Why Tax Incentives Matter
States spend billions of dollars a year on tax credits, deductions and exemptions meant to encourage businesses to create or retain jobs and make investments. When designed and managed well, tax incentives can strengthen a state’s economy. But Pew’s research reveals that lawmakers often approve or continue incentives without knowing their potential cost or whether they are working. State leaders need better information to avoid unexpected budget challenges, identify effective incentives, and reform or end programs that are not meeting expectations.
How We Conduct Our Work
We study the policies and practices states have used to generate much-needed answers about the budget risks and economic returns of tax incentives. Based on this research, we work with leaders in selected states to advance policies that:
Protect budgets from unexpected tax incentive costs;
Evaluate all tax incentives on a regular schedule; and
Inform lawmakers’ policy choices with evidence from evaluations
Our WorkView All
One of the strongest protections against surprise increases in tax incentives costs is an annual limit on program costs. Most states have placed caps on at least some specific incentive programs, but few have systematically applied this protection. One exception is Iowa, which installed an aggregate limit across many economic development tax credits in 2009. Read More
Missouri Works, an economic development incentive the state created in 2013, only cost $150,000 in fiscal year 2014. In some states, that figure would be the only one reported and the program would not appear to be a significant commitment. In Missouri, however, the Department of Economic Development compiles data on the value of tax credits that the state has authorized to companies. Read More
On Dec. 1, The Pew Charitable Trusts released a report, “Reducing Budget Risks: Using Data and Design to Make State Tax Incentives More Predictable,” that describes the difficulties state governments have had anticipating the costs of economic development tax incentives. In many cases, the costs of specific incentive programs have increased quickly and unexpectedly, by tens or... Read More
Business Incentives Initiative
Pew’s business incentives initiative helps states identify and share best practices for collecting, managing, and analyzing data on economic development incentives.