The corporate tax-break spree meets federal austerity. Here's what states should do.

The Hill

16 hours ago

Chasing the next big things in manufacturing and tech, states and localities have given out special corporate tax breaks at record levels over the past several years. But federal austerity is about to force a long-overdue reckoning upon this form of corporate welfare.
In 2022, the U.S. set an all-time record for individual factories receiving state and local subsidies of more than $1 billion each. That year, eight factories were given an average of $2 billion each.
Engorged by five federal stimulus bills totaling $6.5 trillion, states and localities squandered some of their COVID-19 windfalls, enacting or expanding subsidies to industries such as data centers and movie production that are guaranteed economic losers.
Others lavished subsidies on factories already gold-plated by Uncle Sam, such as electric-veh i cle battery plants in Tennessee, Kansas and Georgia, and microchip fabrication facilities in Ohio, New York and Texas.
More states have enacted sales and use tax exemptions for d a ta centers, the capital-intensive server farms that threaten to drive up consumer electricity prices while creating very few permanent jobs. States such as Virginia and Texas are already losing $1 billion per year that way. In some states, data centers get local property tax abatements as well. Amazon Web Services has received two such awards totaling more than $5 billion.
States such as Illinois have enacted new incentive programs by which workers will effectively pay their personal state income taxes to their employers — terrible policy that fuels structural deficits.
Some states have enacted 'lard on' giveaways on top of the federal opportunity zone program — trickle-down economics by census tract.
But now comes a winter of austerity. Trump and the Republican Congress are implementing deep cuts to scores of federal programs for education, job creation, small businesses, affordable housing, infrastructure, agriculture and workforce training.
The full damage of the fiscal 2026 federal budget is not yet apparent, but state and local leaders will be forced to protect public services by taking a cold, hard look at all the ill-advised tax breaks they have on their books.
Thanks to a new reporting rule, taxpayers will be able to help politicians find the money. The Governmental Accounting Standards Board's Statement No. 77 on Tax Abatement Disclosures requires most states and local governments, including independent school districts, to report each year how much revenue they lose to such tax-break programs.
With seven years of abatement-loss data visible now, we can see some big losers and scary trends. Among those most harmed will be urban school districts; places with a lot of data centers; states such as Michigan that are still paying out tax credits for programs they long ago discontinued; and states such as Georgia, with its uncapped television and film production giveaway.
But these places also have the most to gain from reform. Here is what to save and what to fix.
Do sustain investments that benefit the most employers, such as infrastructure, K-14, workforce development and small business development.
Don't subsidize industries that don't need aid, especially those that cost far more in tax revenue than they generate. Topping that list are data centers and television and film production.
Never enact — in fact, repeal — any incentive that effectively means workers pay their state personal income taxes to their employers.
Repeal any 'lard on' tax break you may have enacted on opportunity zones, and decouple your state income tax code from the federal definition of adjusted gross income to protect your revenue from the opportunity zones' capital gains exclusions.
Amend your state enabling legislation for property tax abatements and tax increment financing to take the school share of the property tax off the table.
For every other affected taxing body (such as transit agencies or fire districts), give them full autonomous control over their share of the property taxes (or other revenues) that might be abated or TIF-diverted.
These safeguards will help the U.S. economy weather the coming federal austerity. Plus, they will reduce the risk inherent in economic development spending by curbing the 'too many eggs in too few baskets' problem of mega-deals.