In the pursuit of the next major advancement in manufacturing and technology, states and regions have rolled out corporate tax credits at unprecedented levels in recent years. However, federal budget cuts appear to be pushing for a prolonged extension of this type of corporate support.
Back in 2022, the U.S. saw a record-breaking number of states and individual factories receiving more than $1 billion in local subsidies. That year, eight factories each secured an average of around $2 billion in support.
As part of a total of $6.5 trillion in federal stimulus, some states have utilized funds from COVID-19 relief to not only expand but also create subsidies for industries like data centers and film production—investments that often end up as economic burdens.
Additionally, there’s been an increase in subsidies for already well-supported factories; examples include Tennessee’s electric vehicle plants and microchip facilities in places like Ohio and Texas.
More states are now offering tax exemptions for capital-intensive data centers, although this often leads to increased electricity costs for consumers. States like Virginia and Texas have reportedly lost around $1 billion annually due to this trend. In some instances, data centers are benefiting from local property tax breaks, with Amazon Web Services receiving two such awards totaling over $5 billion.
In Illinois, a new incentive program has emerged that requires workers to pay income taxes directly to employers, raising concerns about long-term financial imbalances.
Some states have introduced measures akin to “Lardon” gifts in addition to the Federal Opportunity Zone Program, contributing to the trickle-down economics narrative.
However, tougher times may be ahead. The Trump administration and its Republican allies have proposed significant cuts to federal programs related to education, job creation, small businesses, affordable housing, infrastructure, agriculture, and workforce training.
While it’s too soon to fully assess the implications for the 2026 federal budget, state and local officials will need to scrutinize their tax credit strategies closely to ensure that public services are safeguarded.
Thanks to new regulations, taxpayers can better hold politicians accountable. The Government Accounting Standards Board mandates that most states and local governments, including independent school districts, disclose annually how much revenue they’ve lost to tax incentive programs.
With seven years of data now available, some troubling trends are emerging, particularly impacting urban school districts in areas with numerous data centers. These districts are still paying for tax incentives on programs that have been eliminated long ago. Meanwhile, states like Georgia continue to provide incentives for film and television production.
However, there’s opportunity for reform. Key areas to focus on include:
- Investing in initiatives that truly benefit a wide range of employers, such as infrastructure, education, and small business development.
- Avoiding subsidies for industries that do not require help, especially those that deplete tax revenue more than they contribute. Data centers and film productions often fall into this category.
In fact, completely eliminating some of these incentives might be necessary.
States should reconsider “Lard On” tax incentives and decouple their state income tax systems from federal definitions, particularly regarding capital gains in opportunity zones.
Moreover, states that provide property tax reduction should amend laws to keep such funds separate.
For all other taxable entities affected, managing property tax shares should be entirely autonomous. This allows for more responsible financial management, mitigating the risks that accompany heavy investments in economic development.
These measures could bolster the U.S. economy against the looming cuts at the federal level. Also, by diversifying investments, states can reduce the risk associated with concentrating resources.
Directed by Greg Leroy, this analysis is a product of Good Jobs First, a non-profit, non-partisan organization dedicated to studying economic development and corporate accountability.
