Poor labor market conditions in Connecticut have produced a flurry of proposals to try to jump-start job growth through tax credits for businesses that create jobs. This report examines the research on "job creation" tax credits, evaluates their potential effectiveness in Connecticut, and analyzes the Governor's specific proposal.
Multiple academic analyses of job creation tax credit programs have found that 70% or more of the credits granted employers would be awarded for jobs that likely would have been created without the credit. Expressed another way, for every $1 million given out in tax credits, only about $300,000 would be linked to the creation of jobs that would not have been created without the credit in place.
Expanding the job creation tax credit risks making Connecticut's corporate tax system less fair, less efficient, harder to administer, and less transparent. Tax credits are not subject to the same standards of transparency and accountability as direct economic aid (e.g., through grants or loans from the Connecticut Department of Economic and Community Development), even though the fiscal impact on future state fiscal stability from a steady, yet unexamined, erosion of business tax revenues can be greater.
