Keating: The King’s Hawaiian Example

December 11, 2023

by Barry Keating, Ph.D.

Edinburgh isa town in Bartholomew County. It is part of the Columbus, Indiana, metropolitan statistical area. An astounding event took place in Edinburgh this past month: A firm engaged in building a new plant failed to ask for a tax abatement!

Such behavior is unusual; new businesses of every variety routinely request tax abatements as day follows night. These requests are almost always granted, often with even larger abatements than requested.

The firm proposing to build in Edinburgh is one almost everyone would recognize: King’s Hawaiian is known for its sweet bread. We often see large end-of-aisle displays of King’s Hawaiian in supermarkets.

In the Bartholomew County Board of Zoning Appeals Staff Report of August 2023 (called “Project Whiteboard”) King’s Hawaiian met almost all the existing local regulations and asked for minor local government assistance. For instance, the district in which the proposed project would be located presently permits food and beverage production facilities. One of the few requests made by King’s Hawaiian concerns a building height regulation: “… variance is, however, needed in order to allow the proposed 78,000 square foot cold storage facility to exceed the 50-foot maximum primary structure height and be up to 100 feet tall, as proposed.” The County Board did allow for this variance.

The lack of tax abatement is an ideal course of action for both King’s and the Batholomew County Board. County boards have no role to play in attempting to encourage or entice businesses of any type to either build or not build in their county; that decision is not appropriately exercised by the government. It is a decision to be pursued by the individual firms.

Had a tax abatement been requested and offered, what would Adam Smith writing in 1776 have commented? Known for his advocacy of free markets and the invisible hand, Smith would likely have advised against government intervention in the form of tax abatements for specific companies. Smith believed in the natural order of markets and the idea that self-interest, when guided by competition, leads to the best outcomes for society.

Smith might have argued that granting tax abatements to a particular company created an unfair advantage and distorted competition. He would emphasize the importance of a level playing field where businesses compete based on their merit, efficiency, and ability to meet consumer demands.

In place of tax abatements, Smith would have likely suggested that the government’s role should be to establish and enforce a fair and impartial legal framework, ensure property rights, enforce contracts, and maintain a stable economic environment. By fostering an environment of open competition, Smith believed that the market would allocate resources efficiently and promote the overall well-being of society.

It is important to maintain a neutral and fair tax policy. Instead of granting specific favors to individual companies, governments should strive for a business-friendly environment through low and stable tax rates that apply uniformly to all businesses. Special exemptions and abatements can only distort the market, create unfair advantages, and ultimately harm overall competition.

If a  company is facing financial challenges (as are many companies requesting tax abatements), a more effective solution would involve addressing the root causes of those challenges, such as reducing unnecessary regulatory burdens or providing a more predictable business environment.

A competitive marketplace and a level playing field are essential for fostering innovation, efficiency, and sustained economic growth. King’s Hawaiian and the Bartholomew County Board followed the right course of action. Let’s buy some King’s Hawaiian this week.

Barry Keating, Ph.D., an adjunct scholar of the Indiana Policy Review Foundation, is Professor Emeritus at the University of Notre Dame.


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