Study finds business tax credit costs TN $1.2M per job

An independent firm has found that Tennessee taxpayers forgo $1.2 million each year to subsidize a single job through the state’s largest business tax break program, reports The Tennessean.

Chicago-based consulting firm Anderson Economic Group was retained to do a study of business tax credits because of a provision inserted into legislation enacted in 2015. The newspaper obtained a copy of the report, which says Tennessee loses $142 million per year in revenue because of tax credits.

Businesses that received the Industrial Machinery Tax Credit actually hired fewer people, on average, than their peers in the few years after taking the credit, the consultants found. When taking into account a ripple effect – how much the additional spending affected other parts of the economy – the annual impact came out to an additional 55 jobs per year.

That particular credit cost the state an average of $66.7 million per year from 2011 through 2014, or $1.2 million per job.

“The results show that, on average, the industrial machinery credit does not have a significant effect on employment,” the authors wrote in the report “The Economic Impact of Business Tax Credits in Tennessee.”

One explanation for the meager job growth could be that companies are automating job functions and buying expensive equipment that doesn’t require many workers to operate.

“At first, that sounds like a really bad thing,” said Fox from the University of Tennessee. “Having said that, it’s important to recognize that appropriate investment in Tennessee companies is key to Tennessee’s future.”

…Besides employment, the credit generates an annual average of $7.4 million in additional economic activity and $2 million of worker earnings, the consultants found.

…The second-largest business tax break in Tennessee is the Jobs Tax Credit, which cost the state an average of $52.1 million annually from 2011 to 2014. It gives companies a credit of $4,500 per job, with enhancements depending on how much a company invests in the state and where it locates.

Consultants found the jobs credit had a broader economic impact. When taking into account the ripple effect, the jobs credit generated an average of 600 jobs per year, according to the report. That equates to about $87,000 per job.