Paying for Job Reductions: The Unreported Story of a Ballooning Tax Credit

Tuesday, December 8, 2015 at 8:44 PM by

Wisconsin’s Controversial Jobs Tax Credit Is Dwarfed by a Credit with No Strings

Media outlets have done a very good job in recent weeks of reporting on improprieties in the administration of a jobs tax credit program; yet they have been mum on the subject of a far bigger tax credit problem. Ironically, the recent controversy concerns allegations that the Wisconsin Economic Development Corporation (WEDC) has granted jobs tax credits in excess of a $10 million per year cap, but most of the press corps hasn’t even mentioned that the cost of an uncapped corporate tax credit is expected to balloon to $279 million in the next fiscal year, which is more than twice the original cost projection! Manuf-credit

What makes this even more ironic and disappointing is that the credit that is now being scrutinized is one that is limited to corporations that are adding jobs in Wisconsin. Although not all the corporations getting that credit have delivered, the state can recover the credit if they don’t.  The far larger credit that has largely been ignored has no such constraints. It virtually eliminates the corporate income tax for manufacturers regardless of whether they are adding jobs or, like Oscar Mayer, are in the processing of phasing out all or part of their Wisconsin operations.

In Iowa, there is a big controversy over that state’s decision to give Oscar Mayer substantial tax breaks for retaining some jobs while significantly reducing the total number of Iowa employees. Yet in Wisconsin the situation is even worse because corporations can receive the manufacturing credits without any commitment to create or retain jobs.

The much smaller jobs credit program administered by WEDC is far more defensible, since the credits are tied to jobs, but there have been a number of irregularities that have generated controversy.  Although I think the reporters continue to miss the much more important problem relating to corporate tax breaks, I give them credit for some good stories over the last couple of months about tax credits awarded by WEDC.  For example:

  • On Nov. 19, a Milwaukee Journal Sentinel article by Jason Stein reported that the Legislative Fiscal Bureau sent a letter to WEDC several months ago warning the organization that it appears to have awarded $21 million more in tax credits to corporations than it is authorized to issue. 
  • And the following day a very good article by Matt DeFour of the State Journal rebutted the WEDC argument that what they have done is permissible. He explained that even if we accept the WEDC rationale, the annual amount of the credit allocations could exceed the $10 million per year cap by an average of $7 million per year from 2015 through 2017.
  • WKOW has done several good stories about companies that are receiving jobs tax credits, even as they are phasing out jobs. Among its reports was a story last week about Johnson Controls:  “A Wisconsin-based company that will lay off 277 employees in suburban Milwaukee in 2016, and could still claim millions of dollars in state tax credits for jobs created at that same location, announced Tuesday it expects to post record profits as well next year.
  • In mid-October, Dee Hall and Tara Golshan of the WI Center for Investigative Journalism wrote Tales of the WEDC, which is a scorecard of sorts for a number of the incentive packages awarded by the WEDC, including some “clear failures as well as some deals that have potential.” 

Kudos to all these reporters for taking a hard look at the performance of WEDC in handing out jobs tax incentives; that sort of review is long overdue. However, the bottom line is that those tax breaks have a relatively modest cost, and the state can potentially compel the recipients to pay those credits back if they don’t deliver on their job promises. Meanwhile the manufacturing credit for corporations has exploded to the point where it will soon cost more than 25 times the size of the WEDC-administered jobs credit, and corporations are eligible regardless of whether they are increasing their Wisconsin workforce or slashing it.

Jon Peacock

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