Benefits to Allocating Tax Credits for Artificial Intelligence Are Risky and Unclear

Testimony from NJPP Senior Policy Analyst Peter Chen in opposition to allocating unexpended Aspire and Emerge tax credits to AI.

Published on Jun 26, 2024 in Tax and Budget

Allocating $500 million in tax credits in untested technology like artificial intelligence should give the state pause. Business tax credits should be used sparingly when subsidizing private profits, yet this proposal has almost no guard rails that ensure that these investments are responsible or sustainable, nor does it require that the jobs created be based in economically distressed communities.

One major concern is the redirecting of Aspire and Emerge credits to an unrelated purpose. Aspire and Emerge focus on revitalizing economically distressed areas with transit-oriented development and job creation. The new AI program would use those potential funds instead on promoting a narrow and risky subsector employing relatively few people. Without the commitment to economically distressed municipalities, it’s likely that AI tax credits would end up in already-wealthy communities and business owner pockets, rather than in the communities most in need.

AI data centers are also notorious for being extremely energy-intensive, with the International Energy Agency estimating that data centers and artificial intelligence will use as much energy as the entire country of Japan by 2026. As a state committed to reducing greenhouse emissions and increasing energy efficiency, New Jersey would be wise to put safeguards in place to prevent an increase in emissions at a time when the state can scarcely meet its current emissions reduction goals.

There may be a sense that because these credits come from unexpended Aspire and Emerge allocations that they are “free money.” But make no mistake, if a tax credit is handed out, the check will come due. The state has already seen the result of these credits in prior years with revenue reductions in the current tax year, as OLS detailed in its revenue report.

A $500 million tax credit to subsidize a risky investment deserves careful consideration, not a vague last-minute proposal with a mere sketch of guardrails and unclear benefits to the state.

NJPP urges the committee to pause this proposal for a robust debate rather than rubber-stamp it.

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