tax news

New York’s Governor Cuomo has been getting a lot of coverage for his plan to give new start-ups ten years of tax-free operation if they locate close to universities in the state. While similar special tax preferences in “economic development zones” are available in many states, this proposal is unique in that it truly is tax-free. Businesses that open on college campuses would be exempt from all business, property, and income taxes. Employees that work at these companies would even be exempt from state individual income taxes.

This plan is interesting for a few reasons. The first is that it is an implicit acknowledgment that taxes matter for business location decisions. The second is that it is an implicit acknowledgment that New York’s tax system is indeed uncompetitive.

While both of these priors are true, this plan goes about trying to fix them in an inappropriate way. By just lowering taxes on a particular type of business operation (in this case, start-ups on campus) the administration is trying to direct the creative power of the market from the statehouse. This approach, while couched in sexy terms of promoting an “epicenter [of] nanotechnology,” is actually antithetical to what makes for innovation.

Innovation comes from many small efforts on the part of entrepreneurs, only a few of which take hold and are profitable. The whole point of a market-based economy is that people do not know what will be valuable to society until they try it. Cuomo's plan, by contrast, takes this discovery process out of technological advancement and only gives preferences to tech companies that partner with higher education institutions. Nanotechnology is great, and so are university research programs, but economic growth and innovation come from all sectors.

Of course, another flaw with this plan is that it’s not guaranteed to keep companies in the state after the ten year tax-free window is finished. This is perhaps disproportionately true for start-up companies, which often get sold off to larger companies as their product proves viable. A good case study of this problem is the 2009 episode where Dell Computers got $240 billion in incentives from the state of North Carolina, only to move their operation from the state after four years.

Cuomo contends in a recent op-ed that broad-based cuts are impractical, saying, “we must deal with a reality wherein reducing income taxes just one point would cost $6 billion an impossible sum [sic].” But this flippant dismissal ignores the option of broadening the tax base to pay for rate cuts, the formula for equitable tax reform. In the end, this kind of fundamental tax reform is what New York needs to be competitive in the coming decades. Flashy gimmicks won’t fix New York’s tax problem, even if they do come with ribbon-cutting ceremonies.

More on New York.

Follow Scott Drenkard on Twitter @ScottDrenkard.

WASHINGTON (AP) — Already under siege, the Internal Revenue Service was cited by a government watchdog for a $4.1 million training conference featuring luxury rooms and free drinks, even as conservative figures told Congress Tuesday they had been abused for years while seeking tax-exempt status.

WASHINGTON (AP) — Leaders of conservative groups complained to Congress on Tuesday that they were abused by the Internal Revenue Service for years as they sought tax-exempt status, including questions one Iowa anti-abortion group said it got about prayer meetings.

By Kim Dixon and John Whitesides WASHINGTON (Reuters) - The new chief of the Internal Revenue Service told Congress on Monday the tax-collecting agency would fully investigate and repair the problems that led to the inappropriate targeting of conservative groups for extra scrutiny. Acting IRS Commissioner Danny Werfel, appearing before Congress for the first time since moving into the top job two weeks ago, promised to restore the agency's tattered image with a public accounting of the practices that have led to multiple investigations and a political firestorm. ...

WASHINGTON (AP) — His agency under relentless fire, the new head of the Internal Revenue Service acknowledged to Congress on Monday that American taxpayers no longer trust the IRS amid a growing number of scandals — from the targeting of conservative political groups to lavish spending on employee conferences.

This week's Monday Map takes a look at the total state debt per capita in each state at the end of the 2011 fiscal year. Tennessee has the lowest ranking with a debt of $925 per capita, and Massachusettes has the highest at $11,309.

Click on the map to enlarge it.

View previous maps here.

By Elizabeth Pineau and Leigh Thomas PARIS (Reuters) - President Francois Hollande's government on Monday announced cuts in tax breaks for rich households as part of a plan to reduce the huge cost of France's generous family benefits system. The changes will stop short of cutting allowances outright for high-earning families, as some officials had wanted. Instead, the bulk of the savings will come from reducing the income tax exemptions that wealthy parents can claim according to the number of the children they have. The Socialist government aims to save 2 billion euros ($2. ...

WASHINGTON (AP) — A government watchdog has found that the Internal Revenue Service spent about $50 million to hold at least 220 conferences for employees between 2010 and 2012, a House committee said Sunday.

By Patrick Temple-West WASHINGTON (Reuters) - A Republican U.S. congressman investigating the Internal Revenue Service's scrutiny of conservative groups said on Sunday the targeting was likely directed from Washington, a claim quickly rejected by a top Congressional Democrat involved in the probe. ...