The best solution to the need to avoid providing incentives is to have a “competitive tax climate.” Businesses don’t make location decisions on just the relative cost difference in taxes, other more significant factors are at play, like workforce quality/availability, proximity to market and a broad array of cost factors. However, we have been involved in too many expansion and attraction deals, where it’s hard to separate Wisconsin or Milwaukee from its competitors. We do not have a bad tax climate for business (when strictly factoring the effective tax rate on a corporation), but add in the fact that we are 26 percent and 27 percent above the U.S. average on property and income taxes as percentage of personal income, and the story becomes less compelling.
My point is, all things being close to equal, incentives, especially when they are targeted, are a necessary part of the state’s economic development arsenal. We have worked over the past two sessions to put in place new and expanded incentives (that pay out only a portion of the new tax revenue received by the state from the creation of a new job). Do you want 90 percent of the new tax revenue from X number of jobs or 100 percent of nothing if the job goes to another state? I fully agree that we need guidelines to this kind of a checkbook.
So here are a few guidelines that should apply:
- New or expanded jobs that have a viable option to be somewhere else (requires sharp discretion)
- Jobs need to be in key “driver “ industries, those tied directly to the export of a good or service (the only jobs that drive net new income).
- The incentive should pay only for performance (no documented new job, no tax credit).
- The incentive should rebate only a portion of the new tax revenue.
A modest targeted incentive can and does help us win jobs when we get down to being a finalist for certain types of expansion or attraction projects, giving Wisconsin a focused set of tools is well worth the investment for the relatively small part that this plays in overall job creation. Even so, it is a good investment if well targeted for the 10 percent of job growth that comes from this dynamic activity.
Other tools apply to startups and their funding needs, and the quality of delivering government services, as well as attitude go a long way to encouraging those here to stay here and grow here, but that is another story.
– Tim Sheehy, President, Metropolitan Milwaukee Assn. of Commerce
