You mean state tax credits aren’t magic beans for economic development? A frequent commenter on the Econlog blog, Daniel Kuehn, shares some early work on a paper he is preparing on “job creation tax credits” (my emphasis):
The paper is on the employment and earnings effects of job creation tax credits (and actually investment credits… I’ve recently found out they were phased in using the same selection rule so I can’t distinguish the two, which is fine I guess).
My prior was that they would create jobs and raise wages. I have a good identification strategy – an RDD model. But one thing lacking in the existing literature on it is a way of dealing with displacement effects (in other words, person A gets the job from the tax credit by displacing person B who was not eligible for the credit). I can deal with that (at least within-county displacement). I expected that would reduce the effect somewhat of course, but I was sure even after accounting for displacement the credits would still generate jobs.
So far, they seem to reduce employment. Displacement appears to be a big problem.
There is one other explanation I’m investigating now. You have to create full time jobs to get the credit, so it is possible that I’m seeing a negative employment effect because part time jobs are being replaced with full time jobs. I’m investigating that now with individual level data. So in the end, it may create full time jobs and destroy more part time jobs, in which case it would be interesting to look at the impact on total hours.
I’m not sure how it will all shake out in the end, but I am definitely less confident in policy than I was before I started this.
Mr. Kuehn should be respected for following his data in spite of his prior assumptions, but that’s the result I would have expected. The money going to the subsidized jobs has to come from somewhere, and much of it comes from unsubsidized businesses. The politicians like to point to the jobs they “create” with “Economic development” incentives, but they ignore the loss of jobs in competing businesses and from the increased taxes on the unsubsidized.
It’s the old broken window thing.
Scott Drenkard, Indiana House Unanimously Approves Incentive Study Commission. Iowa did this a few years ago, and the study panel was unable to identify any clear economic benefit to the giveaways. And they just went on enacting more giveaways.
William Perez points out some Resources for Getting Organized for Tax Time
Kay Bell, Tax filing checklist 2014
Paul Neiffer reminds us that You Must Start IRAs Draws at Age 70 1/2!. Except for Roth IRAs, of course.
Jana Luttenegger, Taxing Bike Share Programs. She discusses the expiration of a tax break for bike commuters, but notes: ” With our recent below-zero weather, the bikes likely aren’t being used much currently… “
Russ Fox answers the question, It’s Only $1,300; Do You Really Have To Send Me the 1099?
Annette Nellen, Minnesota Storage Tax Problems. She discusses an expansion of Minnesota sales taxes: “Any base broadening should only cover consumption of individuals (non-businesses).”
Peter Reilly, Obama Administration Weak On Church State Separation? Clergy Housing Allowance Appeal. The Department of Justice has appealed the Wisconsin District Court Ruling disallowing tax-free cash “housing allowances” for pastors. The ruling is stayed pending the appeal. I suspect this is just a maneuver to get through this tax season with minimal disruption to existing plans. I think it is likely that the District Court ruling will be upheld, and churches should plan accordingly.
Jack Townsend, Yet Another B***S*** Tax Shelter Goes Down Flaming. There is no tax fairy.
Stephen Olsen, Summary Opinions for 1/24/2014 (100th Post!!!), a roundup of tax procedure news.
TaxProf, The IRS Scandal, Day 263
That’s a funny way to aid the nurses. Second Nurses Aide Sentenced for Conspiracy to Defraud the Government (U.S. Attorney press release)
Tax Trials, Willie Nelson, The IRS’s Most Talented Musician. Talk about not building expectations.
News from the Profession: The SEC Bans Big 4 Member Firms in China For Failing to Show Their Work (Going Concern)
Tags: Annette Nellen, corporate welfare, Daniel Kuehn, economic development, Jack Townsend, Jana Luttenegger, Kay Bell, Paul Neiffer, Russ Fox, Scott Drenkard, Stephen Olsen, Tax Credit Report, tax fairy, Tax Trials, TaxProf, William Perez