‘Quality Jobs’ Tax Credit Expansion Stalled in Committee
By Jack Naudi
Show-Me Institute
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Senate Bill 45 at a Glance Original Sponsor: David Pearce (R-Warrensburg, 31st District) Key points, amended version:
Bill status: In the Senate Jobs, Economic Development, and Government Committee |
JEFFERSON CITY — In his Jan. 27 state of the state address, Gov. Jay Nixon made invigorating the state’s economy a central theme. A key component of his plan called for expanding the state’s most prominent tax credit program, Missouri Quality Jobs. He asked the legislature to pass a bill by the March break to remove the $60 million cap on the program.
The effort got off to a fast start, with House Bill 191 passing Feb. 5. But that bill, and a duplicate Senate version, Senate Bill 45, still sit in the Senate, with the governor’s requested March 12 deadline having come and gone. In the meantime, questions about the effectiveness of Quality Jobs, and concerns about the state’s 60-plus tax credit programs in general, have gained traction.
Under the Missouri Quality Jobs Initiative, businesses receive tax credits for creating jobs. But in a recent story, the St. Louis Post-Dispatch reported that many of the proposed jobs never materialize. The state claims that Missouri Quality Jobs had added 22,000 jobs since 2005. The actual number, however, was 2,373.
The state’s total, which is tallied by the Missouri Department of Economic Development, includes both proposed and actual jobs created. Linda Martinez, who heads the department under the Nixon administration, defended the higher proposed jobs number to the Post-Dispatch, saying that businesses had two to three years to add the jobs. Martinez did not return a Show-Me Institute call for comment.
Others are less sure about the impact of tax credits in general.
“I believe that the private sector creates jobs, not the government,” said state Sen. Brad Lager, R-Maryville. “For people to believe that we can throw money around, and that’s job creation, I fundamentally disagree with that.”
Joseph Haslag, executive vice president of the Show-Me Institute, wrote several commentaries in 2008 that generally were critical of tax credits. Haslag explained it this way in one commentary: The state generally receives 3 to 4 cents for every dollar of goods and services produced in Missouri. That means for every dollar of tax credit, companies would have to produce $25 to $33 of final goods and services just for the state to get its money back. That kind of return is unlikely.
Haslag also said that the state must pick winners when deciding who should get tax credits. However, he pointed out, government officials have no special skills or abilities to help them determine which firms will bring the most growth, and picking even the second-best proposal could have devastating economic effects.
Nonetheless, lawmakers, economic developers, and business interests continue to push hard for greater use of tax credits, especially for Quality Jobs.
Tracy King, director of taxation and fiscal affairs for the Missouri Chamber of Commerce and Industry, noted that Quality Jobs tax credits aren’t offered until a job is created. In addition, credits are offered only for jobs that exceed the average wage of the county in which the jobs are located.
“It creates high-paying jobs,” she said. “And they have to pay for health insurance. I think that’s an important note to talk about.”
King said the chamber is studying the recent proposed changes to S.B. 45, which includes reinstating the cap on Quality Jobs credits, and raising it to $120 million from the current $60 million. Those, and a number of other changes, came at the urging of senators, including Lager, who say some tax credit programs must be reined in.
Lager pointed out, for example, that there are no limits on historic tax credits, which he calls “entitlements.”
“If you do items A, B, and C you’re guaranteed money from the government. That’s not oversight. That’s not accountability,” he said.
The lack of accountability and the absence of caps, Lager said, make the programs ripe for abuse.
The latest version of S.B. 45 calls for caps on virtually every tax credit program. It also includes a sunset provision, so that all of the tax credit programs expire on particular dates. That should allow time for each program to be evaluated, Lager said.
“We, as appropriators, need to have a better idea of what tax credits are going out every year,” he said. “Can we be more efficient and smarter? Can we narrow (the number of tax credit programs) down to 10 or 15 that work really, really well?”
The chamber, King said, is sensitive to calls for reforming tax credits.
“We haven’t taken a position, but we’re open to discussing it,” she said.
Whatever the Senate does, it needs to happen quickly, given the state’s rising unemployment rate. “Quality Jobs is important, especially now.”
Jack Naudi is a researcher and writer for the Show-Me Institute.