It’s Time To Control Tax Credits

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    A while back I wrote about the fiscally dangerous habit of legislators on the state and national level blithely passing bills to give tax breaks to favored groups of citizens without considering the effects on government budgets. In Virginia that habit costs the state $12.5 billion in lost revenue each year. Some tax credits, or tax expenditures, are for worthwhile social purposes, such as credits to low income persons and credits to promote historic or land preservation. Others are blatant giveaways, such as the credit given to coal companies to “promote” employment in an industry with consistent declining employment.

    So far, the 2012 session of the legislature has seen six bills introduced that propose tax credits, some of which might be nice except for the fact that the legislators introducing them have no idea of their cost to the General Fund, nor have they proposed any way to replace the lost revenue at a time when the state faces another huge budget deficit.

    There are, however, two pieces of legislation pending that would help the state make tax credits more transparent and more controllable. Scott Surovell (D-Fairfax) has a introduced a bill that would require the publication of the names of certain entities receiving tax credits of more than $1,000. Ben Cline (R-Amherst) has a bill that would place a five-year expiration date for all tax credits and require the tax commissioner to report the estimated revenue loss of each state tax credit that is scheduled to expire in the next two calendar years.

    These bills would be a start to finding a rational way to show legislators that tax credits are tax cuts, which result in either less money for vital state services or an increase in taxes on the rest of us. When tax credits equal 90% of the amount of money collected each year – the case in Virginia – something has to change.

    • Elaine in Roanoke

      Here’s a list of the credits proposed so far this session:

      1. Credit for machinery used in a manufacturing facility or plant that produces methane gas through anaerobic digestion – Manoli Loupossi (R-Richmond)

      2. Credit for small businesses creating full-time jobs – Dickie Bell (R-Staunton)

      3. Credit for federal contractors hiring minority businesses (has a sunset date of 2017) – Greg Habeeb (R-Salem)

      4. Credit for new beehives of $200 per hive for registered beekeepers – Ed Scott (R-Culpepper)

      5. Increase the credit for long-term care insurance premiums from 15 percent to 30 percent – Scott Garrett (R-Lynchburg)

      6. Credit to business for the amount of income tax paid in another state for sales in that state – Joe May (R-Leesburg)

      While some of these are nice, how can they be justified in a year when McDonnell has proposed taking money from public education and shoveling it into asphalt? Note also that all the legislators proposing tax credits without estimating the cost are Republican. I guess they never took Economics 101.

    • Bumble Bee

      Virginia is essentially government by special interest and has been for a very long time.  Until we demand better we  get the government we deserve.

    • Elaine in Roanoke

      Even though Richmond Sunlight doesn’t track Jerry Kilgore’s (R-Gate City) bills for space industry cronies as tax credit bills, at least one of them is: the bill that would give a person an $8,000 credit if he/she wants to shoot his/her cremated remains – well, a tiny fraction of them – into orbit.

    • MNardolilli

      I agree that most tax credits are inefficient, ineffective, and of an unknown cost. Nonetheless, these arguments do not apply to the Land Preservation Tax Credit (LPTC). The General Assembly’s Joint Legislative Audit and Review Commission recently reviewed 70 Virginia State Income Tax Credits and found the LPTC to be only one of two tax credits that were both efficient and effective. And the LPTC is capped at $108 million per year. So, let’s not throw the baby out with the bath water.