Negative Consequences of Reviewing Tax Credit Applications in the Missouri Legislature
As Ben Wieder reported yesterday in the Columbia Missourian:
Senators who would be responsible for reviewing tax credit applications under a proposed bill are mixed on whether they should have the authority to do so.
I hope that the Missouri legislature ultimately decides that it shouldn’t have the authority, because this policy would have several negative consequences.
First, the legislature would be committed to a time-consuming review process. If the legislature spends this much time determining whether it should even have the authority to review tax credit applications, it would spend at least as much time arriving at a conclusion when actually reviewing the applications.
Second, subjecting tax credits to the appropriations process would discourage businesses from relocating to Missouri. Wieder introduces this idea in the article. Businesses would locate themselves in other states out of fear that the Missouri legislature would ultimately deny their application, or because they are not recipients of targeted tax credits in Missouri.
“What businesses need is certainty,” [State Economic Development Director David] Kerr said. “If it’s not certain, they will go to a state where they know what they’re getting.”
Third, if the legislature has the authority to decide which specific applications receive tax credits and which don’t, then there is an increased incentive for applicants to seek the favor of elected officials. This would aggravate the already-uneven playing field and encourage special interests.
Instead of providing tax credits that are targeted to specific businesses or industries, it should work to create an environment that affects all parties equally, such as reducing corporate income taxes or eliminating the earnings tax.
I disagree.
1. The review process is, I imagine, time consuming. But it’s currently done by bureaucrats (so somebody’s time is already being consumed), and the debate isn’t public. If we suspect that tax credits are often awarded to the politically connected, then it is preferable (absent eliminating tax credits) that the debate is public, and that the process is a transparent one.
2a. Is this fear of uncertainty legitimate? What exactly is different under the current system, where bureaucrats already have the power to deny applications. Furthermore, shouldn’t we be concerned if Kerr’s statement is true, and businesses CAN count on tax credits, without fear of denial? To me, his statement suggests that there is no competitive process, and that no standards are in place, other than basic guidelines set by the legislature.
2b. If we accept the argument that we need tax credits to entice businesses to the state, then aren’t we validating all other arguments in favor of cutting favored companies and industries a check? I would prefer profitable, confident businesses coming to Missouri instead of those who need tax credits to keep themselves in the black.
3. Your last point is wishful thinking. I firmly believe that companies in search of large tax credits already seek the favor of elected officials in order to ensure that their applications for state money are approved. And, of course, political favor seeking occurs during the legislative session when elected officials propose new tax credits.
In my opinion, forcing elected officials to debate the merits of a specific company’s tax credit application, especially if they themselves voted in that tax credit, would remove some of the fog that currently obscures the favor seeking already taking place. Enterprising reporters would surely take the time to check whether a legislator reviewing a company’s tax credit application had previously received a campaign contribution from that company.
Finally, we should view Kerr’s statements with skepticism. It’s likely that his department would have less work (and perhaps need fewer employees) if the authority to review state tax credits were transferred to the legislature.
Comment by Audrey — February 11, 2010 @ 11:49 a.m.