New Jersey Policy Perspective issued a report Wednesday that found the state’s Economic Opportunity Act enabled an unusual spike in corporate tax breaks with questionable benefits, putting a significant drag on future tax revenue.
“New Jersey’s lavish corporate tax subsidies are trickle-down economics at its worst,” Sheila Reynertson, report author and senior policy analyst at NJPP, said. “At the price New Jersey is paying per job created — sometimes more than three times the national average — taxpayers will never break even.”
The EOA, which was signed into law in 2013, was designed to offer corporate tax incentives for companies to expand or relocate to New Jersey. This would in turn boost the economy by creating more jobs for state residents.
In its report, “Reining in Corporate Tax Subsidies: A Better Economic Development Playbook for New Jersey,” NJPP said New Jersey stands apart nationally in both the size of its corporate incentive awards and how little it receives back as a return on its investment.
Since New Jersey began offering tax incentives, $11 billion worth have been approved, but a wide majority have not been claimed. The state’s largest subsidy programs — Grow New Jersey, Economic Redevelopment & Growth, and the Urban Transit Hub Tax Credit — have doled out $8 billion in subsidies with less than 9% of those tax credits having been distributed to corporations that met their qualifying goals.
“Since 2010, lawmakers fixated on big-ticket corporate tax breaks with no evidence they work, and little attention to their collateral consequences or opportunity costs,” Reynertson said. “Lawmakers must rein in these programs and refine their scope so they promote widespread prosperity for workers, their families, and their communities. Without serious reforms, including hard caps on awards, New Jersey will continue to reward already wealthy corporations with billions of dollars they don’t need.”
Starting this fiscal year, already-approved tax breaks have been estimated to cost New Jersey more than $1 billion in forgone tax revenue, NJPP said. That figure is likely to grow as more subsidies under the EOA are redeemed.
In turn, NJPP has come up with 10 reforms for lawmakers to implement to potentially rein in New Jersey’s corporate subsidies:
- Goals driven by national best practices.
- Hard caps on annual and per-job awards.
- Shorter award timeframes.
- Local hiring agreements.
- Strict reporting and evaluation criteria.
- Stronger net benefits test.
- Restrict sale of tax credits.
- Mandatory labor protections.
- Community benefit agreements.
- Prohibit awards to documented “bad actors.”
“There is little evidence corporate subsidies have a significant impact on job creation,” Reynertson said. “Instead of doubling down on failed trickle-down policies, lawmakers should invest in public assets that have already proven to make New Jersey an attractive place to grow a business: safe roads and bridges, high-quality public schools from pre-Kindergarten through college, affordable homes, customized job training, child care, and more.”
By reining in the subsidies and implementing best practices, NJPP said lawmakers can revamp the state’s approach to economic development and grow a successful economy.
For more on the report, click here.