Testimony on High Tech B & O Tax Credit
Senior Fiscal Analyst Andy Nicholas is testifying today before the Citizens Commission for Performance Measurement of Tax Preferences in Olympia. His testimony will focus on the High Technology Business and Occupation (B & O) tax credit.
Here are his prepared remarks:
"We fully agree with JLARC’s (Joint Legislative Audit & Review Committee) recommendations for clarifying the credit, should policymakers choose to extend it beyond the January 1, 2015 expiration date. However, the econometric analysis conducted by Economists Tim Bartik and Kevin Hollenbeck clearly shows the High Tech credit to be an ineffective and costly tool for creating jobs. They found that the credit increased total employment in the high technology sector by less than a single percentage point, at cost to the state of about $50,000 per job created. Accordingly, we encourage the Citizen Commission to recommend that the credit either be terminated or allowed to expire.
At minimum, the legislature should establish specific policy goals for the High Tech credit – including a minimum number of jobs to be created and maintained and specific salary and benefit targets associated with those jobs. To improve the effectiveness and efficiency of the credit, it should be restructured and granted on a per job created basis (i.e. $1,000 per job created), as opposed to the current structure, which is based on levels of research and development activities.
Yet, even with these improvements, the Bartik and Hollenbeck analysis suggests that the High Tech credit would still be an ineffective and costly mechanism for stimulating job growth in Washington state. As noted in their analysis, a broad review of the economic literature shows that businesses are only modestly responsive to these types of tax subsidies, meaning it would be difficult to achieve a cost-effective credit no matter how it is structured. The value of credit is also very small relative to total operating costs within the high technology industry. As a result, the credit’s impact on business investment decisions is quite limited.
These inherent limitations show that the $20 million spent each year on the High Tech B&O credit would be more effectively spent on job training, health care, early learning, or other public investments known to have a much more substantial “bang for the buck” when it comes to creating jobs and building a strong state economy. Accordingly, we believe the Citizen Commission should recommend that the credit be terminated or allowed to expire at the end of 2014."
Check out our policy brief Every Dollar Counts: Why It is Time for Tax Break Reform for our recommendations on key reforms that would allow policymakers to balance the costs and benefits of tax expenditures against other public priorities.