The Power of Tax Incentives – Heeere’s Jimmy!

How does the State of New York convince a major network to bring a legendary late-night talk show back from California to the Big Apple after being away for 42 years? Well, when your state is ranked the 49^th worst state in which to do business, compared to California’s 50^th, you certainly can’t proudly tout a much more attractive tax environment. You can’t even dangle the carrot of a better climate, when the show is currently produced in Southern California. That leaves only one way for a determined governor and state legislature to proceed: Add an amendment to the state budget that includes the availability of a massive package of tax subsidies.

The stipulations of this particular package were very specific and, although never explicitly mentioned, were clearly meant to lure the Tonight Show back to New York upon the departure of Jay Leno. The provision would make state tax credits available for the producers of “a talk or variety program that filmed at least five seasons outside the state prior to its first relocated season in New York.” In addition, the episodes “must be filmed before a studio audience” of at least 200 people. And the program must have an annual production budget of at least $30 million or incur at least $10 million a year in capital expenses.

As we all know, the incentives were (of course) accepted, and NBC stands to save over $22 million annually in tax credits as a result. The Tonight Show, along with new host Jimmy Fallon, has returned New York City, where original show host Steve Allen once took the stage. After bleeding over $68 billion in lost wealth between 1992 and 2010, and competing with no personal income states like Texas and Florida (which rank first and second as best states for business in 2013, respectively), New York is left with few alternatives other than offering premium tax incentives to stimulate inward business migration. Start-Up New York is another such program that offers companies “tax-free zones” for ten years (S5903). Company employees pay no state income tax for five. That program stipulates the new businesses must be located on or around a New York state college campus property, either within vacant university buildings or on university-owned property located within one mile of the campus. There are 150 eligible private and public college locations throughout the state. Their primary labor force must come from the academic community. As of now, no data has been released as to the success of the program.

Incentive packages are certainly nothing new. As an interesting historical footnote, the practice of the government offering fiscal incentives to private parties can be traced back to the early days of this country. Some had a very different objective, however. They weren’t always offered as an enticement to come, but rather as a non-violent incentive to go! With the approval of the Relocation Act of 1830 by Congress, President Andrew Jackson offered financial and material assistance to Native American tribes to “aid” them in vacating their homeland and starting new lives on land designated and protected by the U.S. government. And so was born the Indian Reservation.