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Reason Foundation

Job Creation Tax Credits Don't Create Many New Jobs

Samuel Staley
September 20, 2011, 9:44am

The Tax Foundation in Washington, D.C. has released a report that will likely throw more cold water on the White House's attempt to stimulate the economy. Research, the authors suggest, shows job creation tax credits don't do a very good job at creating new jobs. Seventy percent or more of new hires for firms using these credits would have hired them anyway. From the report by David Logan (Fiscal Fact No. 283):

"The challenge for researchers in measuring the effectiveness of hiring credits is to determine how to differentiate "new" hiring from the hiring that would have occurred without the incentives. Indeed, a study by Bishop and Montgomery found that, "...at least 70 percent of the tax credits granted to employers are payments for workers who would have been hired even without the subsidy." 

"Two other studies have found that targeted job creation tax credits are only modestly used by firms and do little to change their behavior.  A 1981 study authored by Dave M. O'Neill found that these policies are "hardly utilized when measured against the actual number of eligible hires that take place."  Another study put it more candidly: "Employers are happy to claim such credits if they meet the credit's rules, but they are reluctant to change their behavior in response.""


Samuel Staley is Research Fellow


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