tax credits

The Republican tax plan passed Congress this week. The legislation, which is part tax cut — $1.5 trillion over 10 years — and part reform — replacing multiple deductions and credits with overall lower rates — will affect the U.S. economy for years to come. Education, employment, capital access and business investment are likely to be directly affected as soon as next year, and, if state budgets hold any value as predictors, regional innovation economies will be particularly affected through future reductions in federal spending.

New legislation in Maryland that takes effect in June provides $1 million in workforce development scholarships and builds on current apprenticeship programs, while also providing tax incentives for new and existing manufacturers to create jobs in areas of the state that need them most. Gov. Larry Hogan signed the More Jobs for Marylanders Act into law last week, a key piece of his jobs initiative. The new legislation establishes scholarships for eligible students enrolled in job training programs at community colleges, and contains measures to encourage high schools to offer additional vocational training, as well as requiring state agencies to analyze their registered apprenticeship programs. This builds on current efforts of Maryland’s Employment Advancement Right Now (EARN) workforce training program, which has already provided training for nearly 2,000 unemployed or underemployed workers.

On August 10, Massachusetts Gov. Charlie Baker signed an extensive economic development bill (HB 4569) into law. The new economic development law, An Act Relative to Job Creation and Workforce Development, will provide up to $1 billion with the intent of “building a skilled workforce, connecting residents to economic opportunities, strengthening community and housing development efforts, and investing in the emerging technologies that will drive Massachusetts’ economic prosperity in the future.” Among the items included in the bill are $71 million for the Massachusetts Manufacturing Innovation Initiative, $15 million for the Scientific and Technology Research Development Matching Grant Fund, $15 million for the Community Innovation Infrastructure Fund, and an angel investor tax credit.

When the U.S. government made their R&D tax credit permanent in December 2015, it made a long-term commitment to using incentives to entice private firms to invest in research and development, joining many countries around the world. Although most studies find that R&D tax incentives promote R&D, there is little consensus on the extent of this effect. A recent firm-level analysis from the United Kingdom finds some of the strongest evidence to date on the effectiveness of R&D tax credits in incentivizing innovation. At the same time, however, other studies suggest other elements of a national economy such as education and infrastructure may be more important.

A mixture of success and trepidation accompanied 2016 legislation introduced in  several states to create, extend, or recapitalize angel tax credit programs. While legislation in Arizona’s legislature failed due to a lack of support, angel tax credit bills in Kansas and Tennessee passed easily with broad support from their governors, lawmakers, and the public. In North Dakota, the state’s angel tax credit program faces an unclear future due to concerns about transparency and oversight. To stimulate investments in West Virginia’s startup community, Gov. Earl Ray Tomblin signed legislation allowing non-accredited investors to make equity investment in state-based businesses.

Despite the important role that small- and medium-sized businesses play in job creation and economic growth, economic development incentives are consistently awarded to large companies, according to a report by Good Jobs First with support from both the Surdna Foundation and the Ewing Marion Kauffman Foundation. In an analysis of more than 4,200 economic development incentive awards from 16 programs across 14 states, large companies received anywhere between 80 percent and 96 percent of total dollar values.

North Carolina Gov. Pat McCrory recently signed an economic development bill (HB 117) that would expand the operations of the state’s Job Development Investment Grant (JDIG) fund. The fund, which offers grants to companies for job creation and expansion, will have a higher annual cap, and a contingency to offer even more funds in years in which a “high-yield project” is supported. The North Carolina Competes Act also offers targeted support for a particular type of job creator: data centers. Data centers that invest $75 million or more are now eligible for significant tax incentives. North Carolina’s incentives are intended to help the state compete with a number of other states that have targeted this industry.

Last week, New Mexico Gov. Susana Martinez signed House Bill 2 into law, new tax incentive legislation that, according to the governor, expands the state’s economic development toolkit. The bill received bipartisan support, in the GOP-controlled House, where it passed 60-2, and the majority-Democrat Senate, where it was approved 31-11. According to the Martinez administration, the package is expected to cost between $6.5 million and $11.5 million per year. The bill expands six incentives already established, while two new tax breaks are created. Most notable for New Mexico’s TBED community are the New Mexico Angel Tax Credit and the Technology Jobs and Research and Development Tax Credit Act.

Many promising technologies created by Oregon startups wither on the vine due to a shortage of high-risk angel capital and many other startups leave the state in search of funding, according to a new report from the Technology Association of Oregon (TAO) – Oregon Angel Investment: The Economic Impact of High-Risk Investment in Oregon's Entrepreneurial Enterprises. The authors highlight the rapidly growing entrepreneurial ecosystem that includes a growing number of willing, talented entrepreneurs and entrepreneurial support organizations (e.g., incubators, accelerators). However, the state still lags significantly behind other areas of the country in terms of actual dollars invested, as well as the number of high-risk investment deals that are made.

Although every state delivers tax incentives for economic development, there are numerous inconsistencies in how these incentives are evaluated. Based on best practices developed by 10 states and the District of Columbia that passed legislation requiring regular evaluation of economic development tax credits from 2012 to 2014, researchers at The Pew Charitable Trust developed a framework for states hoping to improve the accountability and performance of tax incentives in a new policy brief. Ultimately, the brief recommends three steps: