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Guest editorial: Why would we cut tax credits for job creation?

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Posted on August 22, 2014 |
By Emerson Lynn



Effective Jan. 1, 2014, the tax credit allowed Vermont businesses for research and development was cut from 30 percent to 27 percent of the federal credit. The legislation signaling this reduction was signed into law last month, the same month the state went into a tailspin about the future of IBM and its 4,000 jobs.

Included in the legislation is also the requirement that the state tax department publish the names of all those who avail themselves of the reduced tax credit.

It’s a given that the reduced tax credit will not dramatically change the course of business in Vermont. We’re not talking about millions upon millions of dollars.

What we are talking about is attitude.

And, most likely, a lack of information.

We also know that Vermont’s Legislature is not a welcoming place for most businesses likely to take advantage of the tax credit. Credits of this nature are viewed as corporate welfare, with the critics convinced the state is simply giving away money to businesses that would make the necessary investments regardless of the R&D credit.

That perception is not only incorrect, but self-defeating. Businesses aren’t ignorant of such advantages. Particularly the larger ones. They will move their research and development efforts to places that do offer the maximum credits. Why wouldn’t they?

And that helps us out, how?

There is also the misperception that R&D credits go only to companies bringing something new to the market, which means that it would only help the few. In fact, the credits are most often used for modifying, designing or testing processes to improve what a company currently does.

And, the credits are not the carrot that Vermont can use to lure new businesses to the state as much as they are an advantage to existing businesses — those who are already here and employing the vast majority of Vermonters.

Why would we want to do less for these industries already here and best positioned to expand their workforces?

As for the requirement that the state publish a list of all those who do file for the tax credit, it has its strengths and its weaknesses.

It depends on the information required and how it is used.

If the intent is simply to list the names of those who file for the credit, then there is no argument. Transparency is a good thing. If the intent is to not only name those who file for the credit, but also disclose the nature of the investment, then it might be counterproductive. For obvious competitive reasons, most businesses won’t discuss proprietary information.

Why is a reduction in the tax credit even part of the discussion? Two reasons: As stated, there is a bias against anything that accrues to the advantage of industry in Vermont, and it’s an easy way to bring a little more money into the state treasury. As a state, we’re still dealing with budgets that are tens of millions of dollars in the red. Any little bit helps.

Do legislators really know the effect of these tax credits? No.

Has Vermont’s business community done what it needs to do to educate them, or to advance their own cause? No, it continues to be politically fractured and poorly organized.

That needs to change.

Emerson Lynn

St. Albans Messenger

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