For as long as there have been governments, people have probably been talking about whether or not government policy is effective. In modern times, policy discussions can also manifest as a formal study on the overall impact of government actions. Independent studies find themselves at the forefront of tax credit discussions in Ohio and Wisconsin.
Ohio Gov. John Kasich recently signed H.B. 475, a bill modifying the Ohio film credit, according to WKYC. The bill makes several changes to the tax credit, including removing the $5 million limit for an individual project and expanding the overall cap for all projects from $20 million to $30 million. Also, the credit amount is now 30 percent for all expenses. Previously, the credit equaled 25 percent of all expenditures plus 35 percent of wages paid to Ohio residents.
Whether or not film credits are worth it is a matter of ongoing debate, but according to two recent Ohio studies, they are effective. In a University of Cincinnati (UC) study from 2014, the effects of film credits on the Cincinnati area was calculated as an economic impact of $45.9 million. Meanwhile, a Cleveland State University (CSU) study from 2015 looked at the benefits to the state as a whole in addition to the effects on Northeast Ohio. The study found that Ohio received a total benefit of $65.4 million from film productions in 2011 through 2015, representing a return of $2.01 for every dollar spent in tax credits.
Interestingly, the CSU study found that 1,729 jobs were created statewide during the time period of 2011 through 2015, whereas the UC study found that 4,028 jobs were created in just the Cincinnati area in 2014. The wide disparity between these studies highlights the difficulty in creating a methodology that accurately measures the impact that tax credits can have on job growth.
The Wisconsin Budget Project recently released a study showing that the state’s Manufacturing and Agriculture Credit disproportionately favors the wealthy. The credit was first available for the 2013 tax year and was originally equal to 1.875 percent of qualified production activities income, but has since increased to 7.5 percent of qualified income for tax years beginning on or after Jan. 1, 2016. The Wisconsin Budget Project notes that just over half of the credits issued against individual income tax are claimed by taxpayers with incomes over $2.8 million. Overall, 70 percent of the credit is claimed against individual income tax, according to the study.
Though the study does not discuss the impact of the Manufacturing and Agriculture credit on job growth, another study by the Wisconsin Budget Project has found that job growth has not seen an increase since the implementation of the credit. But these studies also emphasize how difficult it is to find a truly independent study. As noted by the Associated Press, the Wisconsin credits were approved by Republican Gov. Scott Walker and the Republican legislature, while the Wisconsin Budget Project is described as liberal.
Impact studies are a powerful tool for lawmakers as they offer a way to gather information before taking action and their conclusions bring everyone valuable data points. It’s just important to remember where the study is coming from.
Continue the discussion on LinkedIn: What is the best way to measure the impact of a tax credit on a state’s economy?
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