Commission Recommends Positive Changes to Missouri’s Tax Credit Programs
When the Tax Credit Review Commission was created in June, I predicted that it would not call for scaling back tax credit programs in Missouri. I suspected that this would be the case largely because of the composition of the commission, which includes businessmen whose companies have been issued tax credits, along with bureaucrats and politicians who have an incentive to grow the size of government.
The Tax Credit Review Commission is in the process of delivering its final recommendations, and, to my pleasant surprise, it is calling for significant cuts and reforms. Relatively speaking, this is a great time to be a taxpayer in Missouri.
When the government subsidizes select businesses and industries, this serves effectively as an admission by the state government that the cost of doing business is too high in Missouri. As an unfortunate consequence of such policy, the businesses and individuals that remain in the tax base are left to pick up the tab, which makes it even harder for them to compete. This also gives special interests the incentive to petition the government for favors, when they could otherwise spend their efforts engaging in productive work by creating goods or providing services to consumers. If the state government wants to create widespread, lasting economic growth, it should focus on providing a favorable business climate for all individuals, businesses, and industries, rather than just providing aid to a select few with generous incentive packages that distort the playing field.
By limiting tax credit programs, Missouri can assess a tax rate that is lower and more equal for all taxpayers. This low-tax environment would attract new businesses and individuals to Missouri more efficiently than any targeted tax credit program could. More importantly, it would attract a wide variety of businesses. This is crucial, because government officials have no special insight into which targeted industries will be successful — indeed, they often choose industries that perform far below expectations. This influx of business would, in turn, result in a steady stream of more reliable tax revenues, so government in Missouri would not have to struggle to pay for itself.
Missouri’s development tax credit programs have not fulfilled their stated purposes, and spending more on them will not likely result in better outcomes. Money that has previously been devoted to targeted development would be much more effectively spent if left in the hands of individual Missourians, who are much better able to respond to decentralized market signals, satisfying a much wider array of consumer wants and needs than can be met by a few companies on the receiving end of taxpayer enticements.
The ostensible purpose for the Tax Credit Review Commission, as Gov. Jay Nixon outlined in his opening remarks to the commission, was threefold: help the state make wise use of taxpayers’ dollars to create jobs, incite economic development, and build strong communities. Although I wish that the commission had investigated whether tools other than tax credits could better achieve these goals, I’m thrilled that they are recommending considerable reforms.
I applaud the Tax Credit Review Commission for recommending aggressive cuts and limits. The state’s economy and the people of Missouri will benefit if officials follow through on these recommendations.
Christine Harbin is a research analyst for the Show-Me Institute, a Missouri-based think tank.