Utilization of Employment Tax Credits: An Analysis of the Empowerment Zone Wage Tax Credit

Public Budgeting and Finance

Volumn 31, Issue 1, 2011, Pages 23-36

  Hanson, Andrew ^a  

^a GEORGIA STATE UNIVERSITY   (United States)

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EID: 79952423334     PISSN: 02751100     EISSN: 15405850     Source Type: Journal    
DOI: 10.1111/j.1540-5850.2011.00972.x     Document Type: Article

References (24)

1. U.SDepartment of Housing and Urban Development (HUD), "Questions and Answers on Renewal Community and Empowerment Zone Tax Incentives," available from
2. Internal Revenue Service (IRS), Department of the Treasury, "Internal Revenue Bulletin No1998-47," November 231998
3. The Census Bureau defines census tracts as statistical subdivisions of countiesTracts average 4,000 inhabitants, ranging from 2,500 to 8,000 inhabitantsEvery Metropolitan Area or Urbanized Area in the United States is completely divided into tractsBecause the primary concern in defining tracts is the population, the land area of tracts varies widelyThe boundaries are established by local committees, following guidelines set by the Census Bureau
4. U.SGeneral Accounting Office, "Community Development: Federal Revitalization Programs are Being Implemented, but Data on the use of Tax Benefits are Limited," Report to Congressional Committees, GAO-04-306, Washington, DC, March2004
5. U.S Congressional Research Service (CRS), "Empowerment Zone/Enterprise Communities Program: Overview of Rounds I, II, and III," Washington, DC, October 222002
6. Zones were selected on the basis of their ability to; spur economic opportunity by creating jobs, attracting private partnerships, and training residents for new job opportunities; promote community development through a long-term economic development strategy; establish community-based partnerships; and develop a plan for responding to community needs by integrating economic, physical, human, and other strategies (Ibid.)
7. Social Service Block Grants can be used for a variety of services including: day care for children, employment services, counseling, legal services, transportation, education, and substance abuse recoveryThese funds were given at the start of the program in 1995 and were not renewed
8. IRS, "Department of the TreasuryPublication 954: Tax Incentives for Distressed Communities," Washington, DC, 2004; available from2004
9. U.S Department of Housing and Urban Development, "Interim Assessment of the Empowerment Zones and Enterprise Communities Program: A Progress Report," Washington, DC, November2001
10. For studies that evaluate state zone-based programs see Leslie Papke, "Tax Policy and Urban Development: Evidence from the Indiana Enterprise Zone Program," Journal of Public Economics 54, no1 (1994): 37-49, Marlon Boarnet and William Bogart, "Enterprise Zones and Employment: Evidence from New Jersey," Journal of Urban Economics 40 (1996): 198-215, Dagney Faulk, "Do State Economic Development Incentives Create Jobs? An Analysis of State Employment Tax Credits," National Tax Journal 55, no2 (2002): 263-280, and John Couch, Keith EAtkinson, and Lewis HSmith, "The Impact of Enterprise Zones on Job Creation in Mississippi," Contemporary Economic Policy 23, no2 (2005): 255-260 Matias Busso and Patrick Kline, "Do Local Economic Development Programs Work? Evidence from the Federal Empowerment Zone Program," Cowles Foundation Discussion Paper 29, No1638, 2008, Yale Economics Department Working Paper No36Andrew Hanson, "Local Employment, Poverty, and Property Value Effects of Geographically-Targeted Tax Incentives: An Instrumental Variables Approach," Journal of Regional Science and Urban Economics 39, no6 (2009): 721-731 Douglas Krupka and Douglas Noonan, "Empowerment Zones, Neighborhood Change, and Owner Occupied Housing," Journal of Regional Science and Urban Economics 39, no42009
11. U.SGeneral Accounting Office, "Community Development: Businesses' use of Empowerment Zone Tax Incentives," Report to Congressional Requesters, GAO 99-253, Washington, DC, September1999
12. Andrew Bershadker and Edith Brashares, "Use of the Federal Empowerment Zone Employment Credit for Tax Year 1997: Who Claims What?,"Statistics of Income 23, no42004
13. See Stacy Dickert-Conlin, Katie Fitzpatrick, and Andrew Hanson, "Utilization of Income Tax Credits by Low-Income Individuals," National Tax Journal 58, no4 743-786 for a recent review on the use of employer and employee-based tax credits available to low income individuals2005
14. John Bishop and Suk Kang, "Applying for Entitlements: Employers and the Targeted Jobs Tax Credit," Journal of Policy Analysis and Management 10, no11991
15. Lawrence FKatz, "Wage Subsidies for the Disadvantaged," in Generating Jobs, edsRichard Freeman and Peter Gottschalk (New York: Russell Sage Foundation1998
16. Sarah Hamersma, "The Work Opportunity and Welfare-to-Work Tax Credits: Participation Rates Among Eligible Workers," National Tax Journal 56, no42003
17. The boundaries of each zone, however, are defined by 1990 census tracts, which do not always have a one-to-one mapping to year 2000 tractsBy matching census areas I am able to maintain 94 percent of the original land area for all zonesMost of the lost land area loss comes from a single tract in the rural Mississippi Empowerment Zone (EZ) that is relatively unimportant for finding a national population total because that particular tract has a population of only 774, <0.0001 percent of the national EZ totalThe other major unaccounted for land area loss comes from the rural Rio Grande Valley Texas EZ, where I lose 5,400 residents, <0.01 percent of the national EZ populationI am able to match 99.6 percent of the original land area for all EZ tracts besides the two mentionedDetails about how census tracts were matched and a list of what tracts are included in this analysis are available from the author on request
18. IRS reporting of the credit dollars is broken down into a "tentative" amount and an actual amount claimedThe "tentative" amount is the amount employers claimed for the year, the actual amount is what was used to offset tax liabilities (other tax incentives for the EZs are not included in the dollar amount reported)The tentative amount represents the credits for an employee who worked for the employer in that year which can be carried over to offset future tax liabilityI use the tentative dollars reported to create participation estimates in this paperThe GAO (2004) reports the actual amount of claims used to offset tax liability in a given year, which cannot be used to create reliable estimates of the number of employees claimed in a given year because this amount does not include credits that are carried forward2004
19. The ideal numerator in a use rate would be the actual number of zone employees claimed on each tax returnIRS form 8844, however, does not include this questionThe IRS also does not require the employer to report the zone where employees are living and working in, so it is not possible to study the use of the credit across different EZs
20. Also note that the program does not require employees to be living in the zone at the time the EZs were designated so that the employees that are claimed may have arrived after the start of the programGiven that the program is targeted to a particular place, rather than a set of individuals that share some characteristic, this may or may not be a desirable outcome of the program
21. Authors calculations using CPI inflator; available from
22. Note that this cannot explain the failure of eligible employers to claim eligible employees under the creditEmployers location preferences may, however, explain why so few of the working age population are claimed
23. U.SGeneral Accounting Office, "Community Development: Businesses' Use of Empowerment Zone Tax Incentives," Report to Congressional Requesters (Washington, D.C.: GAO, September1999
24. For a theoretical background see Dickert-Conlin, Stacy, and Douglas Holtz-Eakin, "Employee-Based versus Employer-Based Subsidies to Low-Wage Workers: A Public Finance Perspective," in Finding Jobs: Work and Welfare Reform, edsDavid Card and Rebecca Blank (New York: Russell Sage Foundation2000262-295