November 9, 2011

The Road To Prosperity Is Paved With . . . State Tax Incentives?

Missouri Gov. Jay Nixon loves awarding tax incentives. So much so that in April, a road was named after him, which was pavedpaid with tax incentives. Although roads named in the governor’s honor may be rare, state tax incentives are not. Last month, the governor announced a Ford investment that will benefit from state tax credits, and a few days ago, he announced the expansion of a General Motors plant that also may benefit from tax credits.

There’s no doubt the governor grasps the notion that tax incentives can promote investment — but when will he realize that cutting taxes may have the same beneficial effects? Tax cuts may attract more investment to Missouri, promote job growth, and incentivize business expansions — three things for which Nixon already credits tax incentives. Tax cuts may even make business expansions easier; there won’t be all the red tape that goes along with obtaining government tax incentives.

It’s not as if tax incentives always work. Remember Mamtek? Hundreds of jobs were promised, but now all the state has to show for it are an SEC investigation and an unhappy legislature. Show-Me Institute Policy Analyst Audrey Spalding has already written on this and other tax incentive blunders. Because tax cuts won’t be tied to firm-specific investment and job creation, such government failures could become a thing of the past.

The governor needs to stop favoring focused tax incentives and start favoring broad tax cuts.

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