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State and Local Government / Transparency

“Make That Two”

By Bruce Stahl on Jun 15, 2011

What would you do with the extra cash if your state tax bill were lower? I’d probably buy an additional vanilla concrete each month. Why do I ask? Because redeemed tax credits have averaged $388 million each year since 1998. That’s almost 6 percent of Missouri’s net general revenue during that same period.

The state is awarding businesses, organizations, and individuals hundreds of millions of dollars in tax credits each year. It’s not as though the Missouri government is handing out these credits evenly across the tax base, either. As I have pointed out before, these credits are awarded to specific entities. Why is the state allocating credits to select groups and businesses?

Missouri Tax Credit Redemptions

The endearing purpose of one tax credit program is to “encourage farmers to acquire breeding livestock.” Sounds great for the cattle, but what about businesses that don’t sell livestock? Why is the state encouraging growth in the livestock industry? What about the myriad industries in the state that do not receive tax credits?

Tax credit redemptions have been on the rise. To rein in the credits, a commission was established last year to review all 61 tax credit programs. They recommended eliminating or not reauthorizing dozens of the programs, and placing caps on others. In all, if their recommendations were enacted, they reasoned, “the State could realize short and long term savings totaling as much as $220 million in tax credit authorizations (based on average authorizations FY07-FY09), eliminate the exponential growth of tax credit authorizations, improve budget forecasting, while at the same time better-positioning the State to compete in the economy of today as well as the economy of the future.”

Since the recession began, tax credit authorizations have fallen. This happened in the last recession, and will probably happen in the next. And, like the last recovery, tax credits will probably increase as the economy improves. We need a better long-term solution.

My solution is simple and doesn’t take 54 pages to detail: Eliminate tax credits and cut state taxes by 6 percent. It will certainly improve budget forecasting and end the growth of tax credit authorizations, as well as better position our state to compete in any economy. Lower taxes tend to do that.

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Bruce Stahl

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