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WHY TAX CREDITS ARE THE SAME AS SPENDING

May 15, 2008

Daniel Shaviro has a concise explanation:

My favorite example of the core point made by tax expenditure analysis remains one that I got from David Bradford. Let's cut both taxes and spending by $50 billion, David pretended to urge, by zeroing out $50 billion of military spending (to buy advanced weapons) and enacting instead $50 billion worth of "tradable tax credits" that would go to the very same weapons suppliers for the very same weapons. At the end of the day, everything would be exactly the same, but taxes and spending would each be reported as $50 billion lower. Without a tax expenditure concept, it is hard to show as crisply that nothing in this scenario has genuinely changed.

State economic development tax credits work exactly the same way. It's money that the state takes from some taxpayers to give to their friends. And if you think the politicians in Des Moines are smart enough to invest taxpayer money in private businesses, why aren't they millionaire venture capitalists instead of $25,000-per-year legislators?

Tags: corporate welfare.economic development.iowa tax policy.tax policy.