States spend billions of dollars a year on tax credits, deductions, and exemptions that are meant to encourage businesses to create or retain jobs and make investments. Pew studies the policies and practices that states have used to generate much-needed analyses about the costs and economic returns of tax incentives. Based on this research, we work with state leaders to:
Make a plan to evaluate the results of all major incentives on a regular schedule.
Measure the impact of these programs using high-quality evaluations.
Inform policy choices with evaluation findings to improve the effectiveness of tax incentives.
Data from an array of sources has shown that Americans who grow up in economically distressed areas experience lower-performing schools, higher crime rates, a variety of health and environmental hazards, and less upward mobility.
What Factors Influence the Effectiveness of Business Incentives?
Policymakers around the country use economic development incentives such as tax credits and exemptions to encourage companies to locate or expand in their state or community, with the ultimate goal of boosting the job prospects and income of local residents.
State Strategies to Help Businesses Launch and Expand
State governments can undermine opportunities for investment and job creation when businesses spend too much time or money on inefficient regulatory processes, or when new business projects get delayed because firms don’t understand how to comply with the rules. To address this challenge, state policymakers can focus on two types of reforms.
Tax incentives—including credits, exemptions, and deductions—are one of the primary tools that states use to try to create jobs, attract new businesses, and strengthen their economies. Incentives are also major budget commitments, collectively costing states billions of dollars a year. Given this importance, policymakers across the country increasingly are demanding high-quality information on the results of tax incentives.
In many cases, the cost of specific state tax incentive programs has increased quickly and unexpectedly by tens or hundreds of millions of dollars. As a result, lawmakers have been forced to make difficult choices between raising taxes and cutting spending to keep budgets balanced.
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