Closer Scrutiny Needed for State Economic Development Policy
Considering all the talk about jobs in the Governor’s State of the State address on Tuesday, I found it interesting that there was no mention of the Wisconsin Economic Development Corporation (WEDC). But perhaps that shouldn’t come as a big surprise, considering all the negative publicity for this private agency, which was created by Governor Walker and the Legislature in 2011 to replace the state Commerce Department.
The latest round in several months of bad publicity came this week in a Journal Sentinel article by Jason Stein and Cathleen Gallagher about problems with the administration of new tax breaks intended to encourage private investment in qualified Wisconsin businesses. In case you missed that January 14 article, it’s an excellent example of investigative journalism.
I don’t have time now to summarize all the findings, but the major problem cited in the article is that the WEDC, “took a year and a half to begin posting the list of companies that have been approved to receive the tax-advantaged investments.” UW economics professor Andrew Reschovsky succinctly summed up the problem with the lack of information about which companies state residents could invest in and qualify for the tax breaks:
“For an incentive to really change behavior, presumably you have to know about it in advance.”
I raise the issue of these tax breaks not to add to the criticism of the WEDC, but instead to point out that policymakers need to take a very careful look at all the tax breaks and other incentives that are being handed over to certain companies and whether that money is being spent effectively to create good paying jobs. The lack of knowledge about the new tax break for investments reinforces a concern raised by accountants who testified at the last meeting of the Legislative Council Steering Committee on the Income Tax. The three tax accountants who testified all noted that many state tax credits didn’t appear to have the desired effect of changing behavior because their clients claiming the credits usually weren’t even aware of them until they filed their taxes.
Although the Governor’s speech on Tuesday made no mention of new tax breaks or expenditures for selected businesses, he has suggested in other forums that his budget will contain new incentives for businesses development, such as new tax breaks for venture capital investments. Perhaps that can be justified; I won’t prejudge it before I’ve seen the proposal. But our state shouldn’t commit any new state funding or tax breaks to encourage start-ups until we thoroughly review how the existing ones are working and decide whether those should be retained, amended or repealed.
I think it’s disappointing that the work of the Steering Committee on Income Tax was aborted before it made any recommendations, because that committee heard a lot of testimony about eliminating ineffective tax breaks. The Journal Sentinel article helps illustrate why such a review is still necessary, and it’s a review that should be conducted in an open and transparent way before the state spends more of its scarce resources on economic development incentives that aren’t working.