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.