WILL CALIFORNIA'S END TO ENTERPRISE ZONES AND THE ADVENT OF A ...

Last week: Will China?s recent tightening of lending rules affect the pace of economic recovery in the U.S. and San Diego?

NO: Over the past 28 years, enterprise zones provided tax breaks to businesses as incentives that were meant to boost jobs and investment in economically distressed areas. Recent studies have suggested the zones did not work as planned. Businesses received tax breaks ($700 million in 2010) but few net new jobs were created or jobs were created in one part of the state at the expense of another. The state?s new incentive program is designed to benefit manufacturing companies and businesses in depressed areas that pay workers relatively high wages. This change selects new beneficiaries but with the same result, not much of an impact on net job growth.

YES: The new program is better, but not likely to be much more effective. The state?s previous enterprise zone system was largely ineffective at increasing jobs overall. Whatever growth was attained, costing billions of dollars per year, usually just redirected jobs from other areas. Gov. Brown?s new program, with $750 million in tax breaks each year, is a better, more broad-based approach. Taxes are temporarily reduced for certain businesses located anywhere in California. In the end, attempts at micromanaging the economy with entitlement programs are not likely to create many more jobs than simply lowering taxes and regulations for all businesses.

YES: With no change in the total amount spent compared to the old enterprise zone program, the impact is likely to be small, but still positive. One reason is that the sales tax exemption on manufacturing or research and development equipment applies statewide, instead of just in the enterprise zones. This will allow some firms not involved in the enterprise zones to participate. Another positive feature is that the hiring credit only applies to firms with a net increase in jobs, as opposed to replacing existing workers. That credit is also structured to promote higher wages, which would have a positive secondary impact on the state?s economy.

NO: The tax changes do not provide stronger incentives for hiring than the current enterprise zone system that they will be replacing. Every year Sacramento adds new rules that raise labor costs and then wonders why employment is lagging behind other states. A better approach is to eliminate some of the nontax burdens and requirements that the state has imposed on the businesses that create jobs. A good place to start would be to allow more development of California?s energy resources. That?s a real jobs program that has proven to be very effective in states like Texas and North Dakota and it could work here as well.

YES: It expands incentives that create jobs to the entire geography of the state, rather than forcing business and investment into designated zones. This makes all the sense, particularly in light of the fact that there are no more redevelopment areas. So why would we continue to force job growth into areas that might not have required infrastructure (school, homes, police, etc.)? This program allows employment to be generated across the entire state, which is right because we need to look at every option/program to promote job growth. It?s time to think ?outside of the box? rather than force employment ?into the box.?

Source: http://www.findata.co.nz/News/22230932/WILL_CALIFORNIA39S_END_TO_ENTERPRISE_ZONES_AND_THE_ADVENT_OF_A_.htm

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