March 2010

State Job Creation Tax Credits

Joachim Hero, MPH

Poor labor market conditions in Connecticut have produced a flurry of
proposals to try to jump-start job growth through tax credits for
businesses that create jobs. This report examines the research on "job
creation" tax credits, evaluates their potential effectiveness in
Connecticut, and analyzes the Governor's specific proposal.

Multiple academic analyses of job creation tax credit programs have
found that 70% or more of the credits granted employers would be awarded
for jobs that likely would have been created without the credit.
Expressed another way, for every $1 million given out in tax credits,
only about $300,000 would be linked to the creation of jobs that would
not have been created without the credit in place.

Expanding the job creation tax credit risks making Connecticut's
corporate tax system less fair, less efficient, harder to administer,
and less transparent. Tax credits are not subject to the same standards
of transparency and accountability as direct economic aid (e.g., through
grants or loans from the Connecticut Department of Economic and
Community Development), even though the fiscal impact on future state
fiscal stability from a steady, yet unexamined, erosion of business tax
revenues can be greater.

Issue Areas:
Budget and Tax, Family Economic Security