With talk of another round of federal stimulus money designed to boost the fledgling economy unfolding on the national stage, discussions in Missouri on Wednesday will turn to the state’s 61 tax credit programs.
President Barack Obama proposed spending $50 billion on infrastructure to a crowd of labor supporters in Milwaukee on Monday. And much like each round of federal stimulus funding doled out to the states, tax credits handed out across Missouri are designed to promote economic development.
But unlike the federal government, the state is required to balance its budget each year and tax credits are growing faster than general revenue growth.
Reviewing tax credits
With the purpose of making “recommendations for greater efficacy and enhanced return on investment,” along with enhancing job creation, Missouri Gov. Jay Nixon created the Tax Credit Review Commission in July.
The panel of 25 business, community and legislative leaders from across the state will meet for the first time on Wednesday within walking distance from the state Capitol in Jefferson City at Capitol Plaza Hotel.
Increasing return on investment
The governor, a Democrat, created the commission shortly after signing the Missouri Automotive Manufacturing Jobs Act, following a four-week special session. The Missouri General Assembly, controlled by Republicans, passed the legislation, along with a pension reform bill designed to offset the tax incentives.
The latest tax credits will allow automakers to retain withholding taxes only after a company makes firm commitments to invest in production and keep workers on the job. If the commitments are not upheld, the company would be required to repay the incentives, which are capped at $15 million a year.
Following the passage of the tax incentives for automakers in July, the governor praised both sides of the aisle for working together “to keep thousands of Missourians living and working right here in our state.”
Increasing tax credits
An audit from Missouri Auditor Susan Montee, a Democrat, released in April highlights some of the problems with increasing tax credits. The report notes that tax credit redemptions in Missouri went up faster than general revenue, increasing 57 percent from $372 million in fiscal year 2001 to more than $584 million in fiscal 2009.
Meanwhile, general revenue increased 15.7 from $6.44 billion to $7.45 billion from 2001 to 2009.
Springing forward to present day, with the economy still struggling, state revenue collections are lagging — notably higher than at the turn of the century, but lower than just a couple of years ago — creating an estimated budget shortfall for fiscal 2012, starting July 1, 2011, of anywhere from $400 to $900 million.
Nixon tried to get what he described as a “more focused use of tax credits” passed for fiscal 2011. But the legislature did not approve of the measures to reduce tax credits. Therefore, the governor plans to do what he can “administratively to ensure return on investment,” according to an August budget update for fiscal 2012.
The governor noted he appointed the commission to review tax credits and make recommendations as one way to help close the budget gap, in addition to improving tax collections and reducing spending.
Supporting tax credits
Again, much like federal stimulus and supporters of pumping more taxpayer money into spending programs, those on the receiving end of state tax credits are supportive. Every tax credit has its own supporters.
Soon after the tax credit commission was named, the Missouri Coalition for Historic Preservation and Economic Development criticized it, claiming the commission lacked enough representation of people who know the economic benefits of historic tax credits. The group is a coalition of business leaders, developers, preservationists and labor groups that works to lobby in an effort to protect historic tax credits.
And business groups, which heavily influence Republicans and Democrats, such as the Missouri Chamber of Commerce and Industry, the Greater Kansas City Chamber of Commcerce, and the St. Louis Regional Chamber and Growth Assocation back most tax credits, saying they are needed to lure companies to Missouri. At the RCGA, for example, there is a whole section on its website dedicated to taxes and incentives.
Opposing tax credits
The one question that does not seem to be on the agenda for the Tax Credit Review Commission on Wednesday is whether or not to keep state tax credits. Should the programs be cut altogether?
If the governor was serious about stimulating economic growth in Missouri, he would eliminate the programs entirely, said Christine Harbin, a research analyst with the Show-Me Institute, a free-market think tank.
The Show-Me Institute, which often refers to tax credits as corporate giveaways or corporate welfare, keeps track of all the tax credits handed out in Missouri online, allowing users to figure out who is benefiting from tax credits.
“Although I applaud the effort to review tax credit programs, I am skeptical that this commission will accomplish anything, since the governor continues to dole out tax credits to his favored few,” Harbin previously told Missouri Watchdog. “We live in a world of second-best options, and a review process is more desirable than nothing.”
Cutting tax credits
When asked last month how the state could eliminate its estimated shortfall of between $400 and $900 million for 2012, most of the suggested cuts from the Show-Me Institute were tax credits, with Harbin saying cutting tax credits altogether could save $585 million. Specific tax credits that could provide savings include:
- $200 million for historic preservation tax credits
- $20 million for distresed land assemblage tax credits
- $5.7 million for grape and wine tax credits
- $4.5 million for film production tax credits.
- $2 million for charcoal producers tax credits
Spending your tax dollars
Similar to the growing national debate on stimulus spending and the developing debate in Missouri on how to cut the budget shortfall for fiscal 2012, Wednesday is an opportunity to make your voice heard on tax credits.
What are your thoughts on tax credits?
Do they need to be reduced? Should they be more targeted?
Or should they be cut altogether?
If you are not able to make it to Jefferson City on Wednesday for the commission meeting, join the debate and post your comments below.
Or contact Missouri Watchdog directly. More voices are welcome.
Missouri Watchdog will be in Jefferson City on Wednesday.
For updates, follow Missouri Watchdog on Twitter.
By Brian R. Hook, firstname.lastname@example.org, (314) 482-7944