Generally, tax credits are viewed as good for business; good for states and a good tool used to attract and grow industry within a state. Historically, policy makers and politicians are the most vocal supporters of tax incentives and credits. However, a recent trend among local officials and public and private interest groups limit tax incentives due to the fact that they are considered "corporate welfare(Buss 2). .
Tax incentives are good policy and politics; however, there is disagreement about their economic viability. One of the largest problems with tax incentives is that many states offer them out of self defense and not out of economic viability (Buss2). Public officials have the most to gain from tax incentives due to the fact that tax incentives can protect jobs and inhibit businesses from leaving the state to go to another. Tax incentives are a win-win situation for public officials - a "no-brainer". If the incentive succeeds, they can tout a record of economic success. If the incentive fails, they can blame the failure on a poor economy or other market factors. However, whether tax incentives succeed or fail, few people are paying attention to the role of tax incentives in their state. .
If citizens tend to overlook the result of tax incentives that are being bank rolled, it becomes even more important to ensure that tax incentives are part of a sound economic policy. Economists have devised several situations where tax incentives can be justified economically. .
1. A society may have unemployed resources that could be used more productively through incentives (Buss 4).
2. If society is fully employed, it may be spending too little on investment in relation to current. Under-investment is likely only if an investment produces significant externalities or if capital markets do poorly when financing viable private investment (Buss 4).
3. Productivity based on tax incentives, as measured by the value of the consumption it creates, exceeds the productivity of all other feasible investments.