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Giving Tax Breaks to Companies That Move Jobs Out of New Jersey Doesn’t Make Sense

 

New Jersey Policy Perspective president Gordon MacInnes gave this testimony in favor of S-1920, which was heard by the Senate Economic Growth Committee on Thursday.

(June 14, 2012)New Jersey currently has the 5th highest unemployment rate of the 50 states. In 2011, our economy shrank by 0.5 percent — the 4th worst performance in the U.S. These and other sobering statistics – I won’t bore you by rattling them all off here — make one thing abundantly clear: New Jersey needs jobs.

The question for legislators and other leaders becomes: how do we create these jobs? There are different theories on job creation and economic development, depending on how one views the complex relationship between government, the free market, corporations and the people.

One theory popular here in Trenton, particularly in the last two years, is that the state should give tax breaks to companies to lure them to either come to New Jersey or stay here, and hope the windfalls trickle down.

The state Economic Development Authority has awarded over $2 billion worth of tax incentives and subsidies since 1996, all in the name of job creation and retention – not to mention an additional $1.5 billion in economic development subsidies not explicitly tied to job growth. Despite the high cost of our commitment to incentivizing job creation using these tax giveaways, we don’t know if they really work – in fact, the available evidence seems to suggest that, by and large, they do not.

A large and growing body of research finds recurring problems with this approach, such as: the routine failure of companies to create as many jobs or pay as high a wage as they promised; large numbers of subsidies granted for projects that would have happened without any tax forgiveness; subsidy packages needlessly inflated as hired-gun site location consultants play states against one another; the creation of poor-quality and low-wage jobs that result in employees and their families relying on public assistance; a shift in the overall tax burden onto New Jersey companies that aren’t getting tax breaks; and perhaps most importantly, significant revenue losses linked to the tax breaks, leading to cutbacks in vital public services.

While there are a number of ways legislators could work to address these problems, and ensure that job-creation tax subsidies actually create good jobs for New Jersey, today you’re considering just one bill, S-1920. This bill is a common-sense piece of legislation that would strip tax subsidies from companies that ship one class of job – those in call centers – overseas. After all, what good is giving up state money that could be spent on infrastructure or education when the company in question is actually going to eliminate jobs in the state?

For example, let’s take a look at Verizon.

Since 1998, Verizon has been approved for over $113 million in tax breaks via the state Economic Development Authority’s various tax incentive programs. The stated purpose of these grants has invariably been to help Verizon retain and create jobs within the state of New Jersey. In 2002, the EDA awarded Verizon nearly $1.7 million in BEIP funds to create 110 jobs in Hamilton. In 2003, the state struck a better deal, agreeing to pay $556,000 for 160 new jobs in Ewing. In 2005, Verizon was granted a mix of subsidy contracts totaling $90.25 million in connection with the creation of its Basking Ridge corporate campus, with a promise to relocate 2,027 jobs to New Jersey. That’s a total of $92.5 million in exchange for the promise of 2,297 new jobs – a potential cost of around $40,300 per job.

Yet despite all this state assistance, NJPP found that Verizon actually logged a net decrease in New Jersey jobs during the same period – over 4,000 Verizon positions left the state or were eliminated from 2001 to 2005, including 240 call-center layoffs in Morristown that were announced in the same month that Verizon accepted $90 million to create jobs in Basking Ridge.

In the current economic environment, there is no shortage of cutbacks. We keep hearing that the state cannot afford to invest in essentials like public schools, transportation infrastructure and better opportunities for striving families – those aspiring to the middle class and those hanging onto it by a thread. Instead of giving free money away to profitable corporations that are sending jobs out of state, we ought to be investing it in a real Jersey Comeback.

 

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