Evaluation of Enterprise Zones - Essay Example

The confusion occurs in a considerable number of areas where states have given their enterprise zone programs: renaissance zones, keystone opportunity zones, development zones, and program areas, for example.

The states’ enterprise zones present a compelling opportunity to explore the spread of ideas in the American federal system. The enterprise zones have caused a significant debate within the framework of urban policy and economic development over the past two decades. The idea of cutting taxes and regulations as a free market remedy for impoverished areas was originally a frontend brought forward by conservatives and denounced by many liberals. Today, the state zones that populate the landscape of rural and urban areas hardly resemble the anti-government, supply-side approach. A new vibrant, federally empowered zones and enterprise community programs require the inclusion of social programs which provide grants for individual zones.

As to their mode of operation, enterprise zones provide special state and local economic development incentives that encourage commercial investments and the promotion of job creation in the economy. The program primarily aims at providing tax incentives to businesses within an enterprise zone. Eligibility for benefits from the program depends on physical presence in a given zone: existing businesses and those being relocated to such areas are eligible. These incentives include: hiring tax credits, sale and use tax credits, deductions of business expenses, carryover of net operating losses, and deduction of net interest that lenders and banks charge. A business located within an enterprise zone may reduce its state income tax by a percentage of wages paid to qualified employees. It may also claim up to half of an employee’s wages within the first year of employment.

The drawbacks to enterprise zone system range from costs, training, and turnover to customization difficulties. For medium and small size businesses implementation of enterprise zone systems can be expensive because they do not have adequate capital. For the system to work the business must have qualified employees who are knowledgeable in using it. This is a costly venture which has led many small businesses to ignore it altogether. Further, integrating the system into a business is challenging, a factor that has seen employees spend a lot of time customizing the system with little success. All these factors hinder the adoption of the system, especially for small businesses, which end up missing the benefits thereof. Read More