A new audit lends credibility to Gov. Eric Greitens' cynicism of tax credits.
The state auditor's office released a report showing a $3 billion tax credit liability that extends at least into the next 15 years, due to credits authorized by the Legislature but not yet redeemed, according to the Associated Press.
Tax credit programs have cost the state $5.4 billion over the past decade. They are authorized by the Legislature to give a break on state taxes to businesses/individuals. They can cause volatility in the state budget for years in the future, the AP reported.
They have been redeemed at a growing rate. Widespread agreement exists that they need to be reined in. Both former Gov. Jay Nixon and Greitens appointed panels to study them.
Greitens frowns on them in general: "The people taking the money make big promises about jobs - but their performance hasn't lived up to their pledges," he said. "Every year, more money flows out of this shadowy system into the pockets of insiders - and no one asks hard questions about how the system works, or doesn't work, for the people of Missouri."
Like the tax system in general, tax credits have been used by lawmakers to reward certain constituencies or behaviors. And like the tax system in general, it's become too complex.
Tax credits can serve a good purpose, but too often lawmakers approve new ones without a complete picture of their cost vs. benefits.
We also don't always have a good picture of how past tax credit programs have worked - or not worked - for the state. Tracking their effectiveness isn't easy, but Auditor Nicole Galloway is recommending ways to address costs and improve data integrity. That includes reducing the amount of time tax credits can be carried forward, along with more clearly defining annual or cumulative cost limits. Galloway also is pushing for new processes to ensure accurate benefit-cost analyses, since the Department of Economic Development reports a majority of tax credit redemptions have negative benefit-cost ratios.
"Policymakers need accurate and realistic data on tax credits in order to weigh the social and economic benefits against the impact on the state's finances," Galloway said. "The General Assembly must demand more from the agencies that are charged with administering these programs."
We welcome the recommendations, which hopefully will lead to tax credit reform in the future.