States Don’t Need to Pay to Be Pro-Business
Another major economic development subsidy just narrowly avoided passage in a state legislature. The State of Nevada almost signed up to give Hollywood studios ~$100M in tax credits for the next 15 years. Supporters called it “pro-business.” They weren’t technically wrong. It was very pro those specific businesses.
But that’s not the same thing as being pro-market. The fact these proposals keep coming within votes of passing throughout the United States reveals something important about how state governments think about economic development.
We’re confusing activity with prosperity.
What’s Really Meant by Pro-Business?
When politicians say they’re “pro-business,” it’s hard to tell what they mean. It likely means one of two things (and sometimes a mix of the two).
Pro-subsidy supported businesses: Supporting specific businesses through things like tax credits, incentives, and handouts. Film tax credits, electric vehicle factory subsidies, stadium financing deals—these all target particular companies or industries.
Pro-market: Creating conditions where any business can thrive by removing barriers, streamlining regulations, and reducing the cost of doing business across the board.
State and local governments need to be pro-market. But the recurring pattern of near-passes and actual passes for subsidy bills shows we’re still tempted by the first approach even when the math clearly doesn’t work.
Activity vs. Prosperity
Here’s the deeper problem: States keep confusing economic activity with economic prosperity.
Activity is spending. Prosperity is wealth creation.
Activity is any job that exists whether it comes from sustainable businesses or if the government pays for them. Prosperity is based on jobs from profitable companies that don’t need government handouts.
Activity is measured by spending. Prosperity is measured by sustained income growth and rising living standards for residents.
Large subsidy packages create economic activity. That isn’t up for debate. Productions get filmed. Equipment gets rented. Construction jobs get temporarily supported. Buildings get built. All visible, all measurable, all easy to celebrate at ribbon-cutting ceremonies.
But activity isn’t prosperity if it costs more than it generates.
Subsidized Activity vs. Sustainable Prosperity
There are generally two paths to create private sector jobs in an economy.
Subsidized activity exists because the government pays companies to create it. Projects happen because of things like tax credits or abatements and even sometimes direct payments fueled by tax increases. When the subsidies expire there’s a good chance that activity likely disappears.
Sustainable prosperity exists because companies can operate profitably without government support. They stay because the business fundamentals work. They have access to customers, an available workforce, reasonable costs, and competitive advantages.
Subsidized activity is a form of consumption. We spend tax revenue to essentially purchase employment. If the business isn’t sustainable, then when the subsidy ends, so does the activity.
Sustainable prosperity is different. It comes from companies risking their own capital when they see opportunity and then fill a market need. They’re not dependent on the public’s continued willingness to subsidize them.
States need to stick to the second path. The recurring subsidy debates show we’re still chasing the first.
What Sustainable Prosperity Requires
Creating sustainable prosperity doesn’t require subsidizing specific companies or projects. It requires removing the barriers that prevent markets from functioning efficiently.
When governments reduce occupational licensing requirements, they don’t pick which businesses succeed. Instead, they let more people compete to serve customers.
Prosperity comes from competition, not from the government choosing winners.
When governments streamline permitting and zoning processes, they don’t subsidize particular developments. Instead, they reduce the friction that makes all development more expensive and time-consuming.
Prosperity comes from lower costs and faster timelines that make more projects viable on their own merits.
When governments cut unnecessary regulations, they don’t pay companies to overcome bad rules. Instead, they remove the rules that made compliance expensive in the first place.
Prosperity comes from businesses spending resources on serving customers instead of navigating bureaucracy.
This is harder to celebrate than ribbon-cutting ceremonies for subsidized projects. But the prosperity is real. It shows up as:
More businesses starting because barriers to entry are lower
More people employed because companies can afford to hire without handouts
Higher wages over time because productivity improvements aren’t absorbed by regulatory compliance costs
Sustained growth driven by genuine market demand, not temporary subsidies
Trying to shortcut the market process with subsidies doesn’t create prosperity. It just creates activity that disappears when the subsidies end.
The Political Logic of Subsidies
So why do states keep considering these deals despite the poor economics?
Because political incentives favor activity over prosperity.
Subsidized projects have identifiable winners who lobby hard, like companies that receive tax credits or construction unions that build facilities. The benefits are concentrated and visible to them.
The costs, however, are spread out. They come from taxpayers who fund the subsidies, alternative businesses that don’t get chosen, or even projects that don’t get built because scarce resources went elsewhere. These costs are spread across everyone and are difficult to see.
Bureaucrats get promoted for the estimated number of jobs closed by deals this year, not for the economic outcomes five years later. Legislators facing re-election want to point to specific job creation. They don’t want to focus on abstract improvements in the business climate. Voters tend to reward politicians who “bring jobs” to their state, not those who eliminate obscure licensing requirements.
And the economic impact studies that justify these deals? They’re often commissioned by the companies seeking subsidies or their advocates. They’re generally designed to only show economic benefits, rather than provide neutral analysis of alternatives.
This creates a bias toward subsidies even when the economics don’t work. Political justifications tend to eventually overwhelm economic logic.
Understanding this helps explain why subsidy bills keep coming so close to passing, and why more proposals will keep popping up until states change how they think about economic development.
The Real Choice
Every major subsidy proposal reveals a choice between two visions of economic development.
Vision 1: Pro-Subsidy Activity
Give billions of dollars in subsidies to specific companies
Hope they create the projected activity they claim
Create dependency where their activity only lasts as long as subsidies do
Measure success by ribbon-cutting ceremonies and economic impact studies
Vision 2: Pro-Market Prosperity
Remove regulatory obstacles that make states less competitive
Create sustainable jobs that don’t depend on continued subsidies
Let companies compete on merit rather than lobbying effectiveness
Measure success by sustained income growth and rising living standards
The first vision requires billions of dollars taken from taxpayers. The second requires courage to tell politically connected businesses that helping their speculative projects pencil out isn’t the government’s job. It also takes the courage to tell voters that real prosperity often looks less flashy than subsidized activity.
What States Legislators Should Learn
Legislators who support major subsidy packages want to create jobs and grow their state’s economy. Those are legitimate goals. The question is whether the approach of subsidizing specific businesses or industries achieves those goals.
This isn’t a story about one bad bill in one state. It’s a story about how states think about economic development, and why that thinking keeps producing the same failed pattern.
States shouldn’t have to resort to paying businesses to relocate. Especially not when analyses rarely show a positive return on investment. Not when that same money could go towards creating the environment that sustainable prosperity requires.
Pro-subsidy policies benefit the companies that get the handouts and create concentrated activity. Pro-market policies benefit everyone who wants to compete and create sustainable prosperity.
Subsidized activity only lasts as long as the subsidies. Sustainable prosperity lasts as long as the market demands it. Neither is guaranteed forever. But only sustainable prosperity allows growth to benefit taxpayers rather than come at a cost to them.
States keep choosing subsidies. They should choose markets instead.
That’s what actually being pro-business looks like: creating an environment where businesses succeed on their own merits, not on taxpayer support. That’s how we turn activity into prosperity.
An earlier version of this was published by Nevada Policy Institute.