LA officials must root out inefficient corporate tax credits

Last year, in Louisiana politics the issue arose, in debating the role of income tax reduction, concerning whether the vast myriad of state tax credits was cost effective. The Louisiana Legislative Auditor has released a report that makes answering the question more imperative than ever.

In it, the LLA notes that over the past several years the state has allowed credits to be claimed by corporations to total more than half of all corporate income taxes paid. The figure seems to be accelerating; for the last year (2009) for which there is complete data over three-quarters of the equivalent of taxes actually paid were forgone through use of the tax credits. For individuals over the time span, the amount is about a ninth, much of that due to special write-offs to deal with the underfunded state insurer after the hurricane disasters of 2005. In the 2005-10 span, on the corporate side this came to around $3 billion.

The report helps answer the question posed by other observers about why there seems to have been such shrinkage in corporate income tax take over the past few years. It also notes that such a high volume could make questionable whether all of the state largesse represents a cost-effective investment. The highest-priced bellhop over in the Department of Economic Development, Secretary Stephen Moret, defended them in general, whose agency oversees a plurality of them, by stating biannual reports reveal four to five dollars of economic activity accrues to the state for every dollar credited.

But Moret dodges the real issue. The metric by which the effectiveness of these programs is measured is not activity, but tax revenues generated by the activity. If the state is paying out more in credits than it or local governments get back through the economic activity spawned by the credits, it becomes just another form of welfare, a crony capitalism that decides to pick winners and losers as far as industries and activities. The reports on all of these individual credits, for the most part, do not contain that kind of information.

However, some exceptions were written into law, and one paints a disturbing picture. As recounted many times in this space, the Motion Picture Investor tax credit is incredibly inefficient and a substantial bleeder of state resources. Consistently since its founding (and ratified in its latest 2011 report), only about a sixth of every dollar sent out gets returned as tax revenue. It represents nothing more than a giant subsidy to make movies – with policy-makers favoring this lucky (even Academy Award-winning), small, and relatively financially comfortable clique at the expense of the indigent, students, etc. Over the years, it has cost the state hundreds of millions more dollars than it has brought in.

The lack of relevant information on the matter, and what little data do exist concerning it, shows a real need for the Legislature this session to legislate the reporting of these data (and in the process changing the law to allow reporting of the recipients of these corporate credits) so policy-makers can evaluate easily the merits of each credit. Otherwise, as the LLA suggests, we may be throwing good money after bad, privileging a few at the expense of statewide interests.