A point of clarification: It’s not really a tax credit.
Proposed Mississippi “Brain Gain” Talent Retention & Attraction Policy
“Brain Drain” — the loss of intellectual capital, particularly among newly graduated Millennials who hold degrees in high-demand knowledge-based fields — has received significant attention lately.
An initiative that I helped to start and my company helps to support, called Fast Forward Mississippi, has put forth a concept policy framework with the hopes of reaching a piece of legislation that would help to turn brain drain into brain gain.
It’s come to my attention that it is necessary to make a clarification in regard to the way this concept policy is being presented. In several instances, it has been categorized as a “tax credit.” I am guilty of using this description myself, in fact. But it is a bit misleading to couch it as such.
A “bonus” versus a “credit.”
In most instances, a traditional corporate “tax credit” is money that a government gifts or promises in advance that is used as an incentive. For example, if a corporation is looking to build a facility that will bring positive economic impact to an area, negotiations with elected officials often result in pledged tax credits in an effort to make the proposed project location more enticing than other potential locations. A combination of state and local policies can grant tax credits — or tax breaks — in the form of a hiatus for X number of years. In other words, whatever taxes the corporation would have paid out, they are excused from paying for whatever period is negotiated. This is common practice in most states for economic development purposes. There are often milestones and other metrics tied to realizing the tax credits, but for purposes of simplicy, that is the gist of how it most often works.
By this “tax credit” scenario, the governing authorities do not receive tax revenue that would have otherwise been collected. The 2018 Fast Forward proposed concept doesn’t work this way.
Rather, the concept would provide a one-time tax refund of state income tax dollars collected if the taxpayer meets the qualifications of the program. This is much closer to a corporate bonus than a tax credit. Think of it as a “talent retention bonus.” Under this framework, Mississippi would not experience any loss of collected revenue, and there would be no actual impact on the treasury for at least five years. The suggestion is that the state would hold program-tied tax dollars collected in interest-bearing investments, and subsequently the state would keep all accured interest.
A better way
We did help develop a similar bill that was dropped in the 2015 Mississippi Legislative session — HB 1601 the “Mississippi Jobs Creation Act of 2015.” This piece of legislation did treat incentivizing talent retention as a tax credit. The bill did not make it out of committee, and frankly I’m glad it didn’t. The updated concept for 2018 shifts the incentive from being a true tax credit to being a refund/bonus. This is better for the state, and I believe psychologically a more effective way to incentivize talent retention.
And while we’re at it, another clarification
It may not be totally clear who exactly is elgible for the talent retention bonus program. Ideally, the program would not be limited to graduates of only Mississippi institutions of higher learning. We have a record number of out-of-state students enrolled in our colleges and universities, the vast majority of whom will leave the state upon graduation. HOWEVER, being able to increase retention of these graduates by just a small percentage will pay dividends down the road.
But as stated, the program would ideally not be for just in-state students. We would like to program to be open to any graduate of any accredited institution of higher learning or technical training program from anywhere in the world. Why? Well consider that the state of Mississippi has NO public investment in someone who grew up in Georgia (the state or the country), and attended college elsewhere. If this program could be used to attract only a small number of such individuals, then any revenue and economic development created from this person is, as they say, just gravy. We would be playing with house money. We are a relatively small state from a population standpoint, so moving the needle just a bit statistically can have significant real-world impact.
The Magnifier Effect
Another important aspect I’d like to point out is a likely magnifier effect that could fall out of this policy. As explained in several instances, this brain gain/talent retention policy concept is a supply side inspired solution. If we retain/gain more knowledge-based workers, then we become more and more attractive to knowledge-based companies. And we are certainly better able to retain our own native knowledge-based companies.
The fact is, STEM and STEM-related workers will be more likely to spin-off their own companies. This bolsters the strength of Mississippi’s entreprenur ecosystem, and snowballs economic development. Retaining/gaining more highly paid talent means more startups who also require more highly paid talent that will in-turn lead to more startups, and on and on.
To Sum Up
- The proposed Mississippi Brain Gain concept policy framework is not a tax credit but is more like a refund/bonus. This means no immediate negative impact on revenue collections.
- The proposed policy concept would ideally be open to any individual graduating from any accredited institution of higher learning or technical training program.
- The proposed policy concept has a likely built-in magnifier effect.
If you have any questions, suggestions, comments, or points of debate on this policy, please feel free to contact me via twitter @timmask or leave a comment here.