Due Credit for Cutting Tax Credits
In his quest to balance the budget, Gov. Jay Nixon has proposed cutting tax credits drastically:
[Nixon’s economic development director David] Kerr said that rather than just putting caps on tax credit programs, the administration wanted to “reform the whole thing from scratch.” Under the plan, the state would set a “global cap” of $314 million in tax credits that could be authorized next year. The number is pegged to 70 percent of the credits claimed last year.
Certain tax credit programs, like the Homestead Preservation Credit for the elderly, would be exempt from cuts and caps, but most of the others would be subject to the cuts. Tax credits are something that Show-Me Institute scholars have written about frequently in past articles and blog entries. Lower tax rates across the board are preferable to targeted tax credits, which can be used to help special interests. The governor’s drastic plan is a good step in the right direction toward decreasing dependency on these credits.
(To be fair, there are a few tax credits I personally think should be kept, namely the charitable contribution tax credit. It is not targeted at any one business, but can be used by individuals to benefit the causes they deem worthy of donation.)
In discussing the governor’s plan, Show-Me Institute staff writer Audrey Spalding made an interesting point: The fact that the governor plans to cut only half of the tax credit programs seems to imply that there is still some value in the 61 tax credit programs currently in place. She suggested that tax credits should be subjected to an appropriations process, an idea proposed in the General Assembly by Sen. Jason Crowell. This would force the real question of whether each program and tax credit is useful in and of itself in comparison to other possible avenues for government spending.
Up until now, the amount that the state spent on tax credits was not bound in any way. But every tax credit awarded is money that cannot be spent elsewhere. At any point in time — but especially during a budget crisis — these tax credits need to be subjected to great scrutiny, so that the cost-benefit analysis is able to weed out the least deserving programs. I applaud the governor’s efforts to reduce tax credits, but I hope that the process goes even further, and officials reexamine the value of each tax credit.