Tax credits no substitute for state responsibility

Tax credits have long been popular, growing more so every year. Supporters push them to provide government backing for new initiatives or ongoing programs, steering money to worthy causes — some unworthy ones, too — bypassing actual appropriations by federal, state or municipal lawmakers.

With a tax credit, businesses or individuals can make donations to a program or invest in a project, such as housing, and reduce their taxes to the federal, state or municipal treasury.

Tax credits divert private money that otherwise would become public money when taxes are paid. Essentially, they are a subsidy.

They are an acknowledgement that supporters do not have the political votes to win support for direct federal, state or municipal funding for a particular housing or child care or education program, so let businesses and individuals contribute to the program and reduce their taxes.

It’s a win-win-lose. Taxpayers get a break, the nonprofits or schools or housing advocates get money, and the public treasury loses revenue.

“The rise in the use of credits is probably best seen as the outcome of an ill-fated political compromise. Republicans like credits because they look like tax cuts. Democrats like them because they advance social policies without raising government spending Both sides are getting a bad deal,” says a commentary published a quarter-century ago by the non-partisan Brookings Institution.

The century-old public-policy research house notes that the proliferation of targeted credits adds complexity to the tax code. “In addition, tax subsidies tend to breed demand for more subsidies,” the 1999 commentary says.

Amen to that — and I’m not a religious person.

That’s why it’s so discouraging to see Alaska’s governor introduce legislation that would expand the list of corporate donations eligible for tax credits, and also increase the amount of money that taxpayers could save by writing checks to something other than the state treasury.

The state has long granted credits for corporate donations to universities and colleges, K-12 schools (public or private), value-added seafood processing investments and a few more. Those credits cost the state maybe a few million dollars a year in lost revenues.

Gov. Mike Dunleavy’s bill would widely expand the list of donations eligible for tax breaks to include child care services, anything that reduces residential heating or electricity utility rates, reduces residential mortgage rates, reduces the costs of building energy-efficient housing in the state, or “improves food security and affordability.”

Dunleavy’s own Revenue Department reported it has no way of knowing how many businesses would take advantage of the expanded tax breaks, but it calculated that if every eligible entity in Alaska donated to the max, the state could lose about a quarter-million dollars a year in revenue.

The governor’s bill lacks the research needed for lawmakers to consider opening the state treasury door that wide. Besides, the tax credit is available only to corporate taxpayers, which, in Alaska, means only publicly traded corporations that do business in the state, such as Walmart, Target, Safeway, Fred Meyer, Wells Fargo, FedEx, Alaska Airlines, Delta Airlines and not many more — plus the biggies ConocoPhillips and ExxonMobil.

Even if you believe in tax credits as a sound public policy, Dunleavy’s bill likely would do little to help most communities that lack any presence of large corporations.

Thankfully, neither the House nor the Senate have held a hearing on this tax turkey. It’s unaffordable, unhelpful and uncaring answer to real needs for more affordable housing, better schools and improved access to child care.

“A better approach (than tax credits) would be to decide on the goals of public policy and find a straightforward and open way to pay for them,” says the Brookings Institution commentary.

Amen. Alaskans need to pay for the public services they want, rather than hide behind the curtain of tax credits.

 

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