“Missouri First”: Tax Credits Go From Bad to Worse

As Christine Harbin has convincingly argued, targeted tax incentives for businesses are a poor use of resources. When the state gives a tax credit to a particular company or industry, that recipient gains at the expense of everyone else.

Now here’s a worse idea: Fiddling with tax credit programs so that a larger percentage of available credits goes to companies that were located in Missouri to begin with (as opposed to out-of-state businesses that came here to get the tax break). If all companies in an industry have a chance at getting a tax credit, it’s possible that the most productive one will win it. It would still be a wasteful use of tax dollars, but the waste would at least be kept to a minimum. If, however, the tax credit program is rigged so that it favors preexisting Missouri companies, the state ends up picking a winner once, in singling out an industry for the subsidy, and then it makes yet another arbitrary choice based on location rather than merit. That compounds the inefficiency.