Kentucky: March 2009 Archives
In each case, the break would not be available for purchasers of older residences, suggesting that these breaks are more of a bailout for developers than they are aid for those in the market to buy a home. And in either case, the proposals still suffer from many of the flaws with the federal break -- such as their potential to re-inflate home prices, and the fact that these breaks won't provide homebuyers with any cash at the time of purchase.
It's
hard to believe, but there may actually be a trend in state tax policy
more prominent than increasing cigarette taxes. Business tax credits
aimed at spurring economic development have been among the most popular
ideas in statehouses scrambling for ways to reduce unemployment. Just
last week, we described a plan in Minnesota to boost investment tax credits and a budget in California containing a few credits of its own. This week, proposals to do the same in Iowa, Kentucky, and Missouri are under discussion.
In
Iowa, Republican lawmakers have suggested paying (via tax credit) half
the salary of each new job created by private businesses. Oddly,
because this payment would be administered through the tax code rather
than as a direct grant, the debate has become confused to the extent that this policy has been labeled as a way to return to a "market-based, capitalistic system".
An excellent op-ed
out of Kentucky helps clear things up a bit, noting that Gov. Beshear's
proposed expansion of business tax incentives would be a costly,
nontransparent, and likely ineffective way of encouraging job growth.
The op-ed goes on to argue that a "broader" approach, including better
targeted and more closely scrutinized spending programs, could do far
more good than creating more tax credits.
Finally, as an expansion in economic development tax credits works its way through Missouri's legislature, the admission
of at least one legislator that he is a "recovering tax credit addict"
helped to shine some light on the unfortunate politics behind these
types of tax credits. These programs can cost a state enormously, and
are rarely defensible on principled tax policy grounds. Instead, they
constitute a type of spending done through the tax code -- commonly
referred to as "tax expenditures"
-- which add complexity, shrink the tax base, require higher marginal
rates, and offer little if anything in terms of making the system more
responsive to individuals' and businesses' ability to pay.
