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Monday, February 11, 2008

Why tax incentives for jobs fail

Minnesota has a program to create tax-free "Job Zones (JOBZ)" to give an incentive to companies to create more jobs in distressed areas. It seems to work as well as most corporate welfare. Here's a story on the report from the Legislative Auditor and here's a brief summary of the boondoggle:
  • There is no formal mechanism within JOBZ for evaluating whether a subsidy is needed, and, if so, whether a more limited subsidy could achieve the same business expansion.
  • Within the business subsidy agreement itself, there is no deadline for creating the promised jobs, and no requirement to maintain the jobs through the life of the tax forgiveness.
  • Using state unemployment tax data submitted by the firms benefiting from the program, the auditor's office found that the increase in employment at JOBZ businesses was 20 to 30 percent lower than what DEED was reporting.
  • Although JOBZ was supposed to target economically distressed areas for business tax relief, need has not been a factor in designating JOBZ zones

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