The Verdict Is In: Business Tax Breaks Do Not Create Jobs



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A slew of tax credit programs in Iowa that have failed to live up to their job-creation promises is further evidence that while companies will happily take taxpayer money when it’s offered, no amount of corporate pork can make a company hire people when there’s no demand for its products.

An excellent piece of journalism from The Des Moines Register reveals that 15 companies enjoying tax credit dollars given to them by the state have defaulted on the job-creation requirements tied to those credits.  All together, those companies created one-third fewer jobs than they promised when they took the money.  (This story echoes a recent report from Texas showing that just 26 percent of projects receiving funding from the Texas Enterprise Fund (TEF) fully complied with their 2010 job creation requirements.)

The reasons for these failures should be obvious.  When the economy is weak, businesses generally can’t sell as much of their product as they used to.  You can throw money at them and ask them to hire more people, but ultimately it doesn’t make sense for a company to bring on more employees unless there’s some new, unmet demand that needs to be filled.  In good economic times, companies simply rake in tax credit dollars and create jobs they would have created anyway. But in bad economic times, companies rake in tax credit dollars, the façade collapses, and you end up with exactly the situation we see in Iowa.

Iowa State University economist David Swenson provided some valuable insight to The Des Moines Register on this issue: “Tax credits in Iowa are used very injudiciously.  Everybody qualifies for something. It makes no sense from a business or government point of view. … But government officials can’t take credit for job creation if they don’t hand out some sort of subsidy.”

He goes on to provide an important recommendation to legislators currently reviewing 35 of Iowa’s tax credits: “Everybody is living with a lot less,” due to the down economy. “That really does mean businesses should be living with a lot less public subsidy.”

Photo of Iowa State Capito via  Jimmy Wayne Creative Commons Attribution License 2.0

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