development incentives. He is also a Senior Fellow at the Niskanen Center.</span></em></p>Recent scandals involving economic development programs in New Jersey and Maryland highlight their many flaws, including a lack of oversight and their ineffectiveness.Nathan Jensen, Professor of Government, The University of Texas at AustinLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/1111372019-02-07T11:28:13Z2019-02-07T11:28:13ZAmazon HQ2: Texas experience shows why New Yorkers were right to be skeptical<figure><img src="https://images.theconversation.com/files/257576/original/file-20190206-174867-14fc9ox.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">Amazon's plan to build a new headquarters in Long Island City faced significant resistance. </span> <span class="attribution"><a class="source" href="http://www.apimages.com/metadata/Index/Amazon-HQ-Protest/d9fb238eab43417dbe5be1c4a5ae7c7a/15/0">AP Photo/Bebeto Matthews</a></span></figcaption></figure><p>New York offered Amazon <a href="https://ny.curbed.com/2018/11/16/18098589/amazon-hq2-nyc-queens-long-island-city-explained">close to US$3 billion</a> to build a “second” headquarters in Long Island City on the promise of 25,000 jobs. </p>
<p>Since the deal was <a href="https://www.politico.com/states/new-york/albany/story/2018/11/13/cuomo-de-blasio-ring-in-amazon-deal-as-critics-weigh-in-693844">joyfully announced</a> in November, however, many <a href="https://www.geekwire.com/2019/new-york-labor-leaders-join-mounting-resistance-amazon-hq2/">local residents and some politicians</a> in the area have been questioning whether it’s worth it, both in terms of the price tag and the impact on housing and traffic congestion. And, on Feb. 14, Amazon <a href="https://www.nytimes.com/2019/02/14/nyregion/amazon-hq2-queens.html">backed out of the deal</a>, <a href="https://blog.aboutamazon.com/company-news/update-on-plans-for-new-york-city-headquarters">citing political opposition</a> to its plans.</p>
<p>The <a href="https://www.cambridge.org/core/books/incentives-to-pander/incentives-to-pander/6DC05716D990F0561EC11202923748FC">research</a> <a href="https://www.nytimes.com/2018/04/24/opinion/amazon-hq2-incentives-taxes.html">supports those who question the wisdom</a> of cities and states creating incentives for economic development. Studies suggest the jobs and economic gains are usually not worth the tax breaks since the <a href="https://research.upjohn.org/up_workingpapers/289/">majority of companies</a> would have come even without incentives. </p>
<p>And that’s when the companies try to live up to the promises they made. They don’t always do so, with the latest example being Foxconn’s announcement that it is <a href="https://www.bloomberg.com/news/features/2019-02-06/inside-wisconsin-s-disastrous-4-5-billion-deal-with-foxconn">reconsidering plans to build a factory in Wisconsin</a> – less than a year after agreeing to create up to 13,000 high-tech jobs in exchange for more than $4.5 billion in incentives. </p>
<p>But how often do companies that agree to build factories and create jobs in exchange for economic incentives back away from their promises? And when they do, do taxpayers ever learn about it? </p>
<p>To shine light on these questions, <a href="https://scholar.google.com/citations?user=TunpR_MAAAAJ&hl=en&oi=ao">we</a> conducted a <a href="https://equitablegrowth.org/working-papers/whos-afraid-of-sunlight-explaining-opposition-to-transparency-in-economic-development/">study</a> of a Texas economic development program. Taxpayers in any American city considering luring a company with cash should take heed.</p>
<h2>Something to hide?</h2>
<p>The <a href="https://gov.texas.gov/business/page/texas-enterprise-fund">Texas Enterprise Fund</a>, which started in 2003, allows the state to offer cash grants to companies in exchange for promises of investments and job creation. As of Jan. 1, the <a href="https://gov.texas.gov/uploads/files/business/TEF_Legislative_Report_2019_Final.pdf">program</a> had provided over $600 million in cash incentives to companies vowing to create over 94,000 direct jobs in Texas. </p>
<p>In our <a href="https://equitablegrowth.org/working-papers/whos-afraid-of-sunlight-explaining-opposition-to-transparency-in-economic-development/">study</a>, we submitted public records requests for company applications and agreements for grants. We wanted to see what companies had promised the state in return for the cash. </p>
<p>Our research led to two troubling findings. First, public record law in Texas allows companies themselves to <a href="https://www.star-telegram.com/opinion/opn-columns-blogs/other-voices/article185692193.html">legally challenge requests</a> – which is controversial yet not uncommon among other states. </p>
<p>In our study, 42 out of the 165 recipient companies submitted legal challenges to our requests. Before even seeing the data, we were asking ourselves: What are these companies trying to hide?</p>
<p>Although companies were partially successful in limiting our requests, primarily in getting certain parts of their proposals redacted, the governor’s office ultimately provided us with a complete list of companies that had some amendment to their contracts. </p>
<p>To our surprise, over a quarter of companies in the program – or 46 – had renegotiated their incentive deals with the state. These deals weren’t announced by the governor’s office nor were they reported anywhere online. </p>
<p>Our public records request is still unfolding and we still haven’t received the contracts for roughly two-thirds of these companies. For the 63 companies whose contracts we received, 29 had amendments to the original.</p>
<figure class="align-center ">
<img alt="" src="https://images.theconversation.com/files/257577/original/file-20190206-174857-1o5tkar.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/257577/original/file-20190206-174857-1o5tkar.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=400&fit=crop&dpr=1 600w, https://images.theconversation.com/files/257577/original/file-20190206-174857-1o5tkar.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=400&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/257577/original/file-20190206-174857-1o5tkar.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=400&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/257577/original/file-20190206-174857-1o5tkar.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=503&fit=crop&dpr=1 754w, https://images.theconversation.com/files/257577/original/file-20190206-174857-1o5tkar.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=503&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/257577/original/file-20190206-174857-1o5tkar.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=503&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px">
<figcaption>
<span class="caption">Comerica Inc. announced plans in 2007 to relocate its corporate headquarters to Dallas.</span>
<span class="attribution"><a class="source" href="http://www.apimages.com/metadata/Index/AP-A-TX-USA-Comerica-Bank/979435adba014de68d6f65f80a99bcec/5/0">AP Photo/LM Otero</a></span>
</figcaption>
</figure>
<h2>SpaceX and Comerica</h2>
<p>Most of these amended contracts were designed to reduce companies’ commitments to job creation. Two cases in point are SpaceX and Comerica.</p>
<p>SpaceX – a company that designs, manufactures and operates commercial spacecraft – <a href="https://www.bizjournals.com/sanjose/news/2014/08/04/elon-musks-spacex-picks-texas-for-worlds-first.html">received a $2.3 million grant</a> in 2013 in exchange for a commitment to create 300 jobs at a new launch facility near Brownsville, Texas. In 2017, however, the company secretly renegotiated its grant contract to halve the size of the deal: SpaceX would reduce its commitment to 150 new jobs in return for a grant of $1.15 million. The situation is still a mystery, however, because the fund hasn’t paid any funds nor has SpaceX reported jobs as part of the program. </p>
<p>Comerica received <a href="https://gov.texas.gov/uploads/files/business/TEF_Listing_as_of_12.31.18.pdf">$3.5 million</a> in 2007 in exchange for its commitment to create 200 jobs as part of its plan to move its headquarters to Dallas from Detroit. In 2012, the financial services giant amended the contract to allow 15 of its current executives – including the CEO – to be counted towards the job and wage target as long they relocated to Texas. </p>
<p>In case after case, companies renegotiated grant contracts in similar ways to get a better deal, all while avoiding public scrutiny. In contrast, announcements of the original agreements <a href="https://www.mysanantonio.com/news/local/article/Texas-SpaceX-announce-spaceport-deal-near-5667434.php">were typically covered as big events and photo ops</a>, such as when former Texas Gov. Rick Perry and SpaceX founder Elon Musk <a href="https://www.spaceflightinsider.com/organizations/space-exploration-technologies/spacex-breaks-ground-spaceport-texas-musk-aims-first-launch-2016/attachment/spacex-brownsville-texas-groundbreaking-elon-musk-governor-rick-perry-photo-credit-texas-government-posted-on-spaceflight-insider/">broke ground</a> together. </p>
<h2>Empty promises</h2>
<p>Perhaps most disturbingly, our two findings – company challenges and renegotiations – were related. </p>
<p>We found that companies that had renegotiated their contracts were much more likely to have challenged our public records request, at almost double the rate. </p>
<p>This pattern is consistent with <a href="https://equitablegrowth.org/working-papers/whos-afraid-of-sunlight-explaining-opposition-to-transparency-in-economic-development/">companies using public records laws</a> to hide their non-compliance with their job creation promises.</p>
<p>The finding, even if limited to a single state, is troubling. If companies can not only secretly renegotiate the deals but also make sure that public records laws shield them from revealing that they did, then the contracts are meaningless. And we would argue that politicians are at the very least complicit with these private deals.</p>
<p>In the cases of New York and Virginia – the other state that received a new Amazon location as a part of its “HQ2” bidding process – the agreements they signed requires them to <a href="https://www.fastcompany.com/90279607/report-new-york-will-give-amazon-a-heads-up-to-any-foia-requests">notify the online retailer</a> of any public records requests in order to give it the opportunity to legally challenge them.</p>
<p>More broadly, secrecy pervades the entire process of economic development. For example, during the many months-long competition to win HQ2, Wisconsin officials purposely routed their Amazon bid through agencies not subject to public records requests, <a href="https://www.bizjournals.com/milwaukee/news/2018/01/25/state-emails-show-wisconsins-effort-to-keep-amazon.html">emails show</a>. And cities like Austin and Los Angeles <a href="https://www.muckrock.com/news/archives/2018/oct/15/amazon-hq2-why-denied/">submitted their bids</a> through non-public entities like the Chambers of Commerce as a way to shield them from public scrutiny.</p>
<h2>When public records aren’t public</h2>
<p>Throughout the country <a href="https://www.nytimes.com/2018/04/24/opinion/amazon-hq2-incentives-taxes.html">we have observed</a> exceptions to public records laws and “creative” ways government official can circumvent these laws. </p>
<p>And the costs of this lack of transparency can be high, as audits of economic development programs in <a href="https://www.state.nj.us/comptroller/news/docs/eda_final_report.pdf">New Jersey</a> and <a href="https://www.osc.state.ny.us/press/releases/july16/070716.htm">New York</a> show.</p>
<p>The scathing audit of New York’s Excelsior Jobs Program found not only a lack of due diligence but also a staff that had changed the required number of jobs for companies that were falling short of their creation requirements. And this program would have also provided <a href="https://blog.aboutamazon.com/company-news/amazon-selects-new-york-city-and-northern-virginia-for-new-headquarters">much of the incentives for Amazon’s HQ2</a>. </p>
<p>In other words, after politicians stage <a href="https://www.roanoke.com/business/news/money-for-nothing-sweet-appomattox-deal-turned-sour-for-virginia/article_4e5c1198-2e73-513b-becd-5848edb5e3e9.html">photo ops</a> of company announcements, little is done to make sure companies are complying with these agreements. </p>
<p>Now that Amazon has pulled a Valentine’s Day breakup with New York, it’s worth considering who is to blame.</p>
<p>We think that the governor and mayor seriously miscalculated by negotiating a secret deal with Amazon and then proposing it as a take it or leave it offer to New Yorkers. Amazon may claim that it dumped New York, but it looks like the break-up was mutual.</p><img src="https://counter.theconversation.com/content/111137/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Nathan Jensen received funding for this research project the University of Texas IC2 Institute. He is also a Senior Fellow at the Niskanen Center. </span></em></p><p class="fine-print"><em><span>Calvin Thrall does not work for, consult, own shares in or receive funding from any company or organization that would benefit from this article, and has disclosed no relevant affiliations beyond their academic appointment.</span></em></p>Amazon nixed plans to build a headquarters in Long Island City after some New Yorkers questioned the wisdom of offering billions in tax breaks in exchange for job promises. A Texas study suggests they had reason to worry.Nathan Jensen, Professor of Government, The University of Texas at AustinCalvin Thrall, PhD Student in Business and Development, The University of Texas at AustinLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/1097032019-01-15T00:35:31Z2019-01-15T00:35:31ZDonating to charities shouldn’t result in tax breaks<figure><img src="https://images.theconversation.com/files/253297/original/file-20190110-43510-4ge53a.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">It's time to seriously rethink giving tax breaks for charitable donations, since ultimately taxpayers foot the bill for the deductions anyway.</span> <span class="attribution"><span class="source">(Shutterstock)</span></span></figcaption></figure><p>My smartphone is finally cooling off. It all started three weeks before Black Friday, in late November. Because I make most of my charitable contributions through a website, I need to offer my email address to receive a tax receipt. This has led to a proliferation of retailers and charitable organizations alike seeing me as fair game.</p>
<p>Weeks before Black Friday, I started to receive notices about “Black Friday in October.” Then when December arrived, I experienced increasingly persistent messages that I had only so many days “to make a donation to receive a tax receipt.”</p>
<p>The din continued until Dec. 31 as my phone became almost too hot to handle from the incoming barrage. Then all was quiet.</p>
<p>It’s my fault, of course. I could simply make out a cheque and mail it to the charities of my choice, but online giving is too easy. And getting immediate tax receipts via email allows me to easily corral all of the information to receive my just rewards in the form of a reduced tax bill.</p>
<h2>Are charity deductions a bribe?</h2>
<p>But as tax season approaches, now is a good time to ask whether it’s sound policy to offer what could be considered a bribe of reduced taxes in exchange for donating to charity. What are the positives and negatives from such a policy? What would be the effect of eliminating these tax benefits?</p>
<p>For every dollar I donate to an eligible charity, I get about 20 to 25 cents in the form of a tax refund. But the dirty little secret is that all taxpayers, including me, must make up these 25 cents through increased taxes.</p>
<p>And so, like all tax benefits, the charitable tax credit raises the overall tax burden.</p>
<p>Whenever government adjusts taxation rules to offer a deduction or credit, economists call this a “tax expenditure” to distinguish it from the direct expenditures authorized by treasury boards.</p>
<p>Just like any public spending, the taxpayer finances these tax expenditures. The more generous the relief granted for charitable donations, the more onerous becomes the tax burden.</p>
<p>Just how much money is involved? Last year the Canadian federal government made $289 billion in <a href="https://www.fin.gc.ca/taxexp-depfisc/2017/taxexp1702-eng.asp">tax expenditures</a>, of which $6.1 billion were the tax benefits associated with charitable donations. </p>
<p>This may seem a pittance in the big picture, but we need to delve deeper. Canada incurs much of its tax expenditures by giving up tax rights to provinces; this accounts for about $56 billion. The basic personal exemption accounted for $36 billon and the credits for investing in various registered savings plans cost the Canadian taxpayer $89 billion in lost tax revenues.</p>
<h2>Money could have alternate uses</h2>
<p>A better basis for comparison among tax expenditures is the GST exemptions on things like child care and tuition, which accounted for $5.7 billion in 2017. Among the direct expenditures, Canada’s public broadcaster, the CBC, has a budget of about $1.2 billion, the Department of Defence consumes $20 billion and the federal government spends $3.5 billion on the RCMP.</p>
<p>In this context, the $6 billion the federal government gives up because we make charitable contributions could have many alternate uses. So what’s the value of stimulating and encouraging charitable donations?</p>
<figure class="align-center ">
<img alt="" src="https://images.theconversation.com/files/253296/original/file-20190110-43507-bocg22.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/253296/original/file-20190110-43507-bocg22.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=249&fit=crop&dpr=1 600w, https://images.theconversation.com/files/253296/original/file-20190110-43507-bocg22.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=249&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/253296/original/file-20190110-43507-bocg22.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=249&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/253296/original/file-20190110-43507-bocg22.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=313&fit=crop&dpr=1 754w, https://images.theconversation.com/files/253296/original/file-20190110-43507-bocg22.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=313&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/253296/original/file-20190110-43507-bocg22.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=313&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px">
<figcaption>
<span class="caption">Giving tax deductions for charitable donations should be relegated to the past. Donors will likely give anyway, and taxpayers have to foot the bill for the deductions.</span>
<span class="attribution"><span class="source">Rawpixel/Unsplash</span></span>
</figcaption>
</figure>
<p>When we donate to charities, we directly support a favoured cause at a discount. And perhaps the incentive of a tax credit may induce more giving. However, here’s the kicker: <a href="https://warwick.ac.uk/fac/soc/economics/staff/blockwood/giving-givers-130717.pdf">Recent research</a> suggests that most of us give not for the tax break, but the “warm glow.” And so it may be unnecessary to offer a tax reduction to stimulate charitable donations. </p>
<p>Because we all share in the burden of tax credits, we are unwittingly supporting charities we either do not care about or whose goals we don’t share. Sometimes charities appear to support a cause when masking a completely different goal. I recall the shock at seeing gun manufacturers’ displays at the annual show of Ducks Unlimited.</p>
<h2>Tax advantage is highlighted</h2>
<p>Many appeals from charities stress the tax advantage to the donor, tainting an altruistic act with selfishness.</p>
<p>The tax credit may also encourage charities and non-profits to become lazy, relying more on the lure of tax credits than showing donors their impact. With few exceptions, non-profits do not routinely subject their investments to independent audits to measure impact or report donation efficiency.</p>
<p>One recent counter-example is the Bill and Melinda Gates Foundation that appears to have spent almost half a billion U.S. dollars to <a href="https://www.businessinsider.com/bill-melinda-gates-foundation-education-initiative-failure-2018-6">improve teaching effectiveness</a> and failed.</p>
<p>Most of the big guns in Canada’s charity industry issue glossy annual reports replete with anecdotes of how they spend your dollars, but few issue systematic and independent audits to show the net impact of the charity’s investments.</p>
<h2>Where do charity dollars actually go?</h2>
<p>Donation efficiency — the percentage of donations that translate to direct service — requires work to learn what percentage of total revenues actually flow to end uses. </p>
<p>For example, based on its most recent financial statements, the Canadian Cancer Society <a href="http://www.cancer.ca/en/about-us/financial-statements/?region=on">directed 53 per cent</a> of its revenue to research and programs, its stated purpose for raising funds in the first place. The remainder went to fundraising, administration and advocacy. </p>
<p>Contrast this to the Canadian Red Cross, where based on its most recent annual report, <a href="https://www.redcross.ca/about-us/about-the-canadian-red-cross/annual-reports-and-strategy">90 per cent of revenues flow to programs</a>. One charity I support has a donation efficiency of <a href="https://apps.cra-arc.gc.ca/ebci/haip/srch/t3010form22quickview-eng.action?&fpe=2017-12-31&b=118779081RR0001">85 per cent based on independent financial audits.</a> </p>
<p>Several countries — namely Austria, Finland, Ireland, Italy, Sweden and Switzerland — have removed tax benefits for charitable donations. </p>
<p>It is time for Canada to follow suit. My phone will be thankful.</p><img src="https://counter.theconversation.com/content/109703/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Gregory C Mason receives funding from the Thorlakson Foundation for research into telemedicine and electronic health records.</span></em></p>Several countries — namely Austria, Finland, Ireland, Italy, Sweden and Switzerland — have removed tax benefits for charitable donations. Here’s why Canada should follow suit.Gregory C Mason, Associate Professor of Economics, University of ManitobaLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/1069722018-11-15T11:43:51Z2018-11-15T11:43:51ZWhy politicians are the real winners in Amazon’s HQ2 bidding war<figure><img src="https://images.theconversation.com/files/245704/original/file-20181115-194519-9wkdm7.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">For cities that lost like New Jersey, there may be more than one way to win.</span> <span class="attribution"><span class="source">AP Photo/Seth Wenig</span></span></figcaption></figure><p>Now that Amazon <a href="https://www.wsj.com/articles/amazon-hq2-announcement-lic-crystal-city-nashville-1542121089">has announced</a> the winners of its competition to host its second headquarters, a question on many minds is whether it’ll be worth the incentives offered.</p>
<p>We have a different question: Why did so many cities play Amazon’s billion-dollar bidding game in the first place?</p>
<p>One media narrative <a href="https://www.nytimes.com/2018/11/06/technology/amazon-hq2-long-island-city-virginia.html">has portrayed</a> the leaders of losing locations as simply fooled by Amazon’s ingenious scheme. Most of the 238 cities that made bids – offering lucrative tax and other incentives – really didn’t have a shot because they didn’t fulfill the basic requirements, such as access to skilled human capital, sufficient infrastructure and population density. </p>
<p>According to this view, their role was to provide competition, driving down the tax bill Amazon would eventually pay in the locations it had already selected for its own business reasons. They also provided Amazon with valuable data about what types of incentives they would need to provide in the future as it expands.</p>
<p>There is certainly merit to this narrative. Where we disagree is the notion that the politicians were simple dupes in a game they didn’t fully understand. Rather, <a href="https://scholar.google.com/citations?user=TunpR_MAAAAJ&hl=en&oi=ao">our</a> <a href="https://scholar.google.com/citations?user=LKESzSgAAAAJ&hl=en&oi=ao">research</a> suggests it is far more likely they were willing participants.</p>
<figure class="align-center ">
<img alt="" src="https://images.theconversation.com/files/245705/original/file-20181115-194506-12knbc.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/245705/original/file-20181115-194506-12knbc.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=400&fit=crop&dpr=1 600w, https://images.theconversation.com/files/245705/original/file-20181115-194506-12knbc.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=400&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/245705/original/file-20181115-194506-12knbc.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=400&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/245705/original/file-20181115-194506-12knbc.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=503&fit=crop&dpr=1 754w, https://images.theconversation.com/files/245705/original/file-20181115-194506-12knbc.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=503&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/245705/original/file-20181115-194506-12knbc.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=503&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px">
<figcaption>
<span class="caption">Birmingham put large Amazon Dash ‘buttons’ all around town as part of its effort to lure the retailer’s second headquarters.</span>
<span class="attribution"><a class="source" href="http://www.apimages.com/metadata/Index/Amazon-HQ2-Public-Money/44dbc8c63b5a48b59ac38ea09d2419af/13/0">AP Photo/Brynn Anderson</a></span>
</figcaption>
</figure>
<h2>A game of incentives</h2>
<p>Amazon first unveiled its public competition for what has been dubbed “HQ2” last September.</p>
<p>The retailer gave interested city and state governments only two months to put together proposals for the opportunity to attract what Amazon <a href="https://www.reuters.com/article/us-amazon-com-headquarters/amazon-opens-bidding-to-cities-for-5-billion-hq2-a-second-headquarters-idUSKCN1BI1DM">described</a> as a US$5 billion investment that would employ 50,000 workers. </p>
<p>Most states, and dozens of cities, <a href="https://qz.com/1119945/a-nearly-complete-list-of-the-238-places-that-bid-for-amazons-next-headquarters/">jumped at the opportunity</a> to put in proposals. Of the 238 initial bidders, Amazon culled this list down to <a href="https://theconversation.com/amazon-headquarters-heres-what-it-will-take-to-be-the-winning-city-91429">20 cities</a> in January and requested additional information and the signing of non-disclosure agreements. </p>
<p>After <a href="https://www.nytimes.com/2018/11/05/technology/amazon-second-headquarters-split.html">reports</a> began to leak that Amazon was splitting its investment between two sites, Amazon revealed that Long Island City in New York City’s Queens borough and an area in Northern Virginia known as Crystal City were the co-winners, each receiving half of the investment. </p>
<p>New York State reportedly <a href="https://www.nytimes.com/2018/11/13/nyregion/amazon-long-island-city.html">offered</a> $1.7 billion in incentives along with additional local tax reductions to lure Amazon to Long Island City, while Virginia and Arlington County <a href="https://www.washingtonpost.com/local/virginia-news/amazon-hq2-to-receive-more-than-28-billion-in-incentives-from-virginia-new-york-and-tennessee/2018/11/13/f3f73cf4-e757-11e8-a939-9469f1166f9d_story.html?utm_term=.c97171f14e86">put up</a> a more modest $573 million. But both locations had something else in common: access to reserves of high-quality human capital and pre-existing hi-tech infrastructure. And according to urbanist <a href="https://www.geekwire.com/2018/leading-urbanist-richard-florida-convinced-amazon-hq2-wont-go-suburb/">Richard Florida</a>, that’s what ultimately drove the decision in what some called a <a href="https://www.nytimes.com/2018/11/06/technology/amazon-hq2-long-island-city-virginia.html">bait and switch</a>. </p>
<figure class="align-center ">
<img alt="" src="https://images.theconversation.com/files/245708/original/file-20181115-194513-fzr914.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/245708/original/file-20181115-194513-fzr914.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=399&fit=crop&dpr=1 600w, https://images.theconversation.com/files/245708/original/file-20181115-194513-fzr914.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=399&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/245708/original/file-20181115-194513-fzr914.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=399&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/245708/original/file-20181115-194513-fzr914.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=502&fit=crop&dpr=1 754w, https://images.theconversation.com/files/245708/original/file-20181115-194513-fzr914.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=502&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/245708/original/file-20181115-194513-fzr914.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=502&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px">
<figcaption>
<span class="caption">Extensive transportation infrastructure was seen as a key reason Crystal City was picked as one of the winners of Amazon’s HQ2 competition.</span>
<span class="attribution"><a class="source" href="http://www.apimages.com/metadata/Index/Amazon-HQ/3205c0a61e71495b9b9463675e3d8aea/45/0">AP Photo/Cliff Owen</a></span>
</figcaption>
</figure>
<h2>Putting on a show</h2>
<p>While this narrative is surely true, we believe something else is also going on here. </p>
<p>In our book, “<a href="https://www.cambridge.org/core/books/incentives-to-pander/E0003C20215EDA5047EA0831FEEB6D92">Incentives to Pander</a>,” we explain how offering incentives to companies is a way for cities that know they aren’t going to actually attract their investment to show voters just how hard they are trying, allowing them to minimize the blame when they don’t succeed.</p>
<p>To better understand the effects of offering investment incentives on voters, we asked 1,500 respondents of the annual YouGov survey about how a business investment that would create 1,000 jobs in their state would affect their support for the governor. Participants were randomly told one of the following: </p>
<ol>
<li>that the governor offered greater tax incentives than other states and won the investment</li>
<li>that the governor offered greater tax incentives but didn’t win the investment</li>
<li>that the governor offered tax incentives equal to or less than other states and won the investment</li>
<li>that the governor offered tax incentives equal to or less than other states and didn’t win the investment.</li>
</ol>
<p>Respondents were then asked whether they would be more or less likely to vote for the governor in the next election. </p>
<p>Unsurprisingly, respondents were always more likely to support the governor if the company invested in the state. What was striking was their response to the incentive. </p>
<p>A winning bid that included a bigger tax incentive led to a 5 percent boost in support relative to the scenario in which the governor won the investment but didn’t outbid other states. Even more interesting is that a losing bid that included a big incentive led to double the boost of support. </p>
<p>This study demonstrates the electoral value to politicians of making a splashy bid for an investment, particularly when they have good reason to believe their locality has little chance of actually winning it. We suspect that this allows a politician to avoid the potential blame of losing a bid as well. </p>
<p>So in terms of game theory, politicians have a dominant strategy to offer incentives to all prospective investors, whether a company needs a break or not or however improbable it is to actually happen.</p>
<h2>Hide and seek</h2>
<p>Amazon HQ2 is an extreme case of this thesis. </p>
<p>Mayors and governors offered up to <a href="https://www.businessinsider.com/amazon-hq2-cities-developers-economic-tax-incentives-2017-10/#raleigh-north-carolina-well-over-50-million-1'">$8.5 billion</a> in incentives as a way to show effort. While some bids were serious, there was also rather embarrassing theater, such as the mayor of Kansas City <a href="https://www.kansascity.com/news/politics-government/article178340976.html">publicly reviewing</a> Amazon products during a video address to constituents, the city of Stonewall, Georgia, offering to <a href="https://www.ajc.com/news/local-govt--politics/city-amazon-proposed-attract-company-hq2-georgia/WVuopYRd6WFQE3w7JjcdnO/">rename the city</a> after the retailer, and Atlanta <a href="https://www.cnbc.com/2018/11/14/atlanta-offered-amazon-the-chance-at-its-own-train-car-for-hq2.html">proposing to build</a> the company a train to deliver goods throughout the city. </p>
<p>New York Governor Andrew Cuomo even jokingly offered to <a href="https://www.nytimes.com/2018/11/05/technology/amazon-second-headquarters-split.html">rename himself</a> Amazon Cuomo if doing so would help win the bid. </p>
<p>What’s worse is that some mayors, governors and other city officials tried to hide the true costs of their bids from their constituents. Cities such as <a href="https://www.bisnow.com/dallas-ft-worth/news/economic-development/dfw-disappointed-but-says-hq2-bid-alerted-many-to-its-strengths-94949">Dallas</a> and <a href="https://www.detroitnews.com/story/news/local/detroit-city/2018/01/18/amazon-passes-over-detroit-2nd-hq/1043515001/">Detroit</a> <a href="https://www.muckrock.com/project/america-bids-on-amazon-175/">avoided public disclosure requirements</a> by not submitting bids though local government agencies. Instead, they expressed their interest through Chambers of Commerce, public-private economic development agencies and nongovernmental organizations that were formed only to pursue HQ2 and dissolved afterwards. Only now are they releasing the details of their failed bids. </p>
<p>Austin’s Chamber of Commerce immediately released a statement that they <a href="https://www.austinchamber.com/blog/austin-chamber-statement-on-amazon-hq2-bid">don’t intend</a> to release details of its bid – ever. </p>
<p>And in other cases, such as Pittsburgh, normally transparent governments <a href="http://www.post-gazette.com/business/development/2018/10/31/Judge-orders-city-county-to-release-Amazon-HQ2-bid-PIttsburgh-open-records/stories/201810310180">fought public records requests</a> in the courts, at a minimum stalling the revelation of what was offered and possibly avoiding it all together.</p>
<p>Even many city council members were <a href="https://www.statesman.com/business/20180302/council-member-city-chamber-mishandling-amazon-pursuit">left in the dark</a>.</p>
<p>In follow up experiments to our YouGov survey, when we told voters what the actual cost of the incentive would be to taxpayers, the vote bonus declined to zero. This is why transparency about the incentives is so important.</p>
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<h2>The real losers</h2>
<p>This is the irony of HQ2. </p>
<p>Our research suggests elected officials will later try to use their efforts, win or lose, as a way to show that they are doing “all they can” for their communities and local economies. When asked for details about their actual effort, however, many will claim the Chamber of Commerce ate their homework.</p>
<p>The problem is simple: Elected officials are expected to create jobs in their communities, but most of the policies that <a href="https://upjohn.org/timothy-j-bartik-what-works-economic-development">facilitate economic development</a> often take decades to pay dividends, such as investments in public education or providing adequate public services to small business. </p>
<p>There aren’t easy solutions but the first step is to recognize what is happening. Amazon HQ2 was another case of a company playing states and cities against each other to achieve special benefits. It’s also a story of complicit governments playing along with the game by offering grandstanding deals and keeping the details of the deals out of the public eye.</p>
<p>They both played a game – and their constituents are the real losers.</p><img src="https://counter.theconversation.com/content/106972/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Nathan Jensen has received funding from the Center for Equitable Growth, the Laura and John Arnold Foundation, and the Kauffman Foundation. </span></em></p><p class="fine-print"><em><span>Edmund Malesky does not work for, consult, own shares in or receive funding from any company or organization that would benefit from this article, and has disclosed no relevant affiliations beyond their academic appointment.</span></em></p>Some say the more than 230 cities that lost their bids for Amazon’s second headquarters were dupes in the retailer’s game. In fact, they were willing participants with their own aims.Nathan Jensen, Professor of Government, The University of Texas at AustinEdmund Malesky, Professor of Political Science, Duke UniversityLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/1039762018-10-04T10:29:39Z2018-10-04T10:29:39ZA proposed tax break for the masses designed to spur giving<figure><img src="https://images.theconversation.com/files/239217/original/file-20181003-52688-1k1x3yq.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">Fewer Americans fund nonprofits these days.</span> <span class="attribution"><a class="source" href="https://www.shutterstock.com/image-illustration/give-full-collection-icons-like-that-104509835">Pavel Ignatov/Shutterstock.com</a></span></figcaption></figure><p>More than <a href="https://theconversation.com/fewer-americans-are-giving-money-to-charity-but-total-donations-are-at-record-levels-anyway-98291">half of Americans give money to charity</a>.</p>
<p>But the number of donors who donate has declined in recent years and could fall further because millions of U.S. taxpayers who make donations are now losing a built-in incentive for charitable giving. The <a href="https://theconversation.com/charity-and-taxes-4-questions-answered-89512">tax code overhaul</a> that went into effect in 2018 may cut the proportion of people who itemize their tax returns, thereby getting the ability to claim the charitable deduction, from about 1 in 3 to as few as 1 in 20, experts predict.</p>
<p>As a law professor who researches <a href="https://scholar.google.com/citations?user=fADm9R4AAAAJ&hl=en&oi=ao">trusts and estates and charitable giving</a>, I have long argued that more Americans should get <a href="https://papers.ssrn.com/sol3/papers.cfm?abstract_id=2718305">tax incentives</a> to give to charitable causes that matter to them. A <a href="https://www.congress.gov/bill/115th-congress/house-bill/6616/cosponsors?q=%7B%22search%22%3A%5B%226616%22%5D%7D&r=1">new bill</a> that would do just that has <a href="https://www.thegreatergive.org/news/everyday-philanthropist-act-revolutionizing-way-america-gives-back">bipartisan support</a> in the House of Representatives. </p>
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<h2>Flexible giving accounts</h2>
<p><a href="https://paulsen.house.gov/press-releases/paulsen-bill-spurs-charitable-giving-creates-taxadvantaged-flexible-giving-accounts/">Rep. Erik Paulsen</a>, a Minnesota Republican, introduced the <a href="https://www.congress.gov/bill/115th-congress/house-bill/6616/text">Everyday Philanthropist Act</a> in August 2018, with the initial backing of three Democrats and two other Republicans. This legislation, if it becomes law, would create a new tax incentive.</p>
<p>Instead of allowing a deduction – reducing taxable income by the same amount as <a href="https://theconversation.com/why-congress-should-let-everyone-deduct-charitable-gifts-from-their-taxes-78323">people who itemize give to charity</a> – it would establish a new employee benefit: flexible giving accounts.</p>
<p>Here’s how it would work. Americans whose employers provide this benefit would be able to set aside up to a maximum of US$5,000 from their paychecks. That money would flow into an account from which the employee could donate to charities like churches or other religious organizations, universities or food pantries.</p>
<p>Like the <a href="https://www.shrm.org/resourcesandtools/hr-topics/benefits/pages/2018-fsa-contribution-limits.aspx">flexible spending accounts</a> that Americans already use to reduce some of their child care and health care expenses, this money would come from pretax pay. </p>
<p>To understand this proposed system, consider how the preexisting ones operate.</p>
<p>Say a loan officer earning $50,000 a year – who is single and subject to the <a href="https://www.irs.gov/newsroom/2018-withholding-tables-now-available">new 22 percent tax bracket</a> – puts $2,000 into a medical flexible spending account. Based on my calculations, as long as she submits her paperwork on time, she can save $142.90 in payroll taxes and $440.00 in federal income taxes this way for a total of $586.90. </p>
<p>The loan officer’s employer would also save $142.90 in Social Security and Medicare taxes, plus a small amount in unemployment insurance. </p>
<p>Roughly <a href="https://www.bls.gov/ncs/ebs/benefits/2017/ownership/civilian/table41a.pdf">44 percent of U.S. workers have access</a> to at least one kind of <a href="https://www.mercer.us/our-thinking/healthcare/the-fsa-going-through-some-changes.html">flexible spending account</a>, although data from 2015 show that only 22 percent of employees with access to a health care FSA used it, with dependent care accounts being even less popular.</p>
<p>FSAs might be more attractive if they weren’t a <a href="https://www.cbsnews.com/news/fsa-money-its-time-to-use-it-or-lose-it-for-2017/">use-it-or-lose-it</a> proposition. Any money left over after a brief grace period at the end of the year reverts to employers by default. This arrangement forces employees to guess during their annual <a href="https://help.zenefits.com/Flexible_Spending_Account/When_can_employees_enroll_in_their_company%27s_FSA_plan%3F/FSA_Start_Dates_After_Initial_or_Open_Enrollment/">open enrollment periods</a> how much they might spend in the next year on health and dependent care.</p>
<h2>How they would work and who would benefit</h2>
<p>There are two main differences between how flexible spending accounts work today and the flexible giving accounts in the proposed bill.</p>
<p>Employees with flexible giving accounts would direct specific amounts to be paid from those funds to charities when they see fit. Employees with flexible spending accounts, in contrast, usually get reimbursed for money they have already spent on their own.</p>
<p>The other notable difference is that flexible giving accounts would not have any use-it-or-lose-it problem. That’s because employees would be able to simply name a charity to receive any balance remaining in their accounts by the end of the calendar year.</p>
<p>Flexible giving accounts would benefit employees and their employers by reducing their tax bills in exchange for charitable donations. I expect they would probably also help increase the amount of money Americans give to charities.</p>
<p>That would help stave off a decline in donations that charities and philanthropy experts anticipate due to several <a href="https://theconversation.com/how-the-new-estate-tax-rules-could-reduce-charitable-giving-by-billions-94879">changes in the tax code</a>.</p>
<p>Flexible giving accounts may therefore benefit a wide range of people, from the donors who will give to the charities that receive, and the causes the charities serve.</p><img src="https://counter.theconversation.com/content/103976/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Alyssa A. DiRusso does not work for, consult, own shares in or receive funding from any company or organization that would benefit from this article, and has disclosed no relevant affiliations beyond their academic appointment.</span></em></p>A bipartisan group of lawmakers is trying to make charitable donations easier and more affordable through a new employee benefit.Alyssa A. DiRusso, Professor of Law, Samford UniversityLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/982912018-07-03T10:30:14Z2018-07-03T10:30:14ZFewer Americans are giving money to charity but total donations are at record levels anyway<figure><img src="https://images.theconversation.com/files/225416/original/file-20180628-117382-1ndv5qh.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">Charitable giving hit record levels in 2017.
</span> <span class="attribution"><a class="source" href="https://www.shutterstock.com/image-photo/hand-putting-coins-glass-jar-giving-655337509">pinkomelet/Sshutterstock.com</a></span></figcaption></figure><p>Following years of steady growth that has tracked the performance of a generally healthy economy, U.S. charitable giving has reached <a href="https://store.givingusa.org/collections/2018-products">an all-time high</a> at a time when the share of Americans who make donations <a href="https://philanthropy.iupui.edu/research/current-research/philanthropy-panel-study.html">is falling</a>. </p>
<p>But as a <a href="https://philanthropy.iupui.edu/people-directory/osili-una.html">lead researcher</a> and an <a href="https://scholar.google.com/citations?view_op=list_works&hl=en&user=0r8HrKwAAAAJ">author</a> of the latest <a href="https://store.givingusa.org/collections/2018-products/products/pre-order-giving-usa-2018-the-annual-report-on-philanthropy-for-the-year-2017-digital-package?variant=12204523257935">Giving USA report</a>, which the <a href="https://philanthropy.iupui.edu/">Indiana University Lilly Family School of Philanthropy</a> researches and writes in partnership with the <a href="https://givingusa.org/">Giving USA Foundation</a>, we are concerned that some Americans may become less generous overall as the new tax law alters long-standing incentives to give.</p>
<h2>The latest data</h2>
<p>The money Americans gave to charity last year to support everything from disaster recovery efforts and environmental causes to higher education institutions amounted to about 2.1 percent of gross domestic product – a share that has barely budged in the past four decades.</p>
<p>All told, American individuals, estates, corporations and foundations gave a total of US$410 billion in 2017 to nonprofits, faith-based organizations and other charities, according to the <a href="https://store.givingusa.org/collections/2018-products">Giving USA 2018 report</a>. That marked a <a href="https://givingusa.org/tag/giving-usa-2017/">$20 billion increase from 2016</a>. Adjusted for inflation, giving grew 3 percent.</p>
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<p>At the same, the share of households making donations is decreasing, especially for the middle class. </p>
<p>We found this out through the Lilly School’s <a href="https://philanthropy.iupui.edu/research/current-research/philanthropy-panel-study.html">Philanthropy Panel Study</a>. Part of the <a href="https://simba.isr.umich.edu/data/data.aspx">University of Michigan’s Panel Study of Income Dynamics</a>, it tracks the same households over time.</p>
<p>While more than two-thirds of Americans donated to charity in 2000, only 55.5 percent gave in 2014, according to this ongoing research.</p>
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<p>Why has giving continued to grow, at least for now, despite this decline?</p>
<p>The simple explanation is that the Americans who do make donations are giving more money away. In 2000, the families who donated gave a total average of $2,041 in current dollars. This average sum rose to $2,514 in 2014, in current dollars.</p>
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<h2>Sensing trouble ahead</h2>
<p>Conditions in 2017 were favorable for charitable giving to reach an all-time high despite those trends.</p>
<p><a href="https://givingusa.org/just-released-special-report-the-data-on-donor-advised-funds-new-insights-you-need-to-know/">Among other things</a>, the <a href="https://www.bea.gov/newsreleases/national/gdp/gdp_glance.htm">pace of economic growth picked up</a> from 2016, the <a href="http://money.cnn.com/2017/12/29/investing/stocks-2017-wall-street/index.html">stock market boomed</a> and the large number of hurricanes, earthquakes and other <a href="https://theconversation.com/american-generosity-after-disasters-4-questions-answered-83277">natural disasters</a> inspired more fundraising for humanitarian relief than usual.</p>
<p>We are concerned that the flow of charitable donations, especially from low-income and middle-class Americans, may shrink. The main reason for this is that the <a href="https://theconversation.com/how-the-new-estate-tax-rules-could-reduce-charitable-giving-by-billions-94879">new tax law</a> may pare the number of people who get a tax break on the money they give away.</p>
<p>Donors, scholars and policymakers are unsure about how exactly giving will change due to the new tax law. But <a href="https://philanthropy.iupui.edu/news-events/news-item/tax-policy-proposals-would-reduce-charitable-giving,-new-study-finds.html?id=227">relevant research</a> suggests that taking the charitable tax deduction away from millions of taxpayers may reduce their donations overall.</p><img src="https://counter.theconversation.com/content/98291/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Una Osili is the lead researcher for Giving USA, which is funded by the Giving USA Foundation. In addition, her research on tax policy received funding from Independent Sector and her work on the Philanthropy Panel Study data cited here is supported by many sources, including the John Templeton Foundation and the Charles Stewart Mott Foundation.</span></em></p><p class="fine-print"><em><span>Sasha Zarins' tax policy research was partially funded by Independent Sector.</span></em></p>Total gifts from individual donors are rising, at least for now.Una Osili, Professor, Economics and Philanthropic Studies, Associate Dean for Research and International Programs, Lilly Family School of Philanthropy, IUPUISasha Zarins, Project Coordinator, Lilly Family School of Philanthropy, IUPUILicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/959452018-05-07T04:31:25Z2018-05-07T04:31:25ZFive ways the Treasurer could boost the budget bottom line<p>Treasurer Scott Morrison faces a difficult balancing act in the federal budget. He wants <a href="http://www.abc.net.au/news/2018-05-06/budget-2018-morrison-says-tax-cut-wont-be-mammoth/9732626">to cut income taxes</a>, deliver new <a href="https://theconversation.com/budget-policy-check-do-we-need-ribbon-cutting-infrastructure-for-jobs-and-growth-95362">infrastructure spending </a>and still reach a surplus by at least 2019. If he’s serious about maintaining the surplus, here are five ways the Treasurer could boost revenue to make the numbers work. </p>
<h2>1. Scrap age-based tax breaks</h2>
<p>Winding back tax breaks for older Australians could boost revenue by <a href="https://grattan.edu.au/report/age-of-entitlement/">A$700 million a year</a>. </p>
<p>Many seniors pay less than younger workers, on the same income, as a result of the <a href="https://www.ato.gov.au/Individuals/Income-and-deductions/Offsets-and-rebates/Senior-Australians/">Seniors and Pensioners Tax Offset</a> and a <a href="https://www.ato.gov.au/Individuals/Medicare-levy/Medicare-levy-reduction-for-low-income-earners/">higher Medicare levy income threshold</a>. Seniors currently do not pay tax until they earn A$32,279 a year, whereas younger households have an effective tax-free threshold of A$20,542. </p>
<p>These tax breaks – along with the introduction of <a href="https://grattan.edu.au/news/tax-free-super-is-intergenerational-theft/">tax-free superannuation</a> for retirees – have <a href="https://theconversation.com/why-every-generation-feels-entitled-70405">almost halved the proportion of older Australians</a> paying tax in the past 20 years.</p>
<p>For a start, the government could scale back the Seniors and Pensioners Tax Offset so that only pensioners qualify, while those with enough income to not qualify for a full Age Pension should pay some income tax. The higher Medicare levy income threshold for seniors should also be abolished. </p>
<h2>2. Better target the research and development tax incentive</h2>
<p>The government will forgo A$3.5 billion in revenue this year through the research and development tax incentive. Tightening eligibility could substantially reduce the cost of the scheme.</p>
<p>The research and development tax incentive was introduced in 2011 to encourage activities that otherwise would not be conducted, including by smaller firms. But the cost has blown out and there are concerns that <a href="http://www.afr.com/news/policy/tax/rd-tax-break-costs-significantly-more-than-forecast-20160211-gmr8sl">the scheme is being rorted</a>. The scheme now accounts for around one third of total government support for innovation. </p>
<p><a href="https://www.industry.gov.au/innovation/InnovationPolicy/Research-and-development-tax-incentive/Documents/Research-and-development-tax-incentive-review-report.pdf?_cldee=amJldmVyMUBrcG1nLmNvbS5hdQ%3d%3d&recipientid=contact-669db99d9af8e61180f8c4346bc4beac-20effeea5db14293b064208081f92d76&utm_source=ClickDimensions&utm_medium=email&utm_campaign=R%26D%20Email%20Campaign%20-%2031%20Jan%202018&esid=65ad6a3c-ee53-4c0a-b7a3-550b44b95e83">A 2016 review of the incentive</a> concluded the scheme could be made more sustainable by tightening the definition of eligible research and development. This includes an emphasis on novelty, capping the annual amount that is refundable in each year (as well as a lifetime cap) for smaller business, and making the scheme available only to larger businesses that allocate more than 1% of their total spending to research and development. </p>
<h2>3. Wind back negative gearing and reduce the capital gains tax discount</h2>
<p>Winding back negative gearing and reducing the capital gains tax discount to 25% would boost revenue by <a href="https://grattan.edu.au/report/hot-property/">A$5.3 billion a year</a>.</p>
<p>These tax breaks distort housing investment decisions, leading investors to favour capital gains over rental returns, and to maximise borrowing, to fund the investments. This <a href="http://www.abc.net.au/news/2017-04-04/negative-gearing-and-banks-under-criticised-by-rba-governor/8415530">makes housing markets more volatile</a> and <a href="https://www.theguardian.com/australia-news/2018/jan/13/australian-house-prices-will-fall-if-negative-gearing-goes-study-says">reduces home ownership</a>. Like most tax concessions, the tax breaks <a href="https://theconversation.com/three-myths-on-negative-gearing-the-housing-industry-wants-you-to-believe-54732">largely benefit the wealthy</a>. </p>
<p>Negative gearing should change so that investment losses can’t be written off against labour income, <a href="https://grattan.edu.au/report/hot-property/">in line with international practice</a>. Reducing the capital gains discount to 25% would still allow some compensation for the effects of inflation on investment returns, but it would reduce some of the distortions in investment decisions created by the current discount. </p>
<h2>4. Abandon planned increases in the Super Guarantee</h2>
<p>Abandoning plans to increase compulsory super contributions to 12%, could boost revenues by A$500 million in 2021-22, rising to over <a href="https://grattan.edu.au/report/whats-the-best-way-to-close-the-gender-gap-in-retirement-incomes/">A$2 billion a year by 2025-26</a>.</p>
<p>The Super Guarantee is legislated to <a href="https://www.ato.gov.au/Rates/Key-superannuation-rates-and-thresholds/?page=23">rise</a> from 9.5% of wages today to 12% by July 2025. But increasing compulsory super contributions will reduce wages today and <a href="http://insidestory.org.au/not-so-super/">do little to boost the retirement incomes </a>of many low-income workers. </p>
<p>It will also cost the Budget billions in extra super tax breaks. Instead of workers receiving wages tax at full marginal tax rates, the extra super contributions will be taxed at a flat 15%. The 2014–15 budget calculated that delaying an increase to the Super Guarantee of 0.5 percentage points <a href="http://www.budget.gov.au/2014-15/content/bp2/download/BP2_consolidated.pdf">saved A$440 million in 2017–18</a>. </p>
<p>These budget savings would endure even in the long-term: a <a href="https://treasury.gov.au/programs-and-initiatives-superannuation/charter-of-superannuation-adequacy/report/part-2/">Treasury analysis</a> estimated the tax revenue foregone as a result of a 12% Super Guarantee would exceed the budgetary savings from lower age-pension spending until about 2060. </p>
<h2>5. Offer another scheme in place of company tax cuts</h2>
<p>The government could boost investment at a lower long-run cost to the budget by replacing the proposed reduction in company taxes to 25% with a <a href="https://grattan.edu.au/news/evaluating-the-case-for-cutting-the-company-tax-rate/">permanent accelerated depreciation scheme</a>. </p>
<p>Accelerated depreciation schemes allow businesses to depreciate their capital investments at a faster rate. These schemes cost less than company tax cuts in the long run for a given boost to investment, but the cost to the budget in the initial years is higher. </p>
<p>An immediate tax deduction of 22% on all new capital purchases would cost the government about a third more than a company tax cut in the first year, and it would not be until the sixth year that the annual budget cost would fall below that of a tax cut. However, by the tenth year the cost of the accelerated depreciation scheme would be 18% lower than a company tax cut and after two decades it <a href="https://grattan.edu.au/report/stagnation-nation/">would cost 40% less per year in forgone revenues</a>. </p>
<p>This is clearly a pre-election budget. But whatever announcements are made, the <a href="http://sjm.ministers.treasury.gov.au/transcript/064-2018/?utm_source=wysija&utm_medium=email&utm_campaign=Transcript+-+Interview+with+Chris+Uhlmann%2C+Today">planned return to surplus</a>
shouldn’t be sacrificed. The government should tighten spending wherever possible. But they will also need to sure up revenues if they cut income taxes.</p><img src="https://counter.theconversation.com/content/95945/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Grattan Institute began with contributions to its endowment of $15 million from each of the Federal and Victorian Governments, $4 million from BHP Billiton, and $1 million from NAB. In order to safeguard its independence, Grattan Institute’s board controls this endowment. The funds are invested and contribute to funding Grattan Institute's activities. Grattan Institute also receives funding from corporates, foundations, and individuals to support its general activities as disclosed on its website.</span></em></p><p class="fine-print"><em><span>Brendan Coates does not work for, consult, own shares in or receive funding from any company or organisation that would benefit from this article, and has disclosed no relevant affiliations beyond their academic appointment.</span></em></p>Here are five ways the Treasurer could boost revenue to make the numbers work.Danielle Wood, Program Director, Budget Policy and Institutions, Grattan InstituteBrendan Coates, Fellow, Grattan InstituteLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/928062018-03-12T10:41:29Z2018-03-12T10:41:29ZIs the NRA an educational organization? A lobby group? A nonprofit? A media outlet? Yes<figure><img src="https://images.theconversation.com/files/209764/original/file-20180309-30965-8xzm1f.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">NRA volunteer shooting instructors Vern Marion and Brian Beck, firing at targets in 2002.
</span> <span class="attribution"><a class="source" href="http://www.apimages.com/metadata/Index/Associated-Press-Domestic-News-Nevada-United-St-/808c8c739be5da11af9f0014c2589dfb/5/0">AP Photo/Debra Reid</a></span></figcaption></figure><p>The National Rifle Association has hit more turbulence since 17 people died in the shooting at <a href="https://www.cnn.com/2018/02/15/us/florida-school-shooting-timeline/index.html">Marjory Stoneman Douglas High School</a> in Parkland, Florida, than the nation’s biggest gun advocacy group is accustomed to after such tragedies.</p>
<p><a href="https://us-east-1.tchyn.io/snopes-production/uploads/2018/02/28279595_1587525534636468_3340780032362375062_n.png?resize=600,843">Anti-NRA memes</a> implying that the nonprofit abuses its <a href="https://www.snopes.com/fact-check/nra-tax-exempt-non-profit/">tax-exempt status</a> <a href="https://twitter.com/NathanLerner/status/969694894179733505">went viral</a>. A <a href="https://www.change.org/p/irs-revoke-the-nra-s-501-c-4-tax-exemption-as-a-social-welfare-org">petition</a> calling on the authorities to audit the group and consider revoking its exemption circulated. At least 10 companies <a href="https://www.usatoday.com/story/money/2018/02/26/nra-companies-parkland-school-shooting/372271002/">dropped the special deals</a> they used to offer its millions of members amid <a href="https://www.vanityfair.com/style/2018/02/an-anti-nra-hashtag-campaign-is-actually-working">widespread concern</a> about the NRA’s role in squelching gun control and a growing interest in how the group operates. </p>
<p>As a <a href="https://scholar.google.com/citations?user=ef2n0uEAAAAJ&hl=en&oi=ao">law professor</a> who teaches and writes about tax-exempt organizations, I would like to explain how the NRA retains its nonprofit status despite the vast amount of influence it exerts over politicians.</p>
<h2>Social welfare</h2>
<p>The NRA is actually a bundle of organizations. The largest one, in terms of how much it spends, is the <a href="https://home.nra.org/">National Rifle Association of America</a>. <a href="https://theconversation.com/the-nras-journey-from-marksmanship-to-political-brinkmanship-92160">Originally formed in 1871</a>, this NRA branch claims to have about <a href="https://www.motherjones.com/politics/2018/03/nra-membership-magazine-numbers-1/">5 million members</a>, although some investigative reporters question that assertion.</p>
<p>It has operated as a <a href="https://www.guidestar.org/profile/53-0116130">social welfare organization since 1944</a>. </p>
<p>Like <a href="https://www.irs.gov/charities-non-profits/charitable-organizations/public-charities">public charities</a>, <a href="https://www.irs.gov/charities-non-profits/other-non-profits/social-welfare-organizations">these groups</a>, are exempt from taxation on the money they take in. Also known as 501(c)(4), based on language in the tax code, they differ from public charities in a few ways. </p>
<p>First, <a href="https://theconversation.com/hillary-clinton-is-starting-a-social-welfare-group-what-does-that-mean-78221">donors to social welfare organizations can’t deduct their gifts</a> from their taxable income. Second, these organizations may support and oppose political candidates. Third, social welfare organizations can engage in unlimited lobbying, as long as that effort to sway lawmakers and policymakers is related to their core mission.</p>
<p>Like charities, social welfare groups must spend all their revenue on work tied to their mission or shoring up their <a href="https://www.investopedia.com/terms/e/endowment.asp">endowments</a>. They can’t, in other words, distribute any profits left over after paying their bills to their leaders, their funders or anyone else.</p>
<p>The NRA has <a href="https://www.guidestar.org/profile/53-0116130">five main missions</a>: protecting the <a href="https://constitutioncenter.org/interactive-constitution/amendments/amendment-ii">Second Amendment</a>, promoting public safety, training for marksmanship and gun safety, promoting competitive shooting and improving hunter safety. Among other things, it publishes the <a href="http://www.nrapublications.org/">American Rifleman, American Hunter, America’s 1st Freedom and Shooting Illustrated magazines</a> and <a href="https://theconversation.com/the-nras-video-channel-is-a-hotbed-of-online-hostility-92477">produces NRATV</a> programs. It also has a lobbying arm, created in 1975, called the <a href="https://www.nraila.org/about/">Institute for Legislative Action</a>.</p>
<p>In 2016 this social welfare group <a href="http://www.guidestar.org/FinDocuments/2016/530/116/2016-530116130-0e77c76b-9O.pdf">raised</a> almost US$337 million in revenue, with about half coming from membership dues. The rest largely came from its media operations, donations and grants. It draws a growing share of its income, reportedly, from <a href="http://www.vpc.org/investigating-the-gun-lobby/blood-money/">gunmakers rather than gunowners</a>. </p>
<figure class="align-center zoomable">
<a href="https://images.theconversation.com/files/209760/original/file-20180309-30965-17onyet.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=1000&fit=clip"><img alt="" src="https://images.theconversation.com/files/209760/original/file-20180309-30965-17onyet.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/209760/original/file-20180309-30965-17onyet.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=461&fit=crop&dpr=1 600w, https://images.theconversation.com/files/209760/original/file-20180309-30965-17onyet.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=461&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/209760/original/file-20180309-30965-17onyet.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=461&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/209760/original/file-20180309-30965-17onyet.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=580&fit=crop&dpr=1 754w, https://images.theconversation.com/files/209760/original/file-20180309-30965-17onyet.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=580&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/209760/original/file-20180309-30965-17onyet.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=580&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px"></a>
<figcaption>
<span class="caption">Trump addressing the 2017 National Rifle Association-ILA Leadership Forum in Atlanta.</span>
<span class="attribution"><a class="source" href="http://www.apimages.com/metadata/Index/Trump/7e4d1103fe6a4090b95b601e03124c0f/8/0">AP Photo/Mike Stewart</a></span>
</figcaption>
</figure>
<h2>Politicking and lobbying</h2>
<p>The NRA also runs a political action committee, the <a href="https://www.nrapvf.org/about-pvf/">NRA Political Victory Fund</a>, through which it backs <a href="http://docquery.fec.gov/pdf/184/201705049053505184/201705049053505184.pdf#navpanes=0">electoral candidates</a>.</p>
<p>The NRA’s political spending more than doubled between the <a href="https://www.opensecrets.org/orgs/summary.php?id=D000000082&cycle=2016">2012</a> and <a href="https://www.opensecrets.org/orgs/summary.php?id=D000000082&cycle=2012">2016 electoral cycles</a>, rising to
<a href="https://www.opensecrets.org/orgs/summary.php?id=d000000082">$54.4 million</a>, according to the Center for Responsive Politics, a nonpartisan group that tracks the money reported to the government in federal elections. About $31 million of that sum supported Trump’s candidacy.</p>
<p>The gun group’s lobbying arm, which is technically a division of its social welfare group, <a href="https://www.opensecrets.org/lobby/clientsum.php?id=D000000082&year=2017">spent more than $5 million in 2017</a>, actively seeking to influence politicians or public officials regarding specific policies or pieces of legislation. It roughly tripled those expenditures in the last decade. </p>
<p><div data-react-class="Tweet" data-react-props="{"tweetId":"967589414363803649"}"></div></p>
<h2>Charities</h2>
<p>The NRA also runs <a href="http://www.nra.org/nic/">four affiliated charities</a>: the <a href="https://www.nrafoundation.org/">NRA Foundation, Inc.</a>, the <a href="https://www.nradefensefund.org/">NRA Civil Rights Defense Fund</a>, the <a href="http://www.nrafaf.org/">NRA Freedom Action Foundation</a> and the <a href="https://www.guidestar.org/profile/23-7367534">NRA Special Contribution Fund</a>. </p>
<p>Like thousands of churches, universities, museums and advocacy groups of other stripes, these are 501(c)(3) groups. That means they are excused from paying taxes on most of their income. In addition, <a href="https://theconversation.com/charity-and-taxes-4-questions-answered-89512">their donors may get tax breaks</a> when they deduct the value of their gifts to charities from their taxable income. To maintain that coveted incentive, these nonprofits can’t endorse or oppose political candidates. They also can’t do more than minimal amounts of lobbying.</p>
<p>What do the NRA’s charities do?</p>
<p>The NRA Foundation <a href="https://www.guidestar.org/profile/52-1710886">does public outreach</a> to promote marksmanship and gun safety <a href="http://www.guidestar.org/FinDocuments/2016/521/710/2016-521710886-0e64461a-9.pdf">through grants</a> to shooting programs run by everyone from the Boy Scouts to local police departments. It also advocates for protecting the constitutional right to bear arms, as does the <a href="https://www.guidestar.org/profile/26-1277941">NRA Freedom Action Foundation</a>. </p>
<p>The NRA Civil Rights Defense Fund <a href="https://www.guidestar.org/profile/52-1136665">provides legal and financial aid</a> to people and groups dealing with lawsuits related to the NRA’s goals, and backs legal research on federal and state constitutional provisions that have to with guns. </p>
<p>The NRA Special Contribution Fund, <a href="https://www.guidestar.org/profile/23-7367534">focuses on marksmanship and firearm safety</a>, and operates the <a href="http://www.nrawc.org/">Whittington Center</a> in New Mexico, a vast shooting range.</p>
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<figcaption><span class="caption">Promotional video of the 2015 NRA Foundation banquet in Nashville.</span></figcaption>
</figure>
<h2>Common but with a caveat</h2>
<p>This multilayered structure isn’t unique. For instance, the <a href="https://www.guidestar.org/profile/94-1153307">Sierra Club</a>, a social welfare organization that advocates for environmental protection, is affiliated with the <a href="https://www.guidestar.org/profile/94-6069890">Sierra Club Foundation</a>, a charity. The <a href="https://www.guidestar.org/profile/13-3871360">American Civil Liberties Union</a>, a civil rights group partners with the <a href="https://www.guidestar.org/profile/13-6213516">ACLU Foundation</a> and <a href="https://health.howstuffworks.com/sexual-health/contraception/what-is-planned-parenthood.htm">Planned Parenthood Federation of America</a>, a charity that runs reproductive health care clinics, is affiliated with the <a href="https://www.plannedparenthoodaction.org/about-us">Planned Parenthood Action Fund</a>, a social welfare group that lobbies.</p>
<p>This arrangement helps charities preserve donors’ tax breaks without sacrificing the ability of their affiliated membership groups to engage on the day’s issues. Taken to its logical extreme, however, this dynamic can flout restrictions on what the government defines as legitimate charitable gifts.</p>
<p>Without such limits, what’s to stop me or anyone else from getting tax breaks for donations that will pay for lobbying? I could give it to the charity of my choice, which in turn could hand my dollars to its related social welfare organization. I’d get my tax deduction, and the group that supports my policy preferences could use the money I donated for lobbying.</p>
<p>The <a href="https://supreme.justia.com/cases/federal/us/461/540/case.html#F6">IRS prohibits these financial switcheroos</a>. While charities may contribute to their affiliated social welfare organization, both parties must keep records that prove the charitable gifts don’t fund lobbying or political candidacies.</p>
<p>The NRA Foundation made a <a href="http://www.guidestar.org/FinDocuments/2016/521/710/2016-521710886-0e64461a-9.pdf">nearly $20 million grant</a> to the National Rifle Association of America, in 2016. But that did not necessarily flout any tax laws.</p>
<p>Still, the NRA may sometimes let donations flow too freely between its affiliates, as Yahoo News has reported, in ways that <a href="https://www.yahoo.com/news/the-nras-deceptive-shell-game-with-donations-a-116744915796.html">violate federal electoral laws</a>. </p>
<p>Running so many different kinds of organizations, each subject to different rules, is an immense and difficult undertaking. It’s worth keeping an eye on the NRA to ensure that it manages to stay within the lines the law has painted.</p><img src="https://counter.theconversation.com/content/92806/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Samuel Brunson does not work for, consult, own shares in or receive funding from any company or organization that would benefit from this article, and has disclosed no relevant affiliations beyond their academic appointment.</span></em></p>The nation’s biggest gun advocacy group operates as a bundle of distinct organizations. It’s a fairly common arrangement, followed also by the likes of Planned Parenthood and the ACLU.Samuel Brunson, Professor of Law, Loyola University ChicagoLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/895122018-02-01T11:39:08Z2018-02-01T11:39:08ZCharity and taxes: 4 questions answered<figure><img src="https://images.theconversation.com/files/203479/original/file-20180125-100923-5s2l0y.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">About 1 in 20 taxpayers may fill out this part of their returns beginning with the 2018 tax year.
</span> <span class="attribution"><a class="source" href="https://www.shutterstock.com/image-photo/taxes-focus-on-tax-form-line-184904708?src=g3Txu-dDJU_p-qKMgFIiJA-1-0">Sean Locke Photography/Shutterstock.com</a></span></figcaption></figure><p><em>Editor’s note: Patrick Rooney, associate dean for academic affairs and research at Indiana University Lilly Family School of Philanthropy, weighs in on why Americans who have lost incentives to give to charity through the new tax law may donate less from now on. The answers are based partly on questions he fielded from fundraising consultant and blogger <a href="https://michaelrosensays.wordpress.com/">Michael Rosen</a>.</em> </p>
<h2>1. What will affect giving the most?</h2>
<p>The biggest change is indirect: By roughly doubling the standard deduction, the tax code changes make giving to charity less of a bargain.</p>
<p>Only Americans who itemize their tax returns are eligible for the <a href="https://theconversation.com/why-congress-should-let-everyone-deduct-charitable-gifts-from-their-taxes-78323">charitable deduction</a>, a dollar-for-dollar reduction in their taxable income that lowers what they owe the IRS. </p>
<p>Researchers like me believe that the share of taxpayers who can take advantage of this tax break will <a href="https://theconversation.com/the-pall-that-the-tax-law-is-casting-over-charities-89440">plummet to about 5 percent</a> from roughly 30 percent.</p>
<p>That will make a big difference because most people who can take advantage of this tax break do. More than <a href="http://generosityforlife.org/wp-content/uploads/2017/10/Overall-Giving-10.5.17-jb-CJC.pdf">55 percent of U.S. households</a> said they made charitable gifts in 2014. But for those who itemize, my colleagues and I found that 82.4 reported having taken advantage of the charitable deduction. </p>
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<figcaption><span class="caption">Stacy Palmer, an editor with The Chronicle of Philanthropy, explains in a PBS NewsHour interview why nonprofits fear that the new tax law will depress charitable giving.</span></figcaption>
</figure>
<p>This hypothetical example shows how this could play out: Pharmacist “Josephine Doe” paid a 25 percent marginal tax rate on her US$100,000 income as a joint filer (under the old tax law). Because her family itemized, her $100 annual donation to a local animal shelter only cost $75, while Uncle Sam basically paid the rest through a tax break. </p>
<p>Under the new law, her family will take the standard deduction, making her charitable contribution no longer tax deductible. Giving $100 will cost $100.</p>
<p>We anticipate that the tax code changes will lead Americans and U.S. companies to donate roughly <a href="https://theconversation.com/the-pall-that-the-tax-law-is-casting-over-charities-89440">$21 billion</a> less per year to charity based on changes in the tax incentives.</p>
<p><iframe id="P1JBn" class="tc-infographic-datawrapper" src="https://datawrapper.dwcdn.net/P1JBn/2/" height="400px" width="100%" style="border: none" frameborder="0"></iframe></p>
<h2>2. Will economic growth make up the difference?</h2>
<p>Economic growth is unambiguously good for philanthropy because it tends to lead to more money in people’s pockets. Economists, including <a href="https://doi.org/10.1016/j.econlet.2010.10.016">John List</a> at the University of Chicago, have found that people give more when they have more money to give.</p>
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<p>But it’s hard to estimate how the changes in the tax law will affect growth, and we know that the changes will affect households differently based on their sources of income, number of children, the size of their mortgage and how high their state and local taxes are.</p>
<p>The University of Pennsylvania economists responsible for what’s known as the <a href="http://budgetmodel.wharton.upenn.edu/issues/2017/12/18/the-tax-cuts-and-jobs-act-reported-by-conference-committee-121517-preliminary-static-and-dynamic-effects-on-the-budget-and-the-economy">Penn Wharton model</a> and others forecast that the new law will boost growth by relatively small amounts – as little as <a href="https://www.morningstar.com/news/dow-jones/TDJNDN_201801259064/the-tax-law-just-one-month-old-is-roaring-through-us-companies.html">0.1 percentage point</a> – per year over the next decade, following a slightly larger boost in 2018.</p>
<p>In January, after mulling the tax law’s likely ramifications, the <a href="https://www.reuters.com/article/us-imf-economy-outlook/imf-raises-global-growth-forecast-sees-trump-tax-boost-idUSKBN1FB1TK">International Monetary Fund</a> raised its 2018 forecast for U.S. growth to 2.7 percent rate from a prior 2.3 projection.</p>
<p>Given the uncertainty about the impact of the new tax law on growth and the uneven effects anticipated, my colleagues and I have not factored a growth dividend from the tax law into our expectations.</p>
<h2>3. Won’t taxpayers give some of the money they save on taxes to charity?</h2>
<p>The average individual taxpayer will get a <a href="http://www.taxpolicycenter.org/taxvox/tcja-would-cut-taxes-average-1600-2018-most-benefits-going-those-making-300000-plus">$1,600 tax cut</a> in 2018, and a 1.6 percent after-tax income boost in 2019. </p>
<p>Typically, itemizing donors give about <a href="https://doi.org/10.1257/jep.25.2.157">3 percent of their income</a> to charity, and, as I noted earlier, people usually give more when they have more. But the tax changes’ effects will vary widely.</p>
<p>About <a href="http://www.taxpolicycenter.org/taxvox">80 percent</a> of households will initially get a tax cut, while 5 percent will face a tax increase, according to the <a href="http://www.taxpolicycenter.org/taxvox/tcja-would-cut-taxes-average-1600-2018-most-benefits-going-those-making-300000-plus">Tax Policy Center</a>. The rest will see their lot unchanged.</p>
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<p>The federal government has gotten rid of <a href="https://www.cnbc.com/2017/12/20/families-will-feel-the-pain-of-losing-this-tax-break.html">personal exemptions</a>, which will cause many Americans to pay <a href="https://www.jct.gov/publications.html?func=startdown&id=5054">higher tax bills</a>. Many families will <a href="https://www.investopedia.com/taxes/how-gop-tax-bill-affects-you/">lose more through that change</a> than <a href="http://www.christianitytoday.com/news/2017/december/big-families-gop-tax-reform-bill-child-tax-credit.html">they will gain</a> from taking the bigger standard deduction.</p>
<p>Plus, the millions whose <a href="https://www.curbed.com/2017/12/20/16797590/tax-bill-salt-real-estate-mortgage">state, local and property taxes or mortgage interest</a> payments exceed the maximum level for which deductibility is now allowed will have less after-tax income. They will surely consider giving less.</p>
<p>But since many of the tax code’s changes are temporary, even fewer Americans will probably be paying a smaller federal income tax bill than they would have without the new law by 2027.</p>
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<p>It’s a different story for companies, which will benefit tremendously as their top marginal rate declines from 35 percent to 21 percent. </p>
<p>Businesses, like people, give for many reasons, including tax incentives, so there’s no reason to expect corporate giving to decline in proportion with this <a href="https://www.thebalance.com/corporate-income-tax-definition-history-effective-rate-3306024">tax cut</a>.</p>
<p>Indeed, some corporations may actually make a point of donating more. However, based on past patterns, I expect corporate giving to decline by $1 billion a year in response to the tax rate cuts – not adjusting for possible growth.</p>
<h2>4. How will taxpayers react?</h2>
<p>Tax policies may not affect how some people give at all – especially <a href="https://theconversation.com/why-it-can-make-sense-to-believe-in-the-kindness-of-strangers-86271">extreme altruists</a> or <a href="https://www.oddee.com/item_99238.aspx">misers</a>. But the <a href="https://finance.yahoo.com/news/complete-guide-2018-tax-changes-115200441.html">new law</a> will probably affect most typical donors.</p>
<p>Seeing what happens may take years, however.</p>
<p>Because Congress passed the law in December, some <a href="https://www.cnbc.com/2017/11/28/boost-your-charitable-giving-this-year-in-case-the-gop-tax-bill-becomes-law.html">Americans front-loaded</a> their giving for 2018 and beyond. They wanted to itemize their deductions in 2017 for the next year or more if they expected to lose their tax break. </p>
<p><a href="http://www.nber.org/papers/w3273.pdf">That’s what happened in the mid-1980s</a>, the last time that Congress passed a sweeping tax package. Anticipating cuts, some households and businesses gave more to charity than they usually did beforehand. </p>
<p>Giving by the rich spiked, <a href="https://www.ntanet.org/NTJ/45/3/ntj-v45n03p267-90-effects-tax-reform-charitable.pdf">then declined</a> once those changes took effect. </p>
<p>There’s another sign that giving is bunching up: a spike in the number of <a href="https://theconversation.com/donor-advised-funds-charities-with-benefits-74516">donor-advised funds</a>, privately managed accounts that operate in many ways like personal foundations. Itemizers may deduct what they put in these accounts from their taxable income right away, even if they don’t give it to a charity for years.</p>
<p>Taxpayers who otherwise won’t be able to itemize can do so by stowing, say, the money they plan to give away over the next few years in one of these accounts in a single year and allocating those funds over the next several years to their favorite nonprofits. </p>
<p>Indeed, Schwab Charitable, a leading provider of this philanthropic service, says that the number of accounts it opened <a href="https://www.businesswire.com/news/home/20180123005666/en/Schwab-Charitable-Reports-Record-Grants-2017-Unique">spiked 91 percent</a> in the second half of 2017 due to stock gains and tax concerns. </p>
<p>Employees of some of these financial institutions told me that they were working 20-hour days in the last two weeks of December to keep up with new clients who wanted to open donor-advised fund accounts before the tax rules changed to front-load some of their giving. </p>
<figure class="align-right zoomable">
<a href="https://images.theconversation.com/files/203481/original/file-20180125-100896-1k20xay.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=1000&fit=clip"><img alt="" src="https://images.theconversation.com/files/203481/original/file-20180125-100896-1k20xay.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=237&fit=clip" srcset="https://images.theconversation.com/files/203481/original/file-20180125-100896-1k20xay.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=399&fit=crop&dpr=1 600w, https://images.theconversation.com/files/203481/original/file-20180125-100896-1k20xay.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=399&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/203481/original/file-20180125-100896-1k20xay.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=399&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/203481/original/file-20180125-100896-1k20xay.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=501&fit=crop&dpr=1 754w, https://images.theconversation.com/files/203481/original/file-20180125-100896-1k20xay.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=501&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/203481/original/file-20180125-100896-1k20xay.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=501&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px"></a>
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<span class="caption">Only the very richest Americans leave behind estates that are subject to an inheritance tax.</span>
<span class="attribution"><a class="source" href="https://www.shutterstock.com/image-photo/man-suit-showing-where-testator-must-197605481?src=BkhVsbdFgJp0xphLXFU1Fg-1-29">nito/Shutterstock.com</a></span>
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<p>Finally, the new law changes rules governing the estate tax, a levy on inheritance, by <a href="http://money.cnn.com/2018/01/09/pf/taxes/estate-tax/index.html">doubling exemption levels</a>. For the next decade, estates left by deceased individuals worth $11 million or less will pay no taxes for the next decade, along with those left behind by couples who possessed up to $22 million. An unchanged <a href="https://www.law.com/thelegalintelligencer/sites/thelegalintelligencer/2018/01/09/the-impact-of-tax-cuts-and-jobs-act-of-2017-on-estate-planning/?slreturn=20180024074515">40 percent marginal rate</a> applies to fortunes that are bigger than than the cutoffs.</p>
<p>The Joint Committee on Taxation, a congressional committee charged with estimating the <a href="https://www.jct.gov/publications.html?func=startdown&id=5060">impact of fiscal legislation</a>, estimates that <a href="https://www.forbes.com/sites/ashleaebeling/2017/12/21/final-tax-bill-includes-huge-estate-tax-win-for-the-rich-the-22-4-million-exemption/#6fe888e61d54">1,800 estates will pay</a> the estate tax in 2018, a steep drop from the approximately 5,000 estates it says would have had to pay it without the new tax law. I expect this change to reduce the incentive for wealthy Americans to bequeath money to charity, sparking a roughly $7 billion annual decline in giving through bequests.</p><img src="https://counter.theconversation.com/content/89512/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Patrick Rooney and his employer, the Indiana University Lilly Family School of Philanthropy, receive funding from many foundations and charities. Similarly, Rooney and other Lilly School faculty and staff members are affiliated with legal and advisory boards for many charities.</span></em></p>The lost incentives to give are likely to make a bigger difference than the small uptick in economic growth expected from the new law.Patrick Rooney, Executive Associate Dean for Academic Programs, Professor of Economics and Philanthropic Studies, IUPUILicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/885132017-12-06T11:20:12Z2017-12-06T11:20:12ZHow the tax package could sap the flow of charitable giving<figure><img src="https://images.theconversation.com/files/197856/original/file-20171205-23009-zkysmc.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">House Speaker Paul Ryan, left, leads a round of applause after his colleagues took a step toward changing the tax code.</span> <span class="attribution"><a class="source" href="http://www.apimages.com/metadata/Index/Congress-Taxes/2f6deeb69c144709a30fb0d188b8f55b/1/0">AP Photo/Jacquelyn Martin</a></span></figcaption></figure><p>The tax bills currently making their way through Congress could end up making Americans less charitable. </p>
<p>The bills that recently cleared the House and the Senate, which <a href="http://www.cnn.com/2017/12/04/politics/gop-tax-plan-conference-committee-house-vote/index.html">need to be reconciled</a>, would have different consequences for <a href="http://www.taxpolicycenter.org/model-estimates/charitable-contributions-and-tcja-nov-2017/t17-0265-effective-marginal-tax-benefit">charitable giving</a>. But both would raise the price of donating for millions of Americans, thereby reducing how much the nation gives to charity overall. </p>
<p>The precise impact of this tax code overhaul, however, would depend on which provisions wind up on the books. </p>
<p>As an economist and a scholar of philanthropy who researches how public policies shape charitable giving, I have been following the pending tax proposals closely and examining their potential impact. My research suggests that the proposed changes could lead Americans and U.S. companies to donate roughly US$20 billion less per year to charity.</p>
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<h2>Standard deduction and tax rates</h2>
<p>One of the primary ways giving could be reduced is through two of the tax plan’s key features – significantly boosting the standard deduction and cutting the top marginal tax rate. </p>
<p>Research I co-led showed that such changes, based on an earlier version of the tax plan, would reduce household charitable giving by <a href="https://theconversation.com/why-congress-should-let-everyone-deduct-charitable-gifts-from-their-taxes-78323">$13.1 billion</a> per year. That would mark a 4.6 percent decline from the <a href="https://theconversation.com/what-influences-american-giving-78800">$282 billion</a> American households gave in 2016. </p>
<p>We also determined that the share of households that itemize their tax returns would fall to approximately 5 percent from the current 30 percent. </p>
<p>While we based our estimates on a reduction in the top rate from 39.6 percent to 35 percent and a 75 percent increase in the standard deduction, the current House and Senate bills differ slightly from that baseline and each other, both in terms of top marginal tax rates and where they kick in for different income levels. For example, both bills would increase the standard deduction by 90.5 percent. </p>
<p>These ongoing differences make it hard to discern what the precise differences would be. But if the changes in the latest versions become codified, the share of filers who get a tax break – a built-in incentive – for their charitable gifts would fall even further than my team had estimated.</p>
<p>In short, I now anticipate the loss to charitable giving from the tax code changes to top our estimate of $13.1 billion.</p>
<h2>Estate tax</h2>
<p>Both bills would also reduce the incentive to give after a wealthy taxpayer dies.</p>
<p>The <a href="https://theconversation.com/how-closing-the-door-on-the-estate-tax-could-reduce-american-giving-85166">estate tax</a> encourages giving with a dollar-for-dollar deduction from estate and gift tax liabilities matching any amount of money bequeathed to charities after death. In other words, if you owe a tax of $5 million on your estate, you could give $100,000 to charity and lower your IRS bill to $4.9 million.</p>
<p>The number of families this actually applies to is tiny, after growing smaller in recent years. Only one in 500 estates belonging to the people who die in any given year owe anything, after Congress sharply increased the threshold under which estates are exempt from the tax. And rich families rely on loopholes to get out of it or <a href="https://www.bloomberg.com/view/articles/2014-01-30/only-idiots-pay-the-45-estate-tax">reduce the tax’s impact</a>.</p>
<p>Currently, <a href="https://www.cbpp.org/research/federal-tax/ten-facts-you-should-know-about-the-federal-estate-tax">estates under $5.5 million</a> are exempt for taxpayers filing as individuals and estates twice that size for couples.</p>
<p>The Senate bill calls for doubling current exemption levels to $11 million for an individual and $22 million for couples. The House plan would double exemption levels and then end the estate tax altogether in 2024. </p>
<p>Estimates regarding the effects of repeal range widely. However, there is complete consensus that doing away with this levy would reduce charitable bequests and donations wealthy Americans make during their lifetimes.</p>
<p>Based on my analysis, I anticipate that doing away with the estate tax altogether would cut giving by approximately $7 billion per year. </p>
<p>Levying it on the extremely small share of the very wealthiest households would surely reduce how much money is left to charities from current levels. But it is hard to extrapolate the approximate impact of this change because no researchers have modeled estimates with these levels of exemptions and tax rates.</p>
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<h2>Corporate giving</h2>
<p>Companies and corporate foundations donated $18.6 billion in both cash and in-kind goods and services to U.S. charities in 2016, according to the <a href="https://theconversation.com/what-influences-american-giving-78800">Giving USA report</a>, which the Indiana University Lilly Family School of Philanthropy researches and writes in partnership with the Giving USA Foundation. </p>
<p>My colleagues and I have not yet thoroughly studied how the pending reductions in corporate marginal tax rates might affect how much money businesses give to charity. But our models do show that the proposed reductions in the top corporate tax rate from 35 percent to 20 percent would reduce the incentives for corporations to give. </p>
<p>Businesses give for many reasons. However, it is reasonable to expect that dramatically cutting the top corporate tax rate would reduce corporate donations by an estimated $1.4 billion – a 7.6 decline from the amount business gave in 2016. </p>
<h2>Johnson Amendment</h2>
<p>The House bill includes a provision that would leave churches and other nonprofits, which by law must be nonpartisan, far more free to engage in political speech than they are today.</p>
<p><a href="http://thehill.com/opinion/finance/359330-theres-a-wolf-in-sheeps-clothing-hiding-in-the-gop-tax-bill">Nonprofit leaders</a> warn that this measure, left out of the Senate version, could have major consequences.</p>
<p>Watering down this restriction – known as the <a href="https://theconversation.com/how-the-tax-package-could-blur-the-separation-of-church-and-politics-87285">Johnson Amendment</a> – is <a href="http://www.publicconsultation.org/wp-content/uploads/2017/11/Johnson_Amendment_Quaire1117.pdf">wildly unpopular</a> with the vast majority of American voters, according to surveys. I suspect that it would be even less popular if more people understood the potential effects of this change on charities.</p>
<p>If churches and all other charities were to become largely able to endorse and support political candidates and retain their tax-exempt status, as the House’s tax bill would do, it would suddenly change the longstanding differences between giving to charities instead of explicitly political organizations and lobbying groups. </p>
<p>Currently, taxpayers may deduct their gifts to charities but not the money they donate to lobbying outfits and political parties.</p>
<p>If donations that are essentially political became tax-deductible, some donors would be likely to reallocate donations to charities, including new supposedly charitable entities created expressly to raise money to lobby for political causes. </p>
<p>Following such rejiggering, the consequences of this shift would reduce federal revenue by an estimated <a href="https://www.usatoday.com/story/news/politics/2017/11/10/tax-bills-repeal-johnson-amendment-could-cost-taxpayers-more-than-1-billion/852554001/">$2.1 billion</a> over 10 years, the nonpartisan Joint Committee on Taxation calculates. </p>
<p>While this change might create the appearance of an increase in charitable giving, it would be misleading to see the reallocation of giving from political parties and causes to politically charged charities as an authentic improvement for the charitable sector as a whole.</p>
<h2>Dynamic scoring</h2>
<p>Economic growth, of course, is good for philanthropy.</p>
<p>People tend to give less to charity during economic recessions and give more when times are better. After adjusting for differences in inflation, total giving fell an average of 0.5 percent annually during years when the U.S. economy was in recession since 1957. </p>
<p>On the flip side, the sum total of donations grew an average of 4.5 percent per year during boom times, <a href="http://www.givingusa.org">according to</a> <a href="https://store.givingusa.org/products/giving-usa-2017-report-highlights?variant=37727126089">Giving USA</a> data. </p>
<p>For multiple reasons, most research regarding the effects of tax policy on philanthropy does not use “dynamic scoring,” however. That is, it does not account for the potential economic growth effects tax policies are expected to have (or not) on growth.</p>
<h2>Universal charitable tax deduction</h2>
<p>So what could lawmakers do if they wanted to avert this outcome?</p>
<p>The most straightforward way to prevent the tax code overhaul from reducing charitable giving would be to let <a href="https://theconversation.com/why-congress-should-let-everyone-deduct-charitable-gifts-from-their-taxes-78323">all taxpayers deduct</a> donations from their taxable income. </p>
<p>My team and I have modeled the effects of this approach, which many <a href="https://www.councilofnonprofits.org/article/national-council-of-nonprofits-statement-the-universal-charitable-giving-act-hr-3988">nonprofit leaders</a> are urging Congress to adopt.</p>
<p>New bills that would do that are pending in both the <a href="https://www.congress.gov/bill/115th-congress/house-bill/3988">House</a> and the <a href="https://www.lankford.senate.gov/imo/media/doc/UniversalCharitableGiving_Lankford.pdf">Senate</a>. Both would create a universal deduction for non-itemizers, and both of them would cap this tax break at gifts equal to one-third of the standard deduction. </p>
<p>While the proposed caps would offer no incentive to give above the limit, and, therefore, it would be better without caps, those thresholds are high enough that they are unlikely to affect many otherwise ineligible taxpayers’ giving patterns.</p>
<p>So far, however, provisions along these lines are not on the table as part of the broader package.</p><img src="https://counter.theconversation.com/content/88513/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Patrick Rooney and the Indiana University Lilly Family School of Philanthropy have received millions of dollars of grants to fund research that benefits the philanthropic sector generally and many charities specifically. Rooney has consulted with and been affiliated with the advisory committees and legal boards for numerous charities and foundations over the years. None have funded this essay or have provided feedback on it in advance of its release. </span></em></p>More than US$20 billion per year in giving is potentially at stake.Patrick Rooney, Executive Associate Dean for Academic Programs, Professor of Economics and Philanthropic Studies, IUPUILicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/885312017-12-02T13:36:45Z2017-12-02T13:36:45ZThe new tax bill will make Americans less healthy – and that’s bad for the economy<figure><img src="https://images.theconversation.com/files/197490/original/file-20171204-5413-8i0v2c.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption"></span> <span class="attribution"><span class="source">AP Photo/Jacquelyn Martin</span></span></figcaption></figure><p>The <a href="https://www.washingtonpost.com/business/economy/johnson-to-back-senate-tax-bill-putting-gop-leaders-close-to-securing-passage/2017/12/01/0226ff98-d6a2-11e7-b62d-d9345ced896d_story.html">new tax bill</a>, passed by the Senate early Saturday, is not just about taxes. It has significant consequences for the American health care system – especially for the most vulnerable of our citizens. </p>
<p>If the proposed tax bill comes to fruition, it will reduce the affordability of health care for many Americans. Without access to care, <a href="https://www.cnbc.com/2017/11/30/aarp-opposes-senate-tax-bill-calls-medicare-cuts-troubling.html">our sickest and most vulnerable</a> – especially the the poor and elderly – will suffer an increasing chance of poorer health outcomes.</p>
<p>What’s more, the bill’s long-term outcomes will be bad for our economy, resulting in lost productivity, lost wages and increased health care costs. If Americans become less healthy and have less access to health care, then everyone loses.</p>
<p>This bill puts much of the health system reforms under the Obama administration in jeopardy. For example, the Senate tax plan includes a repeal of an important part of the Affordable Care Act, the individual mandate. This provision requires that most Americans buy health insurance, or pay a penalty. </p>
<p><a href="https://www.healthaffairs.org/doi/abs/10.1377/hlthaff.2012.0552">Many health care experts</a> see the mandate as the only way to bring healthy people into the insurance marketplaces. Gutting the mandate would result in <a href="http://www.foxnews.com/politics/2017/11/30/senate-takes-up-tax-reform-heres-what-plan-looks-like/">13 million more uninsured Americans</a> over the next 10 years. </p>
<p>Additionally, the Senate bill is expected to trigger a US$25 billion annual cut to Medicare, including cuts to cancer care for older Americans covered by Medicare. The House plan also <a href="http://www.foxnews.com/politics/2017/11/30/senate-takes-up-tax-reform-heres-what-plan-looks-like/">eliminates medical expense deductions</a>, implying that catastrophic expenses will not be as deductible under the new tax proposal. </p>
<p>Many economists believe that the American population has <a href="http://www.jblearning.com/catalog/9781284054620/">a right to be healthy and productive</a>. This has major implications for the income generated for society. A healthier population has a greater investment in human capital and is <a href="https://www.hsph.harvard.edu/ecpe/the-business-benefits-of-a-healthy-workforce/">more productive in the workforce</a>, yielding greater output and income.</p>
<p>By the same token, a less healthy workforce will work less and be less valuable in the labor market. Health care costs will also increase due to <a href="https://www.ncbi.nlm.nih.gov/books/NBK221653/">uncompensated care</a>, as more of the population cannot afford basic health care services to prevent disease – let alone chronic or critical care.</p>
<p>Lack of access to care also lowers the productivity of lower income citizens. If health insurance is less affordable and available, then those already at risk for illness will become even more vulnerable. This segment of the population will be likelier to fall ill and <a href="https://www.ncbi.nlm.nih.gov/pmc/articles/PMC3128441/">lose work time</a>.</p>
<p>Is the right to health only relevant for those with influence or affluence in the U.S.? If so, then we all will pay for the poorer health of our society in the long term. Hospitals and other providers will pass along bad debt and costs associated with charity care for uninsured people. Insurance companies will charge higher premiums to cover the expenses they incur for treating patients who skip preventive care and instead go to the doctor only when they are sick.</p>
<p>As the most vulnerable Americans rack up increasing medical expenses and decline in productivity due to sickness, everyone in the U.S. will have to pay the price.</p><img src="https://counter.theconversation.com/content/88531/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Diane Dewar does not work for, consult, own shares in or receive funding from any company or organization that would benefit from this article, and has disclosed no relevant affiliations beyond their academic appointment.</span></em></p>If Americans become less healthy and have less access to health care, then everyone loses.Diane Dewar, Associate Professor of Health Policy, Management and Behavior, University at Albany, State University of New YorkLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/860392017-10-25T23:39:39Z2017-10-25T23:39:39ZHow the US tax code bypasses women entrepreneurs<figure><img src="https://images.theconversation.com/files/191891/original/file-20171025-25502-hzuzhf.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">Attendees chat during Dell Women’s Entrepreneur Network conference in 2014. </span> <span class="attribution"><span class="source">Jack Plunkett/AP Images for Dell</span></span></figcaption></figure><p>As Republicans in Congress <a href="https://www.nytimes.com/2017/10/19/us/politics/tax-bill-trump-senate.html?_r=0">put the finishing touches</a> on a tax plan that’s aimed at overhauling the system, there is one other reform they should consider: making the U.S. tax code fairer to women entrepreneurs.</p>
<p>Currently, federal tax incentives targeted to help small businesses grow and access capital either effectively exclude or bypass altogether the majority of women-owned firms, according to <a href="http://www.american.edu/kogod/research/blindspot.cfm">groundbreaking research I conducted</a> on how the tax code affects women business owners through American University’s Kogod Tax Policy Center. For the first time, my research considered specifically whether women business owners can (or do) take advantage of tax breaks intended for small businesses. </p>
<p>Our findings uncovered a significant blind spot when it comes to women business owners and the U.S. tax code. In fact, our survey data – together with our review of <a href="https://ideas.repec.org/e/pli161.html">existing tax research</a> <a href="https://www.researchgate.net/publication/253659404_Women_Entrepreneurs_Moving_Front_and_Center_An_Overview_of_Research_and_Theory">on the topic</a> – suggest that many women-owned companies are unable to fully access more than US$255 billion worth of tax incentives Congress has designed to help small businesses. </p>
<p>My question for lawmakers is this: Will Congress seize the once-in-a-generation opportunity to pass comprehensive tax reform that recognizes the challenges women business owners face and how we can help them through the tax code? </p>
<h2>A growing economic contribution</h2>
<p>Since Congress last overhauled the tax code in 1986, the <a href="http://www.womenable.com/content/userfiles/2016_State_of_Women-Owned_Businesses_Executive_Report.pdf">number of women business owners has spiked</a> from 4.1 million to more than 11 million at the end of 2016, making up more than a third of all U.S. businesses. They employ 9 million people, contribute $1.6 trillion to the economy and <a href="https://www.sba.gov/sites/default/files/advocacy/Womens-Business-Ownership-in-the-US.pdf">nearly every single one</a> is a small business. </p>
<p>More recently, <a href="http://www.womenable.com/content/userfiles/2016_State_of_Women-Owned_Businesses_Executive_Report.pdf">their ranks have swelled</a> at a rate five times faster than the national average for all businesses, surging 45 percent from 2007 to 2016 – a period that included the <a href="https://theconversation.com/us/topics/great-recession-13707">Great Recession</a>.</p>
<p>Even more impressive than their rate of growth is the fact that women have achieved all of this without the full benefit of tax breaks targeted to small businesses. </p>
<figure class="align-center ">
<img alt="" src="https://images.theconversation.com/files/191926/original/file-20171025-28053-1i98qdi.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/191926/original/file-20171025-28053-1i98qdi.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=419&fit=crop&dpr=1 600w, https://images.theconversation.com/files/191926/original/file-20171025-28053-1i98qdi.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=419&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/191926/original/file-20171025-28053-1i98qdi.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=419&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/191926/original/file-20171025-28053-1i98qdi.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=527&fit=crop&dpr=1 754w, https://images.theconversation.com/files/191926/original/file-20171025-28053-1i98qdi.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=527&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/191926/original/file-20171025-28053-1i98qdi.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=527&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px">
<figcaption>
<span class="caption">The Small Business Administration, currently led by Linda McMahon, issued a report earlier this year that said women-owned businesses lag behind in revenue and employment.</span>
<span class="attribution"><span class="source">AP Photo/Alex Brandon</span></span>
</figcaption>
</figure>
<h2>Tax myopia</h2>
<p>Over the years, Congress has done a number of things to promote women’s business ownership by passing legislation targeting discriminatory lending practices and promoting federal contracting and counseling opportunities for women business owners. </p>
<p>For example, the <a href="https://www.justice.gov/crt/equal-credit-opportunity-act-3">Equal Credit Opportunity Act of 1974</a> outlawed discrimination in granting credit based on sex or marital status, and the <a href="https://www.congress.gov/bill/100th-congress/house-bill/5050">Women’s Business Ownership Act of 1988</a> supported women small business ownership and established the <a href="https://www.nwbc.gov">National Women’s Business Council</a>. </p>
<p>Also, the <a href="https://www.congress.gov/bill/106th-congress/house-bill/5667">Small Business Reauthorization Act of 2000</a> set up a program to help women-owned businesses <a href="http://www.aptac-us.org/women-owned-small-business/">access federal contracts</a>. </p>
<p>But lawmakers have been myopic in terms of the severe disadvantages women face accessing capital to grow their businesses, even as they’ve repeatedly targeted this common problem among small business owners in the tax code. </p>
<p>Earlier this year, the Small Business Administration’s Office of Advocacy <a href="https://www.sba.gov/sites/default/files/advocacy/Womens-Business-Ownership-in-the-US.pdf">issued a report</a> that found that women-owned companies consistently lag behind in terms of revenue and employment. <a href="https://www.sbc.senate.gov/public/_cache/files/3/f/3f954386-f16b-48d2-86ad-698a75e33cc4/F74C2CA266014842F8A3D86C3AB619BA.21st-century-barriers-to-women-s-entrepreneurship-revised-ed.-v.1.pdf">Other congressional research</a> has found that just $1 of every $23 in conventional small business loans goes to a woman-owned business. </p>
<figure class="align-center ">
<img alt="" src="https://images.theconversation.com/files/191927/original/file-20171025-28083-148ycc6.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/191927/original/file-20171025-28083-148ycc6.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=372&fit=crop&dpr=1 600w, https://images.theconversation.com/files/191927/original/file-20171025-28083-148ycc6.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=372&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/191927/original/file-20171025-28083-148ycc6.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=372&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/191927/original/file-20171025-28083-148ycc6.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=467&fit=crop&dpr=1 754w, https://images.theconversation.com/files/191927/original/file-20171025-28083-148ycc6.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=467&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/191927/original/file-20171025-28083-148ycc6.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=467&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px">
<figcaption>
<span class="caption">Psyche Terry, owner of Urban Intimates, posses for a photo next to some of her products for sale at Indulge Your Senses boutique in Little Elm, Texas.</span>
<span class="attribution"><span class="source">AP Photo/LM Otero</span></span>
</figcaption>
</figure>
<p>For my report, “<a href="http://www.american.edu/kogod/research/blindspot.cfm">Billion Dollar Blind Spot: How the U.S. Tax Code’s Small Business Expenditures Impact Women Business Owners</a>,” I worked with Women Impacting Public Policy – a nonprofit trade association devoted to promoting women entrepreneurs – to survey 515 women business owners and analyze how they use four key tax expenditures designed to foster small business growth and investment:</p>
<ul>
<li><p><a href="https://www.law.cornell.edu/uscode/text/26/1202">Section 1202</a> allows an exclusion from capital gains tax for any profits from a sale of certain qualified small business corporation stock. The provision, which is expected to cost taxpayers $6.2 billion over the next five years, expressly excludes service companies from qualifying (most women-owned businesses are in the service sector). </p></li>
<li><p><a href="https://www.law.cornell.edu/uscode/text/26/1244">Section 1244</a> allows investors in small business corporations to treat any losses as ordinary losses. It’s estimated to cost $500 million over the next 10 years.</p></li>
<li><p><a href="https://www.law.cornell.edu/uscode/text/26/179">Section 179</a> is an accelerated equipment tax deduction for investments tangible personal property with a price tag of more than $248 billion over the next five years.</p></li>
<li><p><a href="https://www.law.cornell.edu/uscode/text/26/195">Section 195</a> offers a $5,000 deduction for startup costs and is estimated to cost at least $400 million over five years.</p></li>
</ul>
<p>The results were illuminating.</p>
<p>The first three provisions are so limited in design that the majority of women-owned businesses simply can’t use them, making accessing capital through tax breaks impossible for these business owners. The rules either explicitly exclude service companies or effectively bypass any business that isn’t a “C corporation” or that has few investments in capital intensive equipment and can’t claim the deduction. </p>
<p>This is problematic because 61 percent of women-owned businesses <a href="http://www.womenable.com/content/userfiles/2016_State_of_Women-Owned_Businesses_Executive_Report.pdf">are concentrated in service industries</a>, while the majority of all small businesses <a href="https://www.sba.gov/sites/default/files/advocacy/SB-FAQ-2017-WEB.pdf">are organized</a> as something other than a C-Corp. This makes it a lot harder to attract investors.</p>
<p>Our survey data confirmed these findings: very few respondents said they had ever taken advantage of sections 1202 (less than 1 percent) or 1244 (less than 6 percent), while we found that more than half aren’t fully benefiting from section 179.</p>
<p>As a result, women business owners are potentially missing out on the more than $255 billion in aid the U.S. will spend over the next few years on these provisions. At the same time, our survey data confirmed that when women business owners could take advantage of a tax break, they did. Almost 60 percent of our respondents claimed the startup deduction, for example. </p>
<p>Equally troubling is that we found a complete lack of government research on how the tax code affects women business owners. To date, the House and Senate tax-writing committees have never held a full hearing on the challenges of women business owners and whether the tax code’s small business tax incentives are operating as intended with respect to these companies. And there are scant data from relevant government agencies on these critical questions. The Internal Revenue Service, the Treasury Department and the SBA don’t even track tax data on women-owned companies, which <a href="http://www.womenable.com/content/userfiles/2016_State_of_Women-Owned_Businesses_Executive_Report.pdf">make up almost 40 percent</a> of all U.S. businesses.</p>
<figure class="align-center ">
<img alt="" src="https://images.theconversation.com/files/191924/original/file-20171025-28045-1kerap2.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/191924/original/file-20171025-28045-1kerap2.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=411&fit=crop&dpr=1 600w, https://images.theconversation.com/files/191924/original/file-20171025-28045-1kerap2.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=411&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/191924/original/file-20171025-28045-1kerap2.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=411&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/191924/original/file-20171025-28045-1kerap2.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=516&fit=crop&dpr=1 754w, https://images.theconversation.com/files/191924/original/file-20171025-28045-1kerap2.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=516&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/191924/original/file-20171025-28045-1kerap2.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=516&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px">
<figcaption>
<span class="caption">The majority of women-owned businesses, such as Smashing Golf & Tennis in Illinois, are in the service industry.</span>
<span class="attribution"><span class="source">AP Photo/M. Spencer Green</span></span>
</figcaption>
</figure>
<h2>Positive signs</h2>
<p>Notwithstanding this current state of affairs, there have been some positive signs in recent weeks that lawmakers will not ignore the questions raised by our report. Members in both the Senate and House have reviewed our research and are considering the importance of its findings. </p>
<p>Democratic Senator Jeanne Shaheen <a href="https://www.sbc.senate.gov/public/index.cfm/hearings?ID=39E2134C-D9AE-499C-887B-E33AC497A90D">cited our report</a> during a committee hearing in June, and <a href="https://smallbusiness.house.gov/calendar/eventsingle.aspx?EventID=400301">I testified</a> before the House’s Committee on Small Business earlier this month. </p>
<p>However, the absence of government data and congressional oversight on these small business tax expenditures deprives lawmakers of vital information and raises unanswered questions about whether these tax provisions are operating as Congress intended. <a href="https://www.nwbc.gov/sites/default/files/Access%20to%20Capital%20by%20High%20Growth%20Women-Owned%20Businesses%20(Robb)%20-%20Final%20Draft.pdf">Academic</a> and government research have consistently identified access to capital as a barrier women business owners encounter. </p>
<p>Congress simply doesn’t have the information needed to make decisions to help these 11 million small businesses overcome existing barriers to growth. This flies in the face of the <a href="https://www.cep.gov/about.html">commitment Congress made in 2016</a> to pursue evidence-based policymaking. Policymakers have opportunity to act on behalf of the nation’s women business owners as they prepare to overhaul the U.S. tax code.</p><img src="https://counter.theconversation.com/content/86039/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Caroline Bruckner does not work for, consult, own shares in or receive funding from any company or organization that would benefit from this article, and has disclosed no relevant affiliations beyond their academic appointment.</span></em></p>Republicans rewriting the tax system have a rare opportunity to fix a major problem: most women-owned companies can’t take advantage of key provisions designed to help small businesses like theirs.Caroline Bruckner, Executive in Residence, Department of Accounting and Taxation, American University Kogod School of BusinessLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/814462017-08-07T02:23:57Z2017-08-07T02:23:57ZHow affordable housing can chip away at residential segregation<figure><img src="https://images.theconversation.com/files/180793/original/file-20170802-23530-5b14m3.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">A federal housing incentive could have untapped potential.</span> <span class="attribution"><a class="source" href="https://www.shutterstock.com/image-photo/small-house-calculator-sitting-on-stack-157353578?src=KP9aoohHJ9Wcs2ZnhFBTgA-1-49">photastic/Shutterstock.com</a></span></figcaption></figure><p>With the health care debate stalling, Republicans are beginning to make more noise about tax reform. President Donald Trump has promised to make his bid to alter the code his <a href="http://www.cnbc.com/2017/07/20/tax-reform-battle-could-be-worse-than-health-care-brawl.html">next big battle</a>, as has House Speaker Paul Ryan.</p>
<p>Though the <a href="https://fas.org/sgp/crs/misc/RS22389.pdf">low-income housing tax credit</a> <a href="https://www.cbo.gov/budget-options/2016/52278">could land on the chopping block</a>, it’s probably safe due to its history of bipartisan support. Along with politicians from both sides of the aisle, developers and many banks and nonprofits embrace it because the tax credit makes creating new affordable housing units financially feasible and less risky. Yet the program, which is the only significant federal subsidy for building affordable housing, could be in jeopardy as lawmakers seek to close tax loopholes and lower tax rates.</p>
<p>As a tax law researcher who has studied where properties built with this tax credit are located, I see good reasons to preserve it. Above all, this program has the untapped potential to help solve the intractable problems of residential segregation by race, ethnicity and class.</p>
<h2>Affordable housing</h2>
<p>Each year, the federal government delivers approximately <a href="https://www.huduser.gov/portal/datasets/lihtc.html">US$8 billion</a> in low-income housing tax credits to housing developers that agree to set aside a certain number of units as rent-controlled affordable housing for qualified tenants. Since it began in 1986, the program has helped create at least 45,905 affordable housing projects with <a href="https://www.huduser.gov/portal/datasets/lihtc.html">nearly three million units</a>.</p>
<p>Some recent research suggests that the affordable housing properties built with the tax credits <a href="https://web.stanford.edu/%7Ediamondr/LIHTC_spillovers.pdf">help to integrate and revitalize</a> otherwise poverty-stricken neighborhoods.</p>
<p>Notwithstanding these encouraging findings, I still worry that the program may reinforce racial and economic segregation in some cities. For example, affordable housing advocates have voiced concern about the program’s harmful effects on <a href="https://www.dallasnews.com/news/dallas/2016/08/31/supreme-court-victory-dallas-nonprofit-loses-racial-bias-suit-texas-agency">neighborhood choice in Dallas</a> and <a href="http://nlihc.org/article/fhjc-report-says-lihtc-unit-locations-reinforce-poverty-concentration-and-segregation-nyc-re">New York City</a>. In my own research about low-income tenants <a href="https://papers.ssrn.com/sol3/papers.cfm?abstract_id=2929672">in Philadelphia</a>, I have noted that they have few options to live in low-income housing tax credit projects outside of high-poverty neighborhoods where most residents are people of color.</p>
<figure class="align-center zoomable">
<a href="https://images.theconversation.com/files/180794/original/file-20170802-16521-ixgqb6.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=1000&fit=clip"><img alt="" src="https://images.theconversation.com/files/180794/original/file-20170802-16521-ixgqb6.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/180794/original/file-20170802-16521-ixgqb6.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=400&fit=crop&dpr=1 600w, https://images.theconversation.com/files/180794/original/file-20170802-16521-ixgqb6.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=400&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/180794/original/file-20170802-16521-ixgqb6.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=400&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/180794/original/file-20170802-16521-ixgqb6.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=503&fit=crop&dpr=1 754w, https://images.theconversation.com/files/180794/original/file-20170802-16521-ixgqb6.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=503&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/180794/original/file-20170802-16521-ixgqb6.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=503&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px"></a>
<figcaption>
<span class="caption">This new St. Louis housing development is backed by federal low-income housing tax credits.</span>
<span class="attribution"><a class="source" href="http://www.apimages.com/metadata/Index/Trump-Infrastructure/18f02e5c11494ec18ed1000d2d01f63e/1/0">AP Photo/Jeff Roberson</a></span>
</figcaption>
</figure>
<h2>A new mandate</h2>
<p>Here’s one possible explanation for the disagreement. Because there are no geographic restrictions on where affordable housing may go for builders to qualify for the tax credit, and there is no mandate that eligible projects help break up pockets of poverty, its impact inevitably varies. </p>
<p>Instead of leaving outcomes to chance, some <a href="http://nlihc.org/article/prrac-highlights-fair-housing-best-practices-state-lihtc-policies">affordable housing advocates</a> and <a href="https://papers.ssrn.com/sol3/papers.cfm?abstract_id=2929672">I are suggesting a solution</a>: Housing authorities – which determine which affordable housing projects will be awarded the tax credits – should approve only properties consistent with new, broader anti-poverty and anti-segregation objectives. </p>
<p>For more than a decade, researchers have noted that affordable housing properties boosted by this tax credit are disproportionately located in low-income neighborhoods. Perhaps for this reason, an important line of research has sought to understand the tax credit’s impact on the communities surrounding new affordable housing projects. Though findings have varied, several researchers have found positive spillover effects.</p>
<p>In a recent report, <a href="https://web.stanford.edu/%7Ediamondr/LIHTC_spillovers.pdf">Rebecca Diamond and Tim McQuade</a> from Stanford’s Graduate School of Business offered new empirical evidence to support the view that the tax-subsidized properties benefit surrounding areas. They found that the projects increased property values, lowered the crime rate and spurred economic and racial integration – as long as the buildings were located in low-income neighborhoods where more than half the population was black or Latino. </p>
<p>The study didn’t detect these benefits, however, for affordable housing located in more affluent, predominantly white areas. Does that mean builders should go out of their way to site projects in low-income neighborhoods? Not necessarily.</p>
<figure class="align-center zoomable">
<a href="https://images.theconversation.com/files/180798/original/file-20170802-9082-vr1w5z.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=1000&fit=clip"><img alt="" src="https://images.theconversation.com/files/180798/original/file-20170802-9082-vr1w5z.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/180798/original/file-20170802-9082-vr1w5z.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=337&fit=crop&dpr=1 600w, https://images.theconversation.com/files/180798/original/file-20170802-9082-vr1w5z.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=337&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/180798/original/file-20170802-9082-vr1w5z.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=337&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/180798/original/file-20170802-9082-vr1w5z.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=424&fit=crop&dpr=1 754w, https://images.theconversation.com/files/180798/original/file-20170802-9082-vr1w5z.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=424&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/180798/original/file-20170802-9082-vr1w5z.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=424&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px"></a>
<figcaption>
<span class="caption">Residential segregation in many U.S. communities has persisted.</span>
<span class="attribution"><a class="source" href="https://www.shutterstock.com/image-illustration/several-homes-families-connected-neighborhoods-50580424">iQoncept/Shutterstock.com</a></span>
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<h2>A Philadelphia case study</h2>
<p>Establishing affordable housing in low-income neighborhoods may give surrounding areas a small boost. But doing so exclusively may severely restrict housing options available to low-income tenants, leaving many without opportunities to live in other kinds of places. </p>
<p><a href="https://papers.ssrn.com/sol3/papers.cfm?abstract_id=2929672">My own research</a> on siting patterns has focused on Philadelphia, a city with a history of residential housing <a href="http://www.phillymag.com/citified/2015/09/22/philadelphia-segregated-big-city/">segregation that still persists</a>. I found that the number of low-income housing tax credit properties in a Philadelphia ZIP code is strongly correlated with the ZIP code’s <a href="https://www.census.gov/topics/income-poverty/poverty/guidance/poverty-measures.html">poverty rate</a>, or the percentage of residents below the poverty line, which varies according to family size. (Families of four <a href="https://www.census.gov/data/tables/time-series/demo/income-poverty/historical-poverty-thresholds.html">earning less than $24,755</a>, for example, fall into this category.)</p>
<p>My findings suggest that the projects have been – intentionally or not – clustered in low-income neighborhoods. In fact, 40 percent of Philadelphia’s 465 low-income housing tax credit properties built or rehabilitated since 1987 were located in just five low-income ZIP codes.</p>
<p>Since my study didn’t look at neighborhood change, I can’t say with certainty whether siting 184 low-income housing tax credit projects in those five ZIP codes has increased the racial and economic diversity of those neighborhoods over the past few decades. I don’t know whether the neighborhood homeowners benefited from having 30 or more low-income housing tax credit properties down the street.</p>
<p>What I can say is that the average poverty rate in those five ZIP codes was still 43 percent in 2015 (the city average is <a href="https://factfinder.census.gov/bkmk/cf/1.0/en/county/Philadelphia%20County,%20Pennsylvania/POVERTY/BLW_LVL_PCT">26 percent</a>), and 83 percent of the residents were nonwhite, compared with <a href="https://factfinder.census.gov/bkmk/table/1.0/en/ACS/15_5YR/DP05/0500000US42101">58.3 percent</a> of all Philadelphia residents. Meanwhile, most of these low-income housing tax credit properties are zoned for highly segregated public schools.</p>
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These are troubling statistics, given <a href="http://press.uchicago.edu/ucp/books/book/chicago/S/bo14365260.html">recent findings</a> by New York University sociologist Patrick Sharkey that children who live in high-poverty, racially segregated neighborhoods are more likely to be even poorer than their parents when they grow up. This effect takes a toll on the generation of children living there and the next generation.<p></p>
<h2>Mixed-income properties</h2>
<p>Given the risks tied to living in overwhelmingly segregated neighborhoods, housing policies should encourage builders to construct affordable housing in more affluent areas. </p>
<p>Though the tax code calls for a larger tax credit for projects located in certain <a href="https://www.huduser.gov/portal/datasets/qct.html">high-poverty census tracts</a>, it lacks geographic restrictions or guidance on where they should go. In other words, the federal tax law is designed to increase the supply of affordable housing without saying where to put it.</p>
<p>Without siting mandates, the tax credit is relatively flexible and could, at least theoretically, help make poverty less concentrated. One possibility is to draw higher-income tenants to low-income neighborhoods through low-income housing tax credit-financed mixed-income housing.</p>
<p>The tax law allows for mixed-income projects, but Yale Law professor Robert Ellickson has noted that more than 80 percent of low-income housing tax credit properties are <a href="http://www.uclalawreview.org/pdf/57-4-3.pdf">exclusively low-income</a>. For the tax program to support a mixed-income strategy, developers would have to reserve fewer units for poor tenants. And that change that might undermine the program’s primary goal.</p>
<h2>Housing vouchers</h2>
<p>For this reason and others, policymakers should instead look to the program’s potential to aid other housing programs. For instance the <a href="https://www.cbo.gov/sites/default/files/114th-congress-2015-2016/reports/50782-lowincomehousing-onecolumn.pdf">$18 billion</a>-per-year Housing Choice Voucher program is designed to give low-income renters choices about where they will live – including places where poverty is less concentrated than where they currently reside.</p>
<p>This program gives low-income tenants vouchers to help pay their rent. They agree to spend up to 30 percent of their income on rent, state housing authorities pick up the rest of the tab, and the federal government reimburses the states for that expense.</p>
<p>Many landlords won’t accept vouchers, sometimes because they worry that low-income tenants won’t pay their rent. Even the landlords who take vouchers can get skittish over compliance and inspection requirements.</p>
<p>But landlords renting out affordable housing units built through the low-income housing tax credit program aren’t allowed to refuse to lease to tenants merely because they plan to use vouchers. Disproportionately siting projects in poor neighborhoods may limit the tax law’s capacity to make the most out of this federal program.</p>
<p>In contrast, encouraging builders to place affordable housing in more affluent neighborhoods with this tax credit may give low-income renters more housing location options. For parents facing economic hardship, the ability to move to an affluent neighborhood may make it more likely that their kids will grow up to be better off.</p><img src="https://counter.theconversation.com/content/81446/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Michelle D. Layser does not work for, consult, own shares in or receive funding from any company or organization that would benefit from this article, and has disclosed no relevant affiliations beyond their academic appointment.</span></em></p>With some tinkering, a federal tax credit that encourages developers to create new units that low-income Americans can afford to rent might yield other benefits.Michelle D. Layser, Research Fellow, Adjunct Professor of Law, Georgetown UniversityLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/783232017-06-28T01:41:56Z2017-06-28T01:41:56ZWhy Congress should let everyone deduct charitable gifts from their taxes<figure><img src="https://images.theconversation.com/files/175888/original/file-20170627-24760-66ii6h.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">The number of Americans who can get a tax break through their charitable contributions could tumble during the Trump administration.</span> <span class="attribution"><a class="source" href="https://www.shutterstock.com/image-photo/horizontal-image-man-carrying-donated-items-416899081?src=UfB3iNGhyluSc8MHPHNt7w-1-0">Helen's Photos/www.shutterstock.com</a></span></figcaption></figure><p>The <a href="https://taxfoundation.org/who-itemizes-deductions/">30 percent</a> of American taxpayers who itemize are free to deduct every dollar they donate to an IRS-approved charity from up to half of their taxable income. While neither the White House nor lawmakers are trying to scrap the charitable deduction, which is nearly as old as the income tax and marks its <a href="https://www.congress.gov/bill/115th-congress/house-concurrent-resolution/34/text">100th anniversary</a> this year, some of the changes to the tax code that Republicans in Congress and <a href="https://www.cnbc.com/2017/09/27/read-the-full-gop-tax-proposal-here.html">President Donald Trump</a> are proposing could discourage charitable giving as an unintended consequence.</p>
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<span class="caption">The charitable deduction dates back to the administration of Woodrow Wilson, shown here addressing Congress.</span>
<span class="attribution"><a class="source" href="http://www.apimages.com/metadata/Index/World-War-One-Centenary-Timeline/8135bd7bf12a42fa823a81bad3570d05/2/0">AP Photo</a></span>
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<p>As a scholar of the economics of philanthropy, I recently <a href="https://scholarworks.iupui.edu/handle/1805/12599">co-led a study</a> that modeled how donors would respond to two major tax reforms Republican lawmakers and the Trump administration support. We determined that both would reduce giving.</p>
<p>We also predicted the effects of another concept backed by some lawmakers and many experts: letting every American who pays income tax take advantage of the charitable deduction.</p>
<h2>The Republican proposals</h2>
<p>People give to charities for many reasons. Tax breaks cannot be the main one, as giving your money away can’t make you better off financially, regardless of your tax bracket. However, Americans tend to donate more when the government gives us incentives to do so. Similarly, we give less when Uncle Sam scales those advantages back.</p>
<p>That is why <a href="https://assets.documentcloud.org/documents/3678871/Donald-Trump-s-tax-proposal.pdf">three of the changes</a> being proposed could potentially change how much money Americans give to charities. They include:</p>
<ol>
<li>Cutting the top <a href="http://www.investopedia.com/terms/m/marginaltaxrate.asp?lgl=myfinance-layout-no-ads">marginal tax rate</a> for the highest-earning Americans to 35 percent from 39.6 percent.</li>
<li>Roughly doubling the <a href="https://www.irs.gov/pub/irs-pdf/p501.pdf">standard deduction</a> from the current levels of US$6,300 for individuals and $12,600 for couples. </li>
<li>Doing away with the <a href="http://www.cbpp.org/research/federal-tax/ten-facts-you-should-know-about-the-federal-estate-tax">estate tax</a>, which is levied on the very richest Americans and applies only to the inheritance left by about one out of every 500 people who die.</li>
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<span class="caption">Treasury Secretary Steve Mnuchin is one of the architects of the Trump administration’s tax policy.</span>
<span class="attribution"><a class="source" href="http://www.apimages.com/metadata/Index/Trump-Tax-Plan/8a58e1f767f14a59995ca9701309048c/1/0">AP Photo/Andrew Harnik</a></span>
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<h2>Discouraging donations</h2>
<p>To gauge the impact the first two of these three changes – as well as universal access to the charitable tax deduction – might have on giving, I co-led an Indiana University Lilly Family School of Philanthropy study. <a href="https://www.independentsector.org/">Independent Sector</a>, which advocates on behalf of the entire nonprofit and philanthropic sector, commissioned it, but our approach to all of our research projects is designed to be completely impartial. We plan to study the effects of eliminating the estate tax on charitable giving later.</p>
<p>Perhaps unsurprisingly, we found that as income declined, households were more sensitive to this cost. In addition to pretax family income levels, we controlled for other variables such as age, the presence of children living at home and marital status. We partnered with the American Enterprise Institute, a conservative-leaning think tank, to simulate the impact of these hypothetical changes in tax policy on federal individual income tax revenue and total charitable giving by households.</p>
<p>Our results suggest that dropping the top marginal tax rate to 35 percent would reduce charitable giving by 0.8 percent, or $2.1 billion, from the estimated <a href="https://givingusa.org/tag/giving-usa-2017/">$282 billion</a> American households gave to charity in 2016, according to an annual report that my colleagues research and produce together with the Giving USA Foundation.</p>
<p>The nonpartisan Joint Committee on Taxation, a congressional committee, has estimated that at most <a href="https://waysandmeans.house.gov/camp-releases-tax-reform-plan-to-strengthen-the-economy-and-make-the-tax-code-simpler-fairer-and-flatter/">5 percent of households</a> would itemize their income tax returns following the changes the Trump administration aims to make, down from roughly 30 percent.</p>
<p>High-income Americans are already far more likely to itemize their taxes. For example, 92 percent of Americans earning more than $200,000 per year itemized, compared with only 6 percent of those making less than $25,000, in 2013, according to the nonpartisan <a href="https://taxfoundation.org/who-itemizes-deductions/">Tax Foundation</a>. That disparity would grow even larger should the White House’s tax proposal take effect.</p>
<p>In addition, this dramatic increase in the standard deduction, we found, would would hurt charities even more than cutting tax rates: Giving would fall by 3.9 percent, or $11 billion.</p>
<p>Further, we projected that both lowering tax rates and doubling the standard deduction could reduce charitable giving by households in 2016 by up to $13.1 billion – an approximately 4.6 percent decline.</p>
<p>We also calculated that giving to churches and other religious charities would drop slightly more than giving to secular nonprofits.</p>
<p>There are only slight differences between the increases now being officially proposed in the standard deduction and the increases we used in our study. However, Trump and the GOP propose eliminating personal exemptions, effectively folding them into the larger standard deduction. I believe that would reduce the value of the standard deduction.</p>
<p>In turn, charitable giving might decline slightly less than we originally anticipated should these changes be implemented.</p>
<h2>A universal tax break</h2>
<p>Our findings about how those changes would probably depress donations garnered <a href="http://www.cnbc.com/2017/05/22/tax-reform-could-reduce-charitable-giving-by-up-to-13-billion-per-year.html">broad media coverage</a>. But we also considered the potential impact of a universal charitable tax deduction, which was on the books <a href="http://www.taxpolicycenter.org/sites/default/files/alfresco/publication-pdfs/the-new-ebate-over-a-charitable-deduction-for-nonitemizers.pdf">from 1982 to 1986</a>. </p>
<p>We determined that giving would rise if the government were to let all taxpayers deduct their charitable gifts from their federal taxes, even if tax rates fell and the standard deduction doubled. That conclusion drew less attention. If paired with those other two changes, we estimate that charitable giving would rise by $4.8 billion, a 1.7 percent gain.</p>
<p>Without the changes Republicans are proposing, we estimated that making the charitable tax deduction universal alone would generate up to $12.2 billion in additional giving, a 4.3 percent gain.</p>
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<h2>Safeguarding charitable giving</h2>
<p>During the presidential campaign, Trump proposed <a href="http://thehill.com/homenews/administration/329419-trump-eyes-cap-on-charitable-deductions">capping all itemized deductions</a>, including charitable contributions, at $100,000 for individuals and $200,000 for couples. The current Republican tax proposal does not take that approach, which would discourage giving by high-income taxpayers.</p>
<p>Rather than limit incentives for giving to only the richest Americans, the government could instead choose to make this tax break universally available – an approach that the White House and Republican congressional leaders haven’t embraced so far.</p>
<p>What’s more, U.S. charities are likely to lose government funding in the near future due to the Trump administration’s proposed budget and <a href="http://www.cnn.com/2017/05/23/politics/trump-budget-cuts-programs/index.html">spending priorities</a>. </p>
<p>Extending the charitable deduction to all taxpayers would not shield nonprofits – including groups that do educational, cultural and environmental work and organizations that provide social services – from the fallout they anticipate following the proposed federal budget cuts and tax code overhaul.</p>
<p>However, creating a universal deduction would provide some relief to charities from those budget cuts, as well as the reduction in giving some of the proposed tax policy changes could bring about.</p>
<p><em>Editor’s note: This is an updated version of an article originally published on June 27, 2017.</em></p><img src="https://counter.theconversation.com/content/78323/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>This research was commissioned by Independent Sector and funded by a consortium of nonprofit organizations. Patrick Rooney and his employer, the Indiana University Lilly Family School of Philanthropy, have received numerous research and operating grants over the past 30 years from foundations, charities, and individuals. Indiana University Lilly Family School of Philanthropy, however, strives to make all its research unbiased and nonpartisan.</span></em></p>The tax changes Trump and GOP lawmakers propose would reduce charitable giving, research suggests. But letting everyone use a tax break mostly enjoyed by the rich might prevent that.Patrick Rooney, Executive Associate Dean for Academic Programs, Professor of Economics and Philanthropic Studies, IUPUILicensed as Creative Commons – attribution, no derivatives.