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State and Local Government / Transparency

Graphic in the St. Louis Business Journal Raises More Questions

By Christine Harbin on Oct 12, 2010

In a St. Louis Business Journal editorial, the chief operating officer of a development company praises low-income housing tax credits and historic preservation tax credits. It reminds me of an editorial that ran in the Post-Dispatch last June, in which an architect argued in support of historic preservation tax credits, and which I discussed on Show-Me Daily.

The following passage from Economics In One Lesson, by Henry Hazlitt, seems particularly relevant:

The group that would benefit by such policies, having such a direct interest in them, will argue for them plausibly and persistently. It will hire the best buy-able minds to devote their whole time to presenting its case. And it will finally either convince the general public that its case is sound, or so befuddle it that clear thinking on the subject becomes next to impossible.

The editorial includes the following pie chart:

Source: St. Louis Business Journal
Source: St. Louis Business Journal

According to the explanation in the text:

The chart above shows where the money went in the $34 million Crown Village Redevelopment project using LIHTC and historic preservation tax credits.

The chart raises more questions than it provides answers. Does it indicate the actual amount or the projected amount of economic activity resulting from the specified project? Does it include direct expenditure by the state, or does it account for an economic multiplier? (And, if so, at what assumed rate?) How is it similar to or different from the breakdown of other projects, and of other tax credit programs? What was the duration of the project? Where did these jobs go when the project was completed and the subsidy ended?

Furthermore, were the workers in question unemployed before they were hired to work on the Crown Village Redevelopment project? If not, then the subsidy displaces economic activity that already existed in the private sector. If so, then the subsidy is another form of unemployment. Economist Russ Roberts discussed this in a recent post on Cafe Hayek:

Having them do nothing–either because the task is unproductive or because you simply give them a check with no strings attached–does not in and of itself create prosperity for anyone other than the people who get the check.

I have argued repeatedly that targeted development tax credits are a poor strategy for economic development, and that they have negative consequences in Missouri. For evidence, I encourage our readers to read an editorial, which recently ran in the St. Louis Beacon, in which I argued that targeted tax credit programs create an uneven playing field in Missouri.

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About the author

Christine Harbin

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