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

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Public Budgeting and Finance

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https://epublications.marquette.edu/econ_fac/380; https://epublications.marquette.edu/cgi/viewcontent.cgi?article=1381&context=econ_fac
Hanson, Andrew
Public Financial Publications, Inc.; e-Publications@Marquette
tax credits; urban redevelopment; utilization; Economics
article description
This paper provides estimates of utilization for the Empowerment Zone (EZ) wage tax credit, a subsidy claimed by employers who operate in and hire residents of federally designated areas experiencing economic distress. The EZ credit is currently the largest employer-based wage tax credit in the federal tax code in terms of dollars claimed, with almost $250 million claimed in 2002. I show that about 6.4 percent (and at least 3.5 percent) of the working age population was claimed under the EZ wage credit in 1999. In addition, I estimate that 24.2 percent (and at least 13.1 percent) of those employed inside of the target area were claimed for the credit. I create these national estimates of use with information on credit dollars claimed from the Internal Revenue Service and population data on the eligible population from the census. These measures of tax credit use are an alternative to the use rate of firms that are presented in the existing literature, and reveal how effective the credit is at reaching residents of the target area.