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Tax break for ‘job creators’ gains traction despite pointed criticism

Note: This is the third of three stories outlining The Colorado General Assembly’s attempts to spur economic growth by giving tax credits to businesses and industries.  CU News Corps found that many of the programs put in place don’t always work as well as lawmakers intend. Today’s focus: HB14-1014, the modification of the Job Growth Incentive Tax Credit. A fourth story looks into federal crop insurance.

By Lars Gesing
CU News Corps

The job growth incentive tax program isn’t something lawmakers came up with just this year. In fact, it was implemented in 2009, and it allows businesses that created and maintained at least 20 net new jobs in any given year (five if they are located in an enhanced rural enterprise zone) to receive a tax credit equal to 50 percent of what the business paid as payroll taxes to fund social security and health care measures for its new employees.

The bill passed both the House and the Senate without major opposition. House legislators added an amendment that requires the OEDIT to take new steps in finding ways to evaluate how well the most sought-after business incentive is actually working, but the Senate deemed that portion unnecessary and discarded it. Either the House or the Senate version of the bill will become law once Gov. John Hickenlooper signs it within the next month.

This year’s amendment extends the period in which the tax credits can be claimed from five to eight years and changes the bill’s language, requiring the tax credits to be only a “major factor,” rather than the only one, in a business’s decision to locate or retain in Colorado instead of moving to another state.

The bill also lowered the minimum wage-match requirement of a job to qualify for the tax credit from 110 to 100 percent. That means the wage for the newly created job must at least match the average yearly wage of the county in which the business locates. That way, lawmakers hope, companies will bring more medium-paying jobs to Colorado instead of providing opportunities solely for highly-skilled job seekers.

“Our economy is slowly getting better, but to get back to a robust state, we need to bring companies and jobs to Colorado,” said state Rep. Tracy Kraft-Tharp (D-Arvada), one of the bill’s co-sponsors, during a break from a legislative session on April 17.

While the approved bill was among Gov. Hickenlooper’s top priorities in this legislative session, there remains considerable resistance against the measure.

The Colorado Legislative Council calculated that the bill could cost the state an additional $55.2 million within the next 14 years.

University of Colorado Boulder economist Jeffrey Zax is convinced that’s money thrown out of the window. He questioned the government’s general ability to create jobs.

“Is there a net gain for the economy?” Zax asked tax credit supporters, only to go on and answer the question himself. “Absolutely not. On the contrary. What you did is you put companies who didn’t need it at a heightened competitive advantage, and there are probably companies elsewhere who are disadvantaged as a consequence and are suffering. But that second level of analysis just escapes everyone in the public sector.”

Kraft-Tharp disagrees.

“Often times, tax credits alone aren’t successful,” she admitted. “But they are a tool in the toolkit when it comes to the final selection process to give [companies] that final push.”

The state representative said the program already has created 12,000 jobs since 2009.

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According to the latest Economic Development Commission’s annual report, in the 2012-2013 fiscal year 16 projects received approval for up to $46 million in tax credits associated with the creation of 4,784 jobs.

Among the funded corporations was Woodward, Inc., an aerospace systems designer, manufacturer and service provider. As the company was looking for a location for its new world headquarters, the EDC approved a $7.26 million tax credit and anticipated a $200 million investment and the creation of 971 net full-time jobs in return. In August 2013, Woodward announced it would build its new headquarters in Fort Collins.

But Carol Hedges said the sole purpose of job incentive tax credit programs was for politicians to appeal to voters.

“I have spoken to several legislators about these bills, and I have gone into offices and said, ‘This is a dumbass idea, it doesn’t accomplish what you hope it’s going to accomplish, it doesn’t say anything to address the concerns that you say you are concerned about’,” she said.

“To a person, they have said, ‘I understand that. But jobs and the economy is the number-one issue on the voters’ minds right now, so we know that these are dumb, we know that these are sending money to the wrong people, but we need to send a signal to the voting public’.”

A recent Quinnipiac poll found that Coloradans’ chief concern remains the state of the economy, which provided fertile ground for tax credit incentive proponents.

Independence Institute senior fellow Linda Gorman doesn’t want to hear any of it.

“Corporate subsidies encourage a corrupt government, and that is never good for a democracy,” Gorman said. “They take money from productive people, filter it through the government and give it away. The government shouldn’t pick market winners and losers”

Zax agrees with both Hedges and Gorman.

“Half the bills have attached to them, ‘This will create jobs’,” he said. “And this phrase is meaningless, it’s a flag-waving exercise, putting a bumper sticker on it. It’s a way to say, ‘I care about it, I care enough about it to utter these words.’ Whether or not [legislators] care enough to design policy that will actually do that is a wide-open question, and the answer is really, ‘no’.”

The CU economics professor labeled the tax credits government favoritism. “These payments are completely unjustifiable, except as payoffs to political supporters,” Zax said.

His allegations caused some substantial anger on the other side of the aisle.

“You can call everything we do in government favoritism,” state Rep. Max Tyler said. “We decide what we think works best for the state of Colorado.”

Read Part I/ Read Part II/ Read Part IV

HB1014 at a glance JPG

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No Responses to “HOUSE OF SUBSIDIES: Part III”

  1. HOUSE OF SUBSIDIES: Part I | CU News Corps on May 12th, 2014 11:35 am

    […] Part II/Read Part III/ Read Part […]

  2. HOUSE OF SUBSIDIES: Part II | CU News Corps on May 12th, 2014 11:36 am

    […] Part I/Read Part III/Read Part […]

  3. HOUSE OF SUBSIDIES: Part IV | CU News Corps on May 12th, 2014 11:36 am

    […] Read Part I/Read Part II/Read Part III […]

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