It’s Time to Stop Shopping for Supermarket Tax Breaks

Where do old DC tax incentives go to die when they are no longer needed?  That was a trick question.  Many tax subsidies never die ‘ they stay on the books even if they’ve proven to be ineffective or outlived their usefulness.

The latest example is a 10-year property tax exemption for new grocery stores, an incentive DC has offered for more than a decade.  City policymakers have pushed legislation to make sure that Ellwood Thompson’s, a high-end organic grocer, gets this tax benefit package for a store in the DC-USA shopping center in Columbia Heights.

Forget the fact that there is a Giant supermarket a block away. That the shopping mall already received more than $40 million in taxpayer subsidies.  That Columbia Heights is one of the most rapidly gentrifying parts of town.  They apparently still need tax breaks.

The supermarket tax incentive was well-intended when it was created ‘ encouraging new stores to enter DC’s under-served markets. But it never worked very well.  Only one grocery store has been built east of the Anacostia River in the past decade.  Instead, the supermarket tax breaks have gone to stores that probably would have been built anyway in higher-income parts of town.  The tax incentive is not eligible citywide, but it is available in much of wards 1, 2, 5, 6, 7, and 8, as well as Georgia Avenue in Ward 4. 

Now that much of DC is developing and the city has many more supermarkets, it’s not clear why DC leaders are pushing to keep this tax incentive ‘ or why they aren’t at least looking to narrow its scope to cover truly under-served areas.

We’d vote for elimination.  A generous tax break for supermarkets but not other businesses doesn’t seem fair.  And the bulk of available research suggests that tax incentives don’t affect business location decisions much.  Not surprisingly, businesses locate where their markets are strongest, and a tax break won’t turn a bad market into a good one.

Thinking more broadly, DC leaders would do themselves well to undertake a review of all tax incentives to see if they are accomplishing their aims.  They might find some tax subsidies that can be eliminated, which could generate new revenues at a time when the city sorely needs it.  In particular, we’d like to point them to the “E-conomy” tax incentive for high-tech businesses.  Our research shows that it hasn’t done much boost DC’s high-tech sector.

Tax incentives deserve as much scrutiny as any program or service funded by the District.  The tax break for supermarket is a good place to start.