Rein in Tax Breaks that Aren’t Tied to Job Creation
There’s been a lot of talk in Wisconsin over the last couple of weeks about the need to ensure that tax breaks and loans awarded by Wisconsin’s economic development agency are limited to businesses that are creating jobs and fulfill their job growth commitments. Yet almost no attention has been paid to the fact that the state’s largest tax credit for corporations is ballooning in cost and is distributed to businesses operating in Wisconsin regardless of whether they are expanding or slashing their workforce in our state.
In the wake of the audit of the Wisconsin Economic Development Corporation (WEDC), that privatized agency has gotten well-deserved criticism for failing to demand that jobs be created with each of its contracts, and for failing to ensure that grant and loan recipients hit wage and job targets or at least submit information showing whether jobs were being created or retained.
Those are very important critiques of WEDC because we need to be sure to effectively use state resources, especially during this time of budget cuts. The same should also be true for the manufacturing and ag tax credit, which has exploded in cost and is now expected to cut taxes for corporations by a whopping $285 million per year once it is fully phased in, an annual price tag $156 million higher than originally expected. It’s an ineffective tax break because any manufacturer that has profits in Wisconsin can qualify for the credit, regardless of whether they are adding jobs or eliminating them.
Optimally, that credit should be repealed and a portion of the funding should be used for targeted incentives that truly help create jobs, and for job training programs that address a bigger problem for employers – ensuring access to well qualified employees. Short of repealing and recreating the credit, another good option would be to cap it at the 2014 level, which is already approaching the revenue loss originally expected in 2017 once the credit is fully phased in.
This week the legislature’s budget committee will decide whether to cut $300 million from the University of Wisconsin System, which has long been an engine of innovation and economic growth in our state. Capping the manufacturing and ag tax credit at the 2014 level would free up about $226 million in 2015-17, and that single change would enable state legislators to restore three-fourths of the proposed cuts for the UW System. (Read more about that option in our alternative budget proposal.)
I have little doubt that the vast majority of Wisconsin employers would far prefer to see the state invest in the higher education system that has been the source of so much growth and pride in our state, rather than in the continued growth of an untargeted and ineffective tax credit.