Tax Credits for Hires: The Good, the Bad, and the Unclear

Like Americans for Tax Reform, OSPRI always supports efforts to lessen the tax burden. However, we hesitate to embrace the tax credit that the governor is proposing for businesses that hire. The problem is not so much the tax credit itself as the fact that it is not necessarily tagged to any reductions in spending. The credit will cost the state about $10 million in lost tax revenues. Carcieri does have some planned cuts, but they don’t make up for all that lost revenue and they aren’t directly tied to the tax credit itself.

On a national level, conservatives seem opposed to the idea of a tax credit for hires, but there are other examples of conservatives favoring credits to engineer desireable public policy outcomes (such as school choice and expanding health care coverage) with minimal increases in government spending.

So back to Rhode Island—and setting aside our concern about the fiscal prudence of the tax credit—the question remains: Will it actually work? One small business owner told the Providence Business News it could slow down the re-hiring process as companies wait to make sure the credit is actually passed into law. But isn’t the reverse scenario equally as plausible? Businesses that were on the fence about hiring new employees might decide that the prospect of a tax credit is enough to push them over the edge. Plus, it should not be forgotten that the $2,000 Rhode Island tax credit would be piggybacking off a $5,000 credit that President Obama has proposed. It is the combination of the two that might make the idea effective—and that is why we think Carcieri is backing the idea.

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