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Corporate Welfare / Subsidies

Yes, There Is A Problem, But The Prescription Is Wrong

By Michael Rathbone on Aug 1, 2012

The St. Louis Post-Dispatch recently published a guest commentary by Daniel C. Willingham that, among other things, decries the explosive growth in government spending and the lack of economic recovery that has followed. Willingham discusses how federal spending has exploded and the national debt has increased enormously. What does the country have to show for it? Gross Domestic Product (the output of goods and services produced by labor and property located in the United States) grew by a meager 1.5 percent last quarter and the unemployment rate is still stuck above 8 percent.

Willingham should be commended for recognizing the results of this spending binge. However, the author then advocates increasing the New Markets Tax Credit (a credit that goes to taxpayers who make a qualified equity investment into a qualified community development entity). This is going in the wrong direction. Expanding the government’s power to pick winners and losers through the tax code is not the way to move forward.

In fact, many bipartisan tax reform plans have called for moving in the opposite direction. Plans like the Simpson-Bowles Commission and Congressman Paul Ryan’s Roadmap for America’s Future call for eliminating most credits and deductions while lowering tax rates.

Missouri has issued billions of dollars in economic development tax credits and yet its economic performance has been dismal. If issuing more and more in tax credits really is the answer, Missouri should be booming. Why should the federal government follow Missouri’s example?

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Michael Rathbone

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