Studies show that Missouri might earn more money by investing in education than it does by investing in tax credits designed to spur economic development.
State governments that emphasize tax credits and other corporate tax perks to corporations in hopes of enticing them to do business inside state lines are missing the boat, according to this 2013 report by the Economic Policy Institute (EPI).
In a single paragraph, the report summarizes a complex and important investment issue that Missouri Parent will continue to explore in the weeks and months ahead: the indirect cost of state tax credits to Missouri’s public school students.
Learn More: What Exactly is a Tax Credit?
Many lawmakers believe that the tax credit is a powerful incentive to lure businesses into Missouri, but tax credits might not be as effective as they think. The EPI’s report on says that tax incentives aren’t financially relevant to big business budgets:
“While cutting costs to business has become the principal focus of economic development policy in many states, more and more states are cutting programs across the spectrum to lower state taxes. In many cases, these ideas are promoted as a way to attract employers from other states—to steal jobs by offering incentives to business leaders. But the preponderance of evidence has shown that in the long run these strategies re inefficient and ineffective (Fisher 2013; Mazerov 2013; Lynch 2004). State and local taxes on business are simply too small a share of total business costs to play a significant role in location decisions...” (Source)
If state tax breaks have been proven not to be a significant factor when industry leader select locations for their operations, why does Missouri continue to spend more than half a billion dollars each year on tax credits? This is one of the questions the Missouri Tax Credit Commission tried to answer.
The Missouri Tax Credit Review Commission
The Missouri Tax Credit Review Commission was charged in 2010 and again in 2012 to explore “the steadily increasing portion of the State’s budget which Tax Credits consume.”
According to the Commission’s 2012 report, “for FY12, the State will have total expenditures of $8.64 billion. Of those total expenditures, tax credit will consume more than $629 million.”
The Commission made recommendations in 2010 to scale back tax credits, but no significant changes were made. Again in 2012, the Commission recommended that Missouri tax credits — which cost the state hundreds of millions of dollars each year with little-to-no direct return on investment — be reigned in. Meanwhile, public school education — which studies have shown has a sevenfold return on investment — remains underfunded in Missouri. (Source)
In 2012, Missouri spent $629 million on tax credits. In 2013, it came up $621 million short in Foundation Formula funding for Missouri K-12 public schools. For now, it seems as though little as changed since the Commission first set of recommendations in 2010: Businesses keep on winning, and public school students continue to lose.
Missouri Parent will continue to write about tax credits, school funding, and education policy issues that impact your child’s K-12 and higher education in the state of Missouri. To stay up-to-date, bookmark the Missouri Parent Blog or connect with us on Facebook and Twitter.
Posted on Wed, November 26, 2014
by MOParent filed under