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State and Local Government / Budget and Spending

Rein in Tax Credits, Widen the Tax Base

By Christine Harbin on Apr 22, 2010

According to an AP article dated yesterday:

Education officials from across Missouri joined Gov. Jay Nixon’s call to rein in tax credits, asserting Wednesday that escalating incentives are diverting money from financially strapped schools and colleges. […]

Nixon, a Democrat who last year backed an expansion of state tax credits for businesses, now says tax incentives have grown so greatly that they are threatening other essential government functions. About $585 million of tax credits were redeemed last year — up 86 percent over the past decade, he said.

I realize that education officials are self-interested, but I agree with their assertion here that Missouri’s tax credit programs are funded at the expense of other programs. When tax revenue is spent on subsidizing select businesses and industries, taxpayers cannot spend that money elsewhere, such as on education; they face an opportunity cost that at least equals the amount of the tax credit.

Additionally, the state shouldn’t carve out sections of its tax base to reduce tax burdens for a select few, because those who remain in the tax base have to pick up the difference. By having a broad tax base, Missouri can assess a tax rate that’s lower and more equal for all taxpayers. This low-tax environment would attract new businesses and individuals to Missouri better than any selective tax credit program could. This would result in a steady stream of more reliable tax revenues, so government in Missouri would not have to struggle to pay for itself.

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Christine Harbin

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