MU Researchers Suggest Changes for Missouri Tax Credit Programs

March 18th, 2013

By Jerett Rion

COLUMBIA, Mo. – In the past few weeks, Missouri legislators have been considering a number of different tax credit reforms. While these tax credits can be beneficial to Missourians, the financial outcomes of tax credits can be unpredictable. Now, researchers from the University of Missouri have published a report with recommendations for legislators to consider when discussing the future of tax credits in Missouri. Since the report was sent to Jefferson City at the end of 2012, the Senate has passed three new tax credit bills, modified two existing tax credit bills and placed stricter caps on three existing tax credit bills.

“One of the purposes of our report is to help inform lawmakers how to evaluate tax credit programs based on cost-effectiveness,” said Brian Dabson, director of the Institute of Public Policy (IPP) in the MU Truman School of Public Affairs. “However, there appears to be little interest in the legislature for comprehensive tax credit reform, but rather a preference for small changes that cap the largest programs, extend the life of sunsetted programs, and add new ones.”

The IPP’s report, which was sent to the Missouri Tax Review Commission in October, recommended that lawmakers consider the following:
• Tax credit programs are intended to achieve certain purposes, primarily stimulating investment and encouraging different types of development, across a wide range of sectors and activities. Their individual impact and effectiveness should be measured according to the extent to which they achieve their specific purpose.
• The purpose of tax credit programs is not to increase state revenues, and their impact should not be measured in those terms.
• Economic development programs should be evaluated on their economic costs and benefits. However, tax credits designed for other purposes, such as housing or historic buildings, should be assessed against broader criteria and their cost effectiveness.

“We need to consider the tools that are most appropriate for measuring the impact of tax credits,” Dabson said. “Cost benefit analysis should be used for economic development programs, but not all tax credits have obvious economic development returns – their value has to be assessed against broader objectives.”

A copy of the two IPP reports can be found at http://ipp.missouri.edu/files/ipp/attachments/03-2013_assessing_the_impact_of_missouris_tax_credits.pdf and http://ipp.missouri.edu/files/ipp/attachments/03a-2013_assessing_the_impact_of_missouris_tax_credits_an_update.pdf.

Established by the University of Missouri Board of Curators in May, 2001 the creation of the Harry S Truman School of Public Affairs represented a major commitment to public affairs education, research, and public service by the University of Missouri. The mission of the Truman School is to advance the study and practice of governance in Missouri, the nation, and the world by conducting research, informing governance and public policy, educating for ethical leadership, preparing the next generation of scholars and fostering democratic discourse.