At the federal, state and local levels, government subsidies are increasingly being used to support and promote specific businesses and industries. That boost can be helpful if your company is on the receiving end. But it can present challenges if that money is going to your competitors, allowing them to reduce their tax obligations or business costs.
Government subsidies of business have become, as it were, big business. Sometimes the government hands out money directly, provides loan guarantees, or offers regulatory relief, but more often it's tax breaks. It's a challenge for middle market companies, which may not have a pool of attorneys and lobbyists, to keep tabs on tax and regulatory policies.
No one knows how much money the government sets aside for various business subsidies, but according to The Boston Globe, "[T]he federal Joint Committee on Taxation estimates [there] will be $154 billion in special corporate tax breaks in 2013, contained in 135 individual provisions of the tax code." And that's just at the federal level.
It can also happen at the state and local level. For example, a Fort Worth suburb recently provided tax breaks to a major big-box retailer to build a new store there. But what if you were the CEO of a similar middle market retail outlet located nearby that has been part of the community for years? What can you do to take advantage of similar government opportunities?
Pay attention to government subsidies in your industry and community. If tax breaks and regulatory relief are available to some companies, they should be available to all companies that meet the same broad criteria. If one company is going to get a tax break on property taxes, all similarly situated companies should get the same break.
If a competitor is getting (or could get) government subsidies, middle market CEOs need to let their elected officials (and the public) know how these put their local business at a disadvantage. This is easier if you have an established relationship with your elected officials. As a I've shared in a previous blog, they need to know who you are, what your company does, where in the district you're located, and how many people you employ.
In the meantime, middle market CEOs should understand the implications of proposed tax reform. High tax rates and heavy regulations drive companies to seek exemptions, which takes time and money. With the release of the House Ways and Means Committee tax reform proposal in February, a lot of time will be spent to debate the pros and cons of the committee's recommendations.
Federal Merrill Matthews is an NCMM contributor and a resident scholar at the Institute for Policy Innovation in Dallas, Texas. Follow him on Twitter.