Incentivizing job creation

It sounds like a good reward to businesses that create decent paying jobs: provide a tax credit for increasing your payroll from the previous years. The problem is, however, the revenue loss to the state in one fiscal year alone could be $1.5 billion.

“This was meant to be a really good idea — capture the increased income tax revenue from business growth and give it back to employers,” said the sponsor of HF446, Rep. Jim Abeler (R-Anoka).

His bill would allow businesses to claim a 5 percent credit against the corporate franchise tax or the individual income tax based on the increase in Minnesota payroll from the amount paid the previous year.

The bill was laid over March 1 by the House Taxes Committee for possible omnibus bill inclusion. It has no Senate companion.

After learning of the bill’s fiscal impact, Abeler was realistic about its future. “Is there a way to generate jobs that would have not come otherwise?” he asked. “What I’m bringing you is an idea that is a little rawer than I thought it would be.”

According to the Revenue Department, the impact of the credit is “indeterminable,” but with approximately $30 billion in wages that could be eligible for the credit, the revenue loss in fiscal year 2015 could be $1.5 billion.

“When you capture taxes that come from activity, you just continue to raise taxes on everyone else. It is an inherent subsidy,” said Rep. Ann Lenczewski (DFL-Bloomington). “Even if I thought this was a good idea, how would the state determine that, in fact, a job only happened because of your legislation?”

Abeler acknowledged there were no clear answers to the question and his hope is that discussion continues on how to incentivize the state’s employers.