States cut tax incentives to help close budget gaps

To fix their ailing budgets, some state governments are eliminating tax credit and incentive programs, which are meant to attract businesses and create jobs, according to The Wall Street Journal.

Various state leaders have taken action, including Gov. David Paterson (D-N.Y.), who has proposed deferring dozens of business tax credits for three years, and Gov. Jay Nixon (D-Mo.), who wants to reduce the amount of tax credits developers receive for restoring historic buildings. A new Oregon law reduces credits given to certain renewable-energy projects.

Tax credits are an easy target for state leaders with budget issues; eliminating or reducing tax credits can boost funds without creating new taxes or raising taxes. And critics say special tax policies have little influence on businesses’ hiring or investment decisions.

However, business organizations and economic development officials say removing tax credits will hinder hiring and investing at a time when both are important for the economy. Some states are not cutting back—Minnesota recently signed a bill with various tax credits.

In 2009, states collected $686 billion in tax revenue—an 11.4 percent decrease compared with 2008. Meanwhile, states’ costs are skyrocketing. In an attempt to close their budget gaps, states also have cut employees and benefits, as well as raised taxes.

Date : 5/12/2010