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Impacts of the 2016 Election on Two Key Economic Incentive Triggers

by Kelley Rendziperis, on Nov 21, 2016 1:10:48 PM

Many promises were made during the 2016 election by President-elect Donald Trump and many states passed propositions which will have a real impact on a company’s site selection decisions.  To help understand election results, Site Selection Group identified the EconomicIncentives_webinar.jpgpotential impact of various proposed policies on two key economic incentive triggers – capital investment and job creation.

 

Capital investment is key trigger for economic incentives

President-elect Trump proposes federal tax reform with an objective of increasing manufacturing in the United States. He suggests lowering the corporate income tax rate to 15%, imposing tariffs on American companies that produce their products outside the United States, altering or eliminating trade deals, such as NAFTA, and repatriating foreign dividends.

 

These potential changes could yield more capital investment within the United States. This, in turn, could lead to increased competition for these capital-intensive projects resulting in more economic incentive awards. Typical economic incentives granted directly toward attracting capital-intensive projects are property tax abatements, sales tax refunds, investment tax credits, bond financing and low-interest or forgivable loans. In addition, capital investment is usually a crucial threshold requirement for accessing other economic incentive programs.

 

Where jobs are created will be influenced by other factors

In addition to the potential increase in capital investment, bringing manufacturing back to the United States would theoretically result in more jobs. Economic incentives that generally incentivize job creation consist of job tax credits, payroll rebates and job performance cash grants. However, while the increase in jobs throughout the states would be beneficial, there are major concerns about where those jobs will locate. The following items may influence where jobs get created:

  • Minimum wage - The federal minimum wage requirement is currently $7.25 per hour, which has not changed since 2009. Arizona, Colorado, Maine and Washington were the latest states to raise their minimum wage requirement by the year 2020 to $12 for the first three states and $13.50 for Washington. Service companies, such as call centers, which generally employ thousands of people, but do not pay wages at this level, will have to predict whether this would be economically feasible in the future. In addition, Trump is a proponent of raising the federal minimum wage to $10 per hour.
  • Recreational marijuana - California, Massachusetts and Nevada were the latest states to legalize the use of recreational marijuana. This is a concern for companies and whether they will be able to find a suitable labor force. For example, companies with manufacturing operations may be very cautious about entering a state with legalized recreational marijuana, despite having internal substance abuse policies, due to the perceived increase in legal liability.
  • Obamacare - Aside from state policies, if Trump were to repeal or revise Obamacare as he suggests, then some have asserted that this will lead to more full-time positions, especially by small business owners, since they would no longer be forced to offer healthcare as required under Obamacare.

The impact of these federal and state policies will likely be known over the next couple of years.  In the short term, we will have to wait and see what ultimately gets passed by Congress, but regardless of your political view, I think we can all agree that increased capital investment and job creation in the United States is a good thing.

 

Largest Economic Incentive Deals of 2nd Quarter

 

Topics:Economic Incentives

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